Former AI Startup CEO Faces Prison for Fraud: The Fall of SKAEL and Baba Nadimpalli

Aussie AI startup boss accused of financial fakery

Crikey! $40M of investments in 'digital employees' allegedly went down faster than a frosty Fosters The former CEO of an AI startup that promised to replace humans with "digital employees" has been accused by the US Department of Justice and Securities and Exchange Commission of raising $40 million from investors, including venture capitalists, after showing them deliberately falsified financial records. Australian Baba Nadimpalli, 41, is the co-founder and former CEO of Skael - a business process automation outfit established in 2016 that promised to use AI to replace staff for simple tasks. He allegedly faked info about the business's revenue to impress investors - then used their cash to pay his personal debts. According to a January indictment [PDF] unsealed on Tuesday by the DoJ, Skael claimed that its software could create bots that could save a customer 2.5 hours a day per employee and $100,000 per year by taking over mundane workloads, keeping both staff and customers happier. The indictment states that Skael charged an implementation fee to create a digital human, and subscription fees for ongoing use. But Skael allegedly told would-be investors it had subscribers - but they weren't paying. According to American authorities, in January 2020 Nadimpalli misstated the startup's annual recurring revenue (ARR) and falsified bank statements. Those representations allegedly brought in $3 million of funding, followed by another $7.85 million over the next year. Then in 2022, Skael started a Series A funding round that garnered around $30 million from credulous investors, leading to a valuation of $230 million. Nadimpalli is accused of deceiving investors as well as his own financial director, who was hired in June 2021. It's claimed he passed falsified banking documents to the new hire and prepared a slide deck that contained false claims that numerous companies were paying customers of Skael. To support the Series A funding round, prosecutors allege that Nadimpalli created "an electronic data room" of corporate data, claiming millions in annual recurring revenue (ARR) that didn't exist. By the end of 2021, the site is said to have falsely claimed Skael's ARR was around $7 million - including overstating the spending of one client by a factor of ten and making others up entirely - and stating that customer churn was zero. Some incoming investor cash flowed into Nadimpalli's pockets, it's alleged. The indictment claims he used corporate funds to make mortgage and property tax payments on his San Francisco home, pay off his and his wife's personal credit cards, and cover the cost of car payments and home renovations. In total, he is accused of lifting over $500,000 from the business. By 2022, it appears that the game was up, according to an SEC indictment [PDF]. In July of that year, we're told Nadimpalli admitted to investors that ARR wasn't $7 million and the board launched an investigation. Before that probe ended, Nadimpalli and the directors agreed to wind down the business and he returned home to Australia. Skael's domain is currently up for sale, and it looks unlikely that investors will ever see their money again. Nadimpalli is charged with three counts of securities fraud and seven counts of wire fraud. If convicted, he's facing at least 40 years in prison and fines of over $5 million - though the maximum sentence is unlikely for this kind of white-collar crime. ®

Former AI startup CEO faked revenue and faces decades in prison

Former San Francisco AI startup CEO Baba Nadimpalli is dealing with serious fraud charges after allegedly misleading investors about the company's financial health. The unsealing of a federal indictment earlier this week reveals that Nadimpalli, an Australian citizen, was charged with three securities fraud counts and seven wire fraud. From 2020 to 2022, Nadimpalli supposedly raised more than $40 million in financing spread over three rounds by misleading investors about Skael's revenue and customer data. The U.S. Attorney's Office noted that Nadimpalli reported that Skael earned millions in annual recurring revenue and had multiple prestigious clients. However, the revenue was considerably less, and some claimed clients did not exist. In February 2022, during the Series A preferred stock offering that valued Skael at about $230 million, Nadimpalli supposedly built an electronic data room packed with falsified documentation to draw in potential investors. These papers featured misleading information concerning the company's financial condition, customer payments, and profit and loss statements. In its lawsuit against Nadimpalli, the Securities and Exchange Commission (SEC) accused him of breaking federal securities laws by lying to investors and using money for mortgage payments and home improvements. If found guilty of securities fraud, Nadimpalli's sentence is a maximum of 20 years in prison and $5 million in fines, with an extra 20 years and a $250,000 fine for wire fraud. The Northern District of California's Corporate and Securities Fraud Section manages the case prosecution.