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Justice News

Department of Justice
U.S. Attorney’s Office
Northern District of California

FOR IMMEDIATE RELEASE
Monday, July 20, 2020

Santa Clara Man Charged With Running Bogus Artificial Intelligence Investment Fraud Scheme

Defendant Allegedly Obtained Over $17 Million in Venture Capital For AI Video Comprehension Technology By Making False And Misleading Statements

SAN FRANCISCO – A criminal complaint was unsealed today in federal court alleging that Shaukat Shamim fraudulently obtained millions of dollars in venture capital funding for an artificial intelligence company by making false and misleading statements about the company’s technology and its revenue, announced United States Attorney David L. Anderson and Federal Bureau Investigation Special Agent in Charge John L. Bennett.  Shamim is charged in the complaint with one count of securities fraud and one count of wire fraud.

“Silicon Valley is a global leader when it comes to ingenuity and entrepreneurship.  Fraud is neither ingenuity nor entrepreneurship.  We are committed to protecting the Valley’s innovation leaders from fraudulent investment schemes,” said U.S. Attorney David L. Anderson.   

“The FBI will not allow deceit, corporate greed, and federal criminal activity to run rampant in Silicon Valley," said FBI Special Agent in Charge John F. Bennett.  "This scheme allegedly falsified revenue and faked clients to swindle investors of over $17 million."

According to the complaint, beginning in 2013, Shamim, 49, of Santa Clara, is alleged to have raised over $17 million in funds for his startup company, Youplus.  To woo investors, Shamim lied about the number of clients who had purchased Youplus’ software, and about Youplus’ revenue.  In particular, Shamim is alleged to have provided investors with a fake bank statement in August of 2019 showing that Youplus had over $600,000 in revenue from 35 different client companies, including Coca-Cola, Kraft, and Netflix, when the true bank statement showed only one client, providing $65,000 in revenue.  The complaint also alleges that Shamim used investor funds on personal expenses, including purchases at luxury clothing, eyewear, and duty-free stores.

Shamim also allegedly claimed that Youplus had developed proprietary artificial intelligence software that could interpret video reviews posted by customers of particular products, enabling the companies behind those products to analyze how their brands were trending online.  Shamim allegedly pitched Youplus’s software as the “world’s first Video Opinion Search engine,” telling investors that “similar to how Google is indexing the textual web by looking inside and indexing keywords, Youplus is using computer vision, audio, and text analysis to look inside videos” to understand market trends.  According to the complaint, though, Youplus had not developed AI that could perform these functions.  Instead, a review of the software and the company suggested that Youplus was paying workers through its corporate offices in India to watch videos and record their impressions.  In other words, the market analysis Youplus was producing was the result of human intelligence, rather than AI software.

Shamim was served with a summons today in Santa Clara, ordering him to appear in federal court on Tuesday, July 21, 2020, in San Francisco.    

A complaint merely alleges that crimes have been committed, and Shamim is presumed innocent until proven guilty beyond a reasonable doubt.  If convicted of wire fraud under 18 U.S.C. § 1343 (wire fraud), Shamim faces a maximum sentence of 20 years’ imprisonment, a fine of $250,000, and restitution if appropriate.  If convicted of securities fraud under 15 U.S.C. § 78j(b) and 78ff, and 17 C.F.R. § 240.10b-5, Shamim faces a maximum sentence of 20 years’ imprisonment, a fine of $5,000,000, and restitution if appropriate.  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. 

The case is being prosecuted by the Corporate Fraud Strike Force of the U.S. Attorney’s Office.  The prosecution is the result of an investigation by the Federal Bureau of Investigation.  The United States Attorney’s Office and the Federal Bureau of Investigation also thank the San Francisco Regional Office of the Securities and Exchange Commission, which conducted a parallel investigation that was also announced today.

Topic(s): 
Financial Fraud
Updated July 21, 2020