The co-founder of NS8, a cyber-fraud prevention company, was sentenced to five years in prison and ordered to forfeit $17.5 million for defrauding investors of more than $100 million, the Department of Justice (DOJ) announced Thursday.
Adam Rogas, who formerly served as chief executive officer and chief financial officer at NS8, pleaded guilty in March in U.S. District Court for the Southern District of New York for fabricating customers, revenue, and assets for the fraud detection software company. The misstatements allowed him to defraud investors with the help of co-founder and Chief Information Officer David Hansen, according to the DOJ.
Rogas controlled a company bank account into which NS8 customer revenue was deposited. He provided monthly statements from the account to the finance department so it could create NS8’s official financial statements. He also controlled spreadsheets intended to track customers and revenue.
In fall 2019 and spring 2020, NS8 embarked on fundraising. In preparation, Rogas used his control over financial documents to alter bank statements and inflate NS8 revenue numbers to the tune of tens of millions of dollars. He then provided the altered statements to the finance department.
At that time, Rogas also “falsified nearly all of NS8’s purported customers on internal tracking spreadsheets,” the DOJ said.
NS8 issued Series A preferred shares during those months based on the altered, misleading statements that inflated revenue by $40 million and obtained about $123 million from investors, per the DOJ.
From January 2019 through February 2020, anywhere between 40 percent and 95 percent of the assets listed on NS8’s balance sheets were “fictitious,” the DOJ alleged.
When NS8 concluded its fundraising and conducted a tender offer, the DOJ said Rogas received $17.5 million personally and through another company he controlled. He then bought luxury goods and a house in the Dominican Republic with some of the money, according to the DOJ.
Rogas provided the falsified statements to auditors who were working on behalf of investors.
In October 2020, NS8 changed its name to Cyber Litigation and filed for bankruptcy. That case is still proceeding through Delaware bankruptcy court.
The new company was ordered by a judge in March to pay $38 million in restitution to investors, according to Bloomberg Law.
During sentencing, U.S. District Judge John Cronan referred to the fraud perpetrated by Rogas as “brazen, calculated, and long-running.”
“Adam Rogas took the ‘fake-it-till-you-make-it’ saying to a criminal extreme,” U.S. Attorney Damian Williams said. “While claiming to be in the fraud prevention business, Rogas himself faked nearly all of his company’s customers, revenue, and assets.”
Hansen previously agreed to pay $97,523 to settle allegations levied by the Securities and Exchange Commission (SEC) that in 2018 and 2019 he tried to stop a whistleblower from alerting the regulator to the fraud. Rogas eventually fired the whistleblower. The whistleblower did successfully tip off the SEC in July 2019.
Cyber Litigation could not be reached to comment.