The SEC has sued Netcapital Inc. and five affiliated individuals over an alleged scheme that improperly recognized nearly $14 million in consulting revenue and overstated the public company's revenue by approximately 345%. The Commission says the disputed revenue came from purported consulting agreements involving startups and other small companies, including agreements that were allegedly fictitious or forged. The inflated figures were then allegedly carried into SEC filings and securities offering materials while Netcapital raised more than $25 million from investors. :chatgpt-content-reference{index="0"}
U.S. Securities and Exchange Commission (SEC)
Official Release: https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26607
NEWS:
The SEC filed its complaint in federal court in Massachusetts against Netcapital Inc., John Fanning, Coreen Kraysler, Martin Kay, Paul Riss and Cecilia Lenk. According to the Commission, from approximately October 2021 through January 2024 Netcapital recognized nearly $14 million in revenue from consulting agreements that the SEC alleges were shams. Some of the agreements were allegedly forged, and the supposed customers were connected to entities controlled by Fanning. The SEC says the accounting treatment inflated Netcapital's reported revenue by roughly 345%, with the overstated figures appearing in periodic filings and securities offering materials. :chatgpt-content-reference{index="1"}
The case is especially significant because Netcapital operated in the crowdfunding ecosystem. The SEC alleges that a Netcapital subsidiary purported to provide consulting services to startups and other small companies seeking to raise money through Regulation Crowdfunding. According to the complaint, however, the agreements underlying much of the recognized revenue did not reflect genuine revenue-producing transactions. That makes the dispute more than a conventional accounting restatement issue: it connects the reliability of a public company's own financial reporting with a business model built around helping other issuers access retail capital. :chatgpt-content-reference{index="2"}
The allegations have also produced consequences beyond the original lawsuit. Netcapital later disclosed that its independent registered public accounting firm, Fruci & Associates II, PLLC, resigned after reviewing the SEC litigation release and complaint. The company stated that investors should no longer rely on specified previously issued financial statements and related audit reports or interim reviews. Netcapital also emphasized that the SEC's allegations have not been adjudicated and said it was evaluating their accounting and disclosure effects. :chatgpt-content-reference{index="3"}
KEY POINTS:
- The SEC filed the action against Netcapital Inc. and five affiliated individuals in August 2026. :chatgpt-content-reference{index="4"}
- The complaint alleges nearly $14 million in improperly recognized consulting revenue between approximately October 2021 and January 2024. :chatgpt-content-reference{index="5"}
- The SEC says the alleged scheme caused Netcapital's revenue to be overstated by approximately 345%. :chatgpt-content-reference{index="6"}
- The inflated revenue allegedly appeared in SEC filings and securities offering materials while Netcapital raised more than $25 million from investors. :chatgpt-content-reference{index="7"}
- Some consulting agreements were allegedly fictitious or forged and involved companies connected to John Fanning. :chatgpt-content-reference{index="8"}
- Netcapital later disclosed that its auditor resigned and that investors should no longer rely on certain previously issued financial statements and related reports. :chatgpt-content-reference{index="9"}