11/23/2020 | Press release | Distributed by Public on 11/23/2020 15:03
SAN FRANCISCO - Andrew Chapin has been charged in a criminal complaint with multiple counts of fraud in connection with a multi-million-dollar scheme to amass funds for a digital advertising company based on false information, announced U.S. Attorney David L. Anderson and Federal Bureau of Investigation Special Agent in Charge Craig Fair.
Chapin, 32, of San Francisco, was the co-founder and Chief Executive Officer of Benja, a digital advertising company. Benja created 'shoppable media', placing digital ads on websites that allowed a shopper to purchase products in the ad itself without being redirected to another website. Benja claimed to help well-known companies sell overstock inventory through these ad placements. According to the criminal complaint unsealed today, since July of 2019, Chapin engaged in a number of ploys to lure potential investors to provide over a million dollars worth of capital to Benja on the basis of false information and to obtain fraudulent bank loans. Chapin portrayed Benja as a successful company to investors and creditors, claiming Benja generated $6.2 million in revenue in 2018 and $13.2 million in revenue in 2019. The complaint charges Chapin with bank fraud, wire fraud, and securities fraud.
'We cannot allow tech financing to become a lemon's market,' said U.S. Attorney Anderson. 'Silicon Valley needs capital, and investors need facts not fiction. We will prosecute lies, omissions and frauds. Investors must have confidence in the truthfulness of startup representations.'
'This morning, the FBI arrested Mr. Chapin for allegedly running an elaborate, multimillion-dollar scheme to mislead investors and creditors,' said Special Agent in Charge Fair. 'FBI San Francisco, along with our partners at the SEC and the U.S. Attorney's Office, actively investigates these types of financial crimes to ensure that corporate fraud is uncovered, disrupted, and punished under the federal legal system.'
With respect to the bank fraud charge, the complaint alleges Chapin made false statements to a bank to secure a line of credit that grew from $1 million to $5 million. The line of credit was primarily secured by Benja's account receivables. The account receivables and financial statements Chapin provided to the bank were misstated and false and a majority of the purported revenue was fabricated. Bank records from 2018 to 2020 indicate that Benja was generating almost no revenue from its purported ad placement business and almost all the customers Chapin claimed Benja had were lies. For example, Chapin falsely claimed to have revenue from Nike, Patagonia, and other well-known companies when, in truth, Benja had no relationship with those companies. Chapin used almost the full $5 million line of credit to pay off other creditors and investors, to pay Chapin's credit cards and personal expenses, and to send funds to a personal crypto-currency exchange account.
With respect to wire fraud, the complaint alleges Chapin used an elaborate ruse to convince a venture capital firm in New York to provide Benja $1 million in funding. Chapin presented the same false account receivables and financial statements to the venture capital firm, and fabricated millions in revenue/account receivables from well-known companies with which Benja never did business. Chapin also had individuals pose as employees from the well-known companies in order to provide false references about Benja to investors.
With respect to securities fraud, the complaint describes how in December of 2018, Chapin allegedly convinced an investor to purchase $100,000 worth of securities in Benja by representing, among other things, that a venture capitalist would soon be making a $1.5 million investment in the company. When the investor asked to communicate with the venture capitalist directly, Chapin allegedly created a bogus email address and provided it to the investor. The investor emailed who he believed was the venture capitalist a series of questions about the shareholder's agreement and the phony email account responded to the questions. After receiving satisfactory answers, the investor purchased the securities.
In sum, Chapin is charged with bank fraud, in violation of 18 U.S.C. § 1344; wire fraud, in violation of 18 U.S.C. § 1343; and securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. § 240.10b-5.
A complaint merely alleges that crimes have been committed, and Chapin is presumed innocent until proven guilty beyond a reasonable doubt. If convicted of bank fraud under 18 U.S.C. § 1344, Chapin faces a maximum sentence of 30 years' imprisonment, a fine of $1,000,000, and restitution, if appropriate. If convicted of wire fraud under 18 U.S.C. § 1343, Chapin 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, Chapin 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.
Chapin is scheduled to make his initial federal court appearance on November 24, 2020, before U.S. Magistrate Judge Jacqueline S. Corley.
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.