AI investors defrauded out of $500K by startup founder

Updated on: 16 August 2023

Ernestas Naprys
Senior Journalist

AI investments on the rise — Image by Shutterstock.

Michael Brackett, founder and CEO of AI company Centricity Inc., allegedly misled investors about the company’s financial condition to persuade them to invest $500,000. He has been indicted on charges of securities fraud and wire fraud.

The artificial intelligence startup Centricity, based in New York City, was founded by Bracket in 2019, according to an indictment unsealed in Manhattan federal court.

Centricity sought to give better insight into consumers’ preferences for retailers, especially grocery stores. According to public statements, Centricity used AI algorithms to analyze 2.5 billion data points’ worth of internet traffic daily to predict product demand so that retailers could stock their shelves accordingly.

Now, the company's former boss is charged with lying to investors about the financial condition of Centricity.

Brackett, 36, a US citizen residing in Switzerland, persuaded a Venture Capital firm to invest $500,000 in his company by sending a falsified customer list that included grossly inflated revenue numbers. The document alleges that Brackett resigned from Centricity days later, which ceased operations soon after.

Brackett was arrested on the 15th of August in the District of Maine.

“Although the industry is cutting edge, the crime was strictly analog: as alleged, Brackett fabricated documents and revenue numbers to persuade victims to invest in his start-up company. As in any other industry, investors in AI deserve transparency and fair dealing when considering if and where to invest in new technologies,” U.S. Attorney Damian Williams said in a press release.

It further clarified that Brackett repeatedly misrepresented the company’s financial condition. In spring 2021, he provided potential short-term lenders with a bank statement that Brackett had manipulated to show that Centricity held more funds in its account than it truly possessed.

“Although the actual ending balance in Centricity's account for January 2021 was $94,420.06, Brackett altered the bank document so that Centricity's ending balance falsely appeared to be $594,420.06,” the indictment states.

Later, in June 2021, Brackett sent a spreadsheet to a potential investor in which the majority of the 13 listed companies were not actually Centricity’s customers, and the revenue was declared to be over $3 million – far higher than the actual number.

“Only two of the 13 "customers" in the Customer Spreadsheet had ever paid any money to Centricity, and the funds they paid were nominal amounts to test Centricity's product – far less than the hundreds of thousands of dollars represented in the Customer Spreadsheet.”

The investor directed an associate to wire $500,000 to Centricity, relying on Brackett’s misrepresentations. However, he learned the truth about the financial condition within days and unsuccessfully attempted to reverse the wire.

If convicted, Brackett faces a maximum sentence of 20 years in prison on each count of securities fraud and wire fraud. The charges in the indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.