Founder And Former CEO Of Artificial Intelligence Start-Up SKAEL Charged With Securities Fraud And Wire Fraud

Press Release

Defendant Allegedly Raised Over $40 Million While Misrepresenting Financial and Sales Information

SAN FRANCISCO - A federal grand jury indicted Baba Nadimpalli, the founder and former Chief Executive Officer of SKAEL, Inc. (SKAEL), with securities and wire fraud for defrauding investors and misleading them about the company's revenue, annual recurring revenue (ARR), and other financial and sales information.

According to an indictment filed Jan. 17, 2024 and unsealed Sept. 23, 2024, Nadimpalli, 41, a citizen of Australia who resided in San Francisco, Calif., founded SKAEL in 2016 and served as its Chief Executive Officer from 2016 until July 2022. SKAEL was a San Francisco-based, software-as-a-service ("Saas") company that claimed to provide its corporate clients with artificial intelligence and automation software to assist customers with mundane, time-intensive tasks by building "Digital Employees," which SKAEL claimed could connect databases, synthesize large amounts of information, provide information and insights, and perform tasks. SKAEL earned revenue by charging implementation fees for the building of Digital Employees and subscription fees for the use of the Digital Employees once they were built.

The indictment alleges that from January 2020 until about February 2022, SKAEL raised over $40 million in three rounds of financing. To induce prospective and existing investors to invest, Nadimpalli allegedly made false claims regarding SKAEL's revenue and ARR (a measure of total revenue expected per year from committed customers with signed contracts, an important metric for investors), as well as customer and sales information. For example, in or around 2021, Nadimpalli allegedly provided materially false information to investors in advance of their investments in SKAEL, including representing that SKAEL was receiving ARR from certain companies that did not subscribe to SKAEL's software and services; overstating ARR from certain customers who were SKAEL customers; and representing that customers who had terminated their SKAEL subscriptions were current customers with ARR.

The indictment further alleges that in or around February 2022, SKAEL raised approximately $30 million in a Series A preferred stock offering which valued SKAEL at approximately $230 million after closing. In connection with the stock offering, Nadimpalli allegedly directed the creation of an electronic data room for potential investors that contained (1) a spreadsheet that Nadimpalli maintained that contained materially false information about the company's ARR and customers; (2) a materially false profit and loss statement; (3) a financial metrics spreadsheet that contained materially false subscription revenue and ARR amounts; and (4) an investor presentation that contained materially false information about the company's ARR, revenue, and customer adoption.

As described in the indictment, in furtherance of the scheme, Nadimpalli provided an investor and a financial employee false bank account information that included purported customer payments that had not actually been deposited.

Nadimpalli is charged with three counts of securities fraud and seven counts of wire fraud. If convicted of securities fraud, he faces a maximum sentence of 20 years in prison and a fine of $5,000,000. If convicted of wire fraud, he faces a maximum sentence of 20 years in prison and a fine of $250,000. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

An indictment merely alleges that crimes have been committed and the defendant is presumed innocent unless and until proven guilty.

The announcement was made by U.S. Attorney Ismail J. Ramsey and Federal Bureau of Investigation (FBI) Special Agent in Charge Robert K. Tripp.

The case is being handled by the Corporate and Securities Fraud Section of the U.S. Attorney's Office for the Northern District of California. Assistant U.S. Attorneys Noah Stern and Ilham Hosseini are prosecuting the case with the assistance of Mark DiCenzo. The prosecution is the result of an investigation by the FBI. The U.S. Attorney's Office and the FBI thank the San Francisco Regional Office of the Securities and Exchange Commission, which announced today a parallel civil enforcement action against Nadimpalli in the Northern District of California.

Updated September 24, 2024