Paul Roberts, the founder, former Chief Executive Officer, and former Chairman of the Board of Directors of Kubient, Inc., a publicly traded digital advertising technology company, has been sentenced to one year and one day in prison.
Roberts previously pled guilty to securities fraud for his execution of a scheme to defraud investors and auditors of Kubient, during which he caused Kubient to improperly recognize more than $1.3 million in fraudulent revenue in financial statements at the time of Kubient’s initial public offering and made material misrepresentations about the efficacy of Kubient’s proprietary fraud detection tool, Kubient Artificial Intelligence. Roberts’ sentence was imposed by U.S. District Judge Jennifer L. Rochon.
According to information in court filings, from October 2019 through March 2021, Roberts knowingly caused Kubient to improperly recognize more than $1.3 million in fraudulent revenue in Kubient’s financial statements, which was over 94% of Kubient’s reported revenue for 2020 at the time of its initial public offering in August 2020.
With his scheme, Roberts misled Kubient’s auditors and deceived the investing public about Kubient’s financial condition.
At the core of Roberts accounting fraud scheme was a fraudulent $1.3 million transaction that Roberts arranged between Kubient and another digital advertising technology company.
Kubient and Company-1 agreed to provide certain services to the other for nearly identical fees.
For its part, Kubient agreed to use its proprietary fraud detection tool, KAI, to scan data provided by Company-1 and an affiliate for instances of digital ad fraud and then deliver the results of KAI’s findings to Company-1 and its affiliate.
Neither Kubient nor Company-1, however, provided the agreed-upon services, yet they still paid each other $1.3 million, which Kubient improperly recognized as revenue.
To conceal his fraudulent scheme, Roberts directed Kubient employees to generate fake KAI reports based on made-up metrics and no underlying data at all.
Roberts used the fake reports to mislead Kubient’s independent certified public accountants into believing that Kubient had performed its contractual obligations when, in fact, Kubient had not, so that Kubient could recognize the associated revenue in its financial statements.
Roberts repeatedly made material misrepresentations in U.S. Securities and Exchange Commission filings and in management representation letters submitted to the Audit Firm relating to Kubient’s KAI revenue recognition.
Roberts also repeatedly made material misrepresentations in SEC filings about the efficacy of KAI in identifying and preventing digital ad fraud, including in connection with Kubient’s initial and secondary public offerings when Kubient was touting KAI as one of the company’s premier products that would differentiate it from its competitors.
Fuelled by the misrepresentations about Kubient’s KAI revenue recognition and the efficacy of KAI in identifying and preventing digital ad fraud that Roberts made in Kubient’s SEC filings and elsewhere, Kubient raised more than $12.5 million in its IPO in August 2020, resulting in its shares being publicly traded on the Nasdaq stock exchange, and more than $20 million in its secondary public offering in December 2020.
Now, Kubient is in Chapter 7 bankruptcy proceedings.
In addition to the prison term, Roberts, 48, of Melville, New York, was sentenced to one year of supervised release.
