Kingscrowd, a provider of data and analysis of online securities offerings, has commented on the Securities and Exchange Commission’s allegations of fraud against Netcapital (NASDAQ:NCPL), a company that operates a FINRA-regulated Funding Portal.
Kingscrowd notes that only three of the eleven securities offerings mentioned in the SEC complaint actually closed a funding round. The eleven issuers mentioned included: AceHedge, CountSharp, CupCrew, Cust Corp., Dark, Fantize, HeadFarm, NetWire, RealWorld.net, Reper, and StockText. The offerings were below the threshold that required an audited review, which was probably intentional.
The three issuers that succeeded were Cust Corp at $35,672; Dark at $21,965, and Reper at $21,103. Fairly minor funding rounds that totaled just $78,740. So the other offerings mentioned all failed.
The SEC claims that from about October 2021 through January 2024, Netcapital reported nearly $14 million of fake consulting revenue. These agreements allegedly inflated reported revenue by about 345%. Over about 2.5 years the company recognized about $13.9 million from these consulting agreements or roughly 77% of its $17.95 million in reported revenue.
Allegedly, Netcapital leveraged the inflated revenue to raise more than $25.6 million from public and private offerings.
Kingscrowd flagged some of these offerings as potentially fraudulent and contacted Netcapital to express its concern. The company says one of its analysts who reached out to Netcapital was quoted in the SEC complaint regarding the HeadFarm securities offering, which the complaint highlights. This individual recognized someone listed as a “Manager” for the HeadFarm offering who clarified, when contacted, that she had never been affiliated with the company.
Kingscrowd says retail investors invested about $80,000 across all 11 securities offerings, so the loss was low.
A representative of Kingscrowd notes that while some worry unsophisticated investors will get fleeced by bogus or subpar offerings, in this case they see a situation where the “crowd” did better and largely avoided the Netcapital-listed offerings. The company says that transparency and exposure to many potential investors create their “own layer of security.
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