Last week, the Securities and Exchange Commission (SEC) revealed an enforcement action against Netcapital (NASDAQ:NCPL). The allegations included the actions of several employees and related individuals that may have created phantom revenue for the company. The complaint alleges that the defendants pursued a fraudulent scheme to overstate Netcapital’s revenue while raising more than $25 million from investors.
From around October 2021 through January 2024, Netcapital was said to have improperly recognized almost $14 million in revenue from fake consulting agreements, some of which were forged, which amounted to Netcapital overstating its revenue by approximately 345%.
The complaint named John Fanning, an advisory board member; Coreen Kraysler, Fanning’s wife and Netcapital’s CFO; Martin Kay, a former board member and former CEO of Netcapital; Paul Riss, a CPA who allegedly had responsibilities related to revenue recognition and the preparation of Netcapital’s financial statements; and Cecilia Lenk, who preceded Kay as Netcapital’s Chief Executive Officer. It did not name the current CEO.
In a press release following the fraud allegations, Netcapital CEO Todd Violette, who stepped into the role in April 2026, said he joined the company after it received a Wells Notice, a formal document indicating the SEC may pursue an enforcement action. Violette said the claims had yet to be adjudicated, and he will be working with the board and legal representatives to review the complaint and then update its shareholders.
He stated:
“Throughout this process, Netcapital remains focused on serving its customers and operating its business. Our employees continue to deliver a high-quality experience to our customers, and I have confidence in our team’s commitment to building a different company.
The filing of the complaint does not change our responsibility to operate the business, evaluate strategic opportunities, pursue appropriate transactions, and make decisions we believe are in the best interests of the Company and its shareholders.”
Violette noted that individuals targeted by the complaint may choose to comment on the claims separately.
Netcapital is a micro cap, and its shares have declined following the SEC action. As of today, the company has a market cap of around $1.18 million.
In previous reports, Netcapital said it was looking to address its shortfall in Nasdaq listing requirements. The company had also messaged that it was pivoting to provide additional capital formation services beyond securities offerings listed on its marketplace.