FORGED DEALS! SEC CATCHES FIRM FAKING $14 MILLION REVENUE!

SEC v. John Fanning; Coreen Kraysler; Paul Riss; Martin Kay; Cecilia Lenk; Netcapital Inc. — U.S. Securities and Exchange Commission Litigation Release No. 26607, dated August 11, 2026.

The SEC charged Netcapital Inc. and five individuals with overstating revenue by nearly $14 million through sham consulting agreements. These agreements, some forged, were used to inflate the company's reported revenue by 345% and mislead investors who contributed over $25 million.

In Plain English

Imagine a company that pretends to earn money by making up fake consulting deals with other companies it controls. They even forged some of these fake deals! This made their income look much higher than it really was, helping them raise over $25 million from investors who didn't know the truth.

Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.

How the Alleged Scheme Worked

1. Creating Sham Consulting Agreements Netcapital Advisors, a subsidiary, entered into sham consulting agreements with at least eleven startup companies controlled by defendant John Fanning. These agreements were backdated and required the startups to pay Netcapital Advisors between $1 million and $2 million, often in the form of company stock, for services.
2. Fabricating Revenue Recognition Despite the fictitious nature of these agreements and the startups' inability to pay cash, Netcapital Advisors recognized nearly $14 million in revenue from them. This revenue recognition was improper as the consulting services were not genuinely provided or valued at these amounts, unlike typical cash-based fees averaging $50,000.
3. Inflating Financial Statements The $14 million in fabricated revenue caused Netcapital to overstate its revenue by approximately 345% during the period of October 2021 through January 2024. This inflated revenue was then included in the company's public SEC filings.
4. Misleading Investors Netcapital incorporated the inflated revenue figures into its securities offering materials. As a result, investors were misled into contributing over $25.6 million in funds to the company, believing it was financially sounder than it was.
5. Alleged Forgery The complaint specifically alleges that some of the consulting agreements used to generate this fraudulent revenue were forged, adding a layer of criminal intent and blatant deception to the scheme.

The Enforcement Action

SEC charges Netcapital Inc. and five individuals for allegedly overstating revenue by nearly $14 million through sham consulting agreements, some of which were forged. The inflated revenue, representing 345% of actual revenue, was used in public filings and offering materials, misleading investors who contributed over $25 million. The SEC seeks permanent injunctions, disgorgement, prejudgment interest, officer-and-director bars, and civil monetary penalties. Defendant Cecilia Lenk consented to a judgment including permanent injunctions, a conduct-based injunction, and a $50,000 civil monetary penalty, without admitting or denying the allegations.

Named in this action: Netcapital Inc., John Fanning, Coreen Kraysler, Martin Kay, Paul Riss, Cecilia Lenk.

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