SEC Charges Benja and Andrew J. Chapin With Defrauding Investors
Today, the Securities and Exchange Commission (the “SEC”) charged a San Francisco-based e-commerce startup and its chief executive officer with misleading investors about purported contracts with well-known consumer brands.
According to the SEC’s complaint, from 2018 and 2020, Benja Incorporated (“Benja”) and its Chief Executive Officer, Defendant Andrew J. Chapin, raised millions of dollars from investors, and banks, by making false representations about Benja’s business.
The SEC alleges that Chaplin told investors that Benja was a successful online advertising platform that generated millions of dollars in revenue from popular consumer clothing brands and retailers. In reality, the complaint alleges that Benja never did business with the companies.
The complaint further alleges that in order to secure investments from venture capital investors, Chapin maintained the illusion of Benja’s commercial success through a scheme that included using falsified documents in the offering of securities, forging contracts with purported customers, doctoring bank statements, and impersonating customers in calls with at least one investor.
According to the complaint, in or around June 2018, Chapin provided to a San Francisco venture capital investor a slide deck, which represented that Nike, Patagonia, and Backcountry.com were all Benja customers of Benja’s “merchandise ad network,” which purportedly sold advertisement impressions across web, mobile, and social channels. The slide deck, which described Benja as a “group of scrappy hustlers,” further claimed that up to that point in 2018, Nike had spent $275,000 with Benja, Patagonia had spent $161,500 with Benja, and Backcountry.com had spent $170,000 with Benja.
Soon afterward, Chapin told the San Francisco venture capital investor that another institutional investor had decided to make a $1 million investment in Benja.
The San Francisco venture capital investor requested to speak with someone from the Saint Louis venture capital firm about their expected investment in Benja. Accordingly, in or around October 23, 2018, Chapin arranged a call between the San Francisco venture capital investor and an individual whom Chapin introduced by name and who was supposedly the founder and general partner of the Saint Louis venture capital firm. After this call, on or about October 26, 2018, the San Francisco venture capital investor purchased 1,278 shares of Benja common stock for $100,000.
On or about December 14, 2018, an acquaintance of the San Francisco venture capital investor also purchased 1,278 shares of Benja common stock for $100,000.
The complaint further alleges that in or around March 2020, Chapin contacted another venture capital firm located in New York, which funds startup companies that have recurring revenues.
Chapin allegedly provided the New York venture capital firm with:
- Multiple documents that purported to show revenue that Benja received from well-known retail brands, including Fanatics, Nike, Patagonia, Zappos, and other companies. According to the documents, Benja was then generating approximately $2 million per month from these and other purported Benja customers. In reality, the revenue reflected in the documents from Fanatics, Nike, Patagonia, Zappos, and others was falsified.
- Forged agreements between Benja and these companies purporting to show that the companies agreed to purchase advertising space on Benja’s commerce network, which purportedly included mobile applications, online publishers, web advertisements, and social media networks.
- Benja’s bank statements, which had been doctored to falsely show payments from these companies.
Chapin allegedly also invited the principal of the New York venture capital firm to participate in two phone calls, one purportedly with a representative of Nike, and the other purportedly with a representative of Fanatics. Chapin introduced the principal to the two purported representatives by name. However, in reality, neither Nike nor Fanatics (nor any persons employed by them) participated in the calls; instead, Chapin arranged for an associate of his to impersonate the representatives of the companies.
According to the complaint, on the basis of these fraudulent statements and deceptions, the New York venture capital firm entered into an investment agreement with Benja, and it advanced $1 million to Benja on or about June 4, 2020.
Contrary to the representations Chapin made to the principal of the New York firm about the uses of the proceeds, rather than using the money to develop Benja’s technology or purchase advertising, Benja immediately used the money to pay back, in part, a particular Benja creditor.
The creditor who was partially repaid in or around June 2020 with the proceeds from the investment by the New York venture capital firm was a financing company from whom Benja had obtained approximately $4.5 million in or around April 2020 and May 2020. To obtain the financing, Chapin allegedly sent the financing company fake invoices that falsely represented that Benja had outstanding receivables, incurred between February 2020 and May 2020, from companies with well-known brands, including Patagonia, Nike, Fanatics, and Backcountry.com. In reality, those receivables did not exist. By July 2020, the financing company learned that the purported receivables did not exist and demanded repayment from Benja.
After Benja received the $4.5 million from the financing company, Chapin allegedly wired the money out of Benja’s account and sent a portion of it to Chapin’s own bank account and to pay off credit card expenses.
The SEC’s complaint, filed in the U.S. District Court for the Northern District of California, charges Benja and Chapin with violating the antifraud provisions of the federal securities laws and seeks permanent injunctions, civil penalties, disgorgement with prejudgment interest, and an officer-and-director bar against Chapin.
In a parallel action, the U.S. Attorney’s Office for the Northern District of California today announced criminal charges against Chapin.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855