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`Case 5:20-cv-04855 Document 1 Filed 07/20/20 Page 1 of 11
`
`ERIN E. SCHNEIDER (Cal. Bar No. 216114)
`MONIQUE C. WINKLER (Cal. Bar No. 213031)
`BERNARD B. SMYTH (Cal. Bar No. 217741)
` SmythB@sec.gov
`JOHN HAN (Cal. Bar No. 208086)
` HanJo@sec.gov
`REBECCA LUBENS (Cal. Bar No. 240683)
` LubensR@sec.gov
`
`Attorneys for Plaintiff
`SECURITIES AND EXCHANGE COMMISSION
`44 Montgomery Street, Suite 2800
`San Francisco, CA 94104
`Telephone: (415) 705-2500
`Facsimile: (415) 705-2501
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN JOSE DIVISION
`
`SECURITIES AND EXCHANGE COMMISSION,
`
`
`
`Plaintiff,
`
`
`v.
`
`YOUPLUS, INC. and SHAUKAT SHAMIM,
`
`
`Defendants.
`
`
`Case No.
`
`
`COMPLAINT
`
`
`Plaintiff Securities and Exchange Commission (the “Commission”) alleges:
`SUMMARY OF THE ACTION
`Between 2018 and 2019, Shaukat Shamim and his company, YouPlus, Inc.
`1.
`(“YouPlus”), (collectively, “Defendants”) fraudulently raised approximately $11 million from
`investors by making false and misleading statements about the company’s financial results and
`future prospects.
`Shamim falsely told investors that YouPlus, a private technology start-up that
`2.
`purported to have developed a machine-learning tool to interpret and deliver customer insights
`
`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
`
`
`
`-1-
`
`
`
`

`

`Case 5:20-cv-04855 Document 1 Filed 07/20/20 Page 2 of 11
`
`
`from videos on the internet, had earned revenue of millions of dollars. Shamim also misled
`investors regarding the number of customers YouPlus had, and falsely told at least one investor
`that a prominent venture capital firm had committed to lead YouPlus’s Series A round of
`financing.
`Defendants’ scheme unraveled in late 2019. In October 2019, after providing
`3.
`certain investors with forged bank statements in an effort to conceal YouPlus’s deteriorating
`financial condition, Shamim confessed that, despite his prior repeated representations that
`YouPlus had generated millions of dollars in revenue, YouPlus had in fact earned less than
`$500,000 in revenue since its inception in 2013. Around the same time, Shamim also said that
`he “probably” had overstated revenue in order to get investors interested in the company.
`As the scheme unraveled, Defendants’ misrepresentations regarding the number
`4.
`of YouPlus customers and the purported interest of a prominent venture capital fund in leading
`YouPlus’s Series A round of financing also came to light. For example, despite telling investors
`that YouPlus had more than 150 customers, YouPlus had only approximately four paying
`customers throughout the company’s existence. And contrary to Defendants’ representation that
`a prominent Silicon Valley investor was interested in leading YouPlus’s Series A financing,
`YouPlus had not secured any funding for a Series A financing, let alone any commitments from
`prominent Silicon Valley investors.
`Defendants have violated, and unless restrained and enjoined will continue to
`5.
`violate, the antifraud provisions of Section 10(b) of the Securities and Exchange Act of 1934
`(“Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5] and
`Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77(q)(a)].
`JURISDICTION AND VENUE
`The Commission brings this action pursuant to Sections 20(b), 20(d), and 22(a)
`6.
`of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)] and
`Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 (“Exchange Act”)
`[15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
`
`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
`
`
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`Case 5:20-cv-04855 Document 1 Filed 07/20/20 Page 3 of 11
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`This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1)
`7.
`and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v(a)] and Sections 21(d),
`21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78aa].
`Defendants, directly or indirectly, made use of the means and instrumentalities of
`8.
`interstate commerce or of the mails in connection with the acts, transactions, practices, and
`courses of business alleged in this complaint.
`Venue is proper in this District pursuant to Section 22(a) of the Securities Act
`9.
`[15 U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)]. Acts,
`transactions, practices, and courses of business that form the basis for the violations alleged in
`this complaint occurred in this District. Defendants met with and solicited prospective investors
`in this District, and offers and sales of securities took place in this District.
`Under Civil Local Rule 3-2(d), this civil action should be assigned to the San
`10.
`Jose Division, because a substantial part of the events or omissions which give rise to the claims
`alleged herein occurred in Santa Clara County.
`DEFENDANTS
`Shaukat Shamim, age 48, resides in Santa Clara, California. He is the Chief
`11.
`Executive Officer (“CEO”) and founder of YouPlus.
`YouPlus, Inc. is a Delaware corporation with its principal place of business in
`12.
`Mountain View, California. YouPlus purports to have developed a machine-learning tool to
`interpret and deliver customer insights from videos on the internet for marketers, researchers, and
`brand managers.
`
`FACTUAL ALLEGATIONS
`Defendants Raise Approximately $11 Million In 2018 and 2019
`A.
`Shamim founded YouPlus in 2013. From November 2013 through October
`13.
`2019, YouPlus raised approximately $17.5 million in seed funding from approximately 50
`investors. Of that $17.5 million, approximately $11 million was raised in 2018 and 2019 from
`about 30 investors, a mixture of individuals and small funds or institutions.
`
`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
`
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`Defendants raised money for YouPlus primarily through the offer and sale of
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`convertible promissory notes issued by YouPlus. The notes generally had two-year terms, paid
`6% interest annually, and, if certain conditions were satisfied, entitled investors to convert the
`notes to YouPlus preferred stock.
`Defendants Solicit Investors Through False and Misleading Statements
`B.
`15. While raising funds in 2018 and 2019, Defendants made numerous false and
`misleading statements in both written and verbal communications to investors and prospective
`investors.
`
`1. Defendants Misrepresent YouPlus’s Financial Results and Expectations
`16. While raising funds from investors and pitching YouPlus to new investors in
`2018 and 2019, Defendants repeatedly misrepresented YouPlus’s financial results and future
`revenue expectations.
`For example, in or about June 2018, Shamim told certain investors that YouPlus
`17.
`expected revenue of $8 million in 2018 and over $40 million in 2019. In or about September
`2018, Shamim sent those investors a spreadsheet that purported to show actual revenue through
`June 2018 of over $1.5 million. The representations regarding prior revenue were false, and the
`projections were baseless.
`In or about September 2018, Shamim also sent email communications to certain
`18.
`investors, including one of the investors to whom Shamim had sent the spreadsheet the same
`month, representing that YouPlus earned revenue of over $1.1 million through June 2018 and
`that it projected revenue of $7.8 million for 2018. Again, the representations regarding prior
`revenue, which were not even consistent with the revenue representations contained in the
`spreadsheet Shamim had sent, were false, and the projections were baseless.
`Certain investors to whom Shamim communicated the false revenue numbers
`19.
`made investments based on those misrepresentations. In particular, a venture fund invested a
`total of nearly $2 million in YouPlus in 2018 and 2019, including a $600,000 investment in
`December 2018. Several members of the Investment Committee of that venture fund also
`
`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
`
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`personally invested hundreds of thousands of dollars in YouPlus in 2018 and 2019 based on
`Defendants’ misrepresentations regarding YouPlus’s purported revenue, including a $50,000
`investment by one member of the Investment Committee in December 2018.
`Defendants’ misrepresentations regarding YouPlus’s revenue continued in 2019.
`20.
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`In or about February 2019, Shamim met a different member of the Investment
`Committee of the venture fund that had invested $600,000 in December 2018. Shamim falsely
`told that Investment Committee member that YouPlus had $8 million in recurring annual
`revenue. Based on that representation, the venture fund made another $800,000 investment in
`YouPlus in March 2019.
`In or about April 2019, Shamim sent purported “financial statements” to a
`22.
`prospective investor, in which he misrepresented that YouPlus had earned revenue of $4.6
`million in 2018. That representation was false.
`In or about May 2019, Shamim sent two different “financial models” to investors
`23.
`that contained false revenue numbers. Shamim provided one of the members of the venture
`fund’s Investment Committee a “financial model” that falsely reflected 2019 actual revenue of
`more than $3.55 million through April. Shamim provided a different investor a “financial
`model” that falsely reflected 2019 actual revenue of approximately $3.97 million for the same
`time period.
`In or about June 2019, Shamim circulated a YouPlus “Investor and Shareholder
`24.
`Update” to all investors that touted YouPlus’s “amazing growth and market traction” and falsely
`represented 2019 actual revenue of $4.62 million through May with “projected revenue for 2019
`[of] $17.8 million.”
`At the time these representations were made, Defendants knew, or were reckless
`25.
`in not knowing, that YouPlus had earned only a small fraction of the millions of dollars in
`revenue represented to investors. Indeed, by the end of October 2019, Shamim had
`acknowledged to the venture fund investor that YouPlus had not even earned $500,000 in total
`revenue since the company was founded in 2013.
`
`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
`
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`
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`2. Defendants Misrepresent YouPlus’s Customer Base
`26. While raising funds in 2018 and 2019, Defendants also misrepresented the size of
`YouPlus’s customer base to investors and prospective investors.
`For example, the “Investor and Shareholder Update” Shamim circulated to all
`27.
`investors in or about June 2019 contained a chart of YouPlus’s “top ten customers by revenue.”
`That chart falsely stated each of the ten customers identified had paid YouPlus at least hundreds
`of thousands of dollars, including over $1 million each by YouPlus’s purportedly three largest
`customers, in 2019.
`In or about June 2019, Shamim separately provided a spreadsheet to at least two
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`investors that purported to report YouPlus’s “customer pipeline” with nearly $1 million in
`“monthly realized revenue.” The spreadsheet falsely identified more than 150 purported
`YouPlus customers, including a number of well-known Fortune 500 companies. In reality, all or
`nearly all of the customers identified on the spreadsheet were not paying customers of YouPlus.
`At the time Defendants made these representations, Defendants knew, or were
`29.
`reckless in not knowing, that they were false and misleading. In truth, YouPlus had only
`managed to obtain approximately four paying customers during the life of the company.
`3. Defendants Misrepresent YouPlus’s Future Fundraising Prospects
`30. While raising funds in 2019, Defendants misrepresented the status of YouPlus’s
`ongoing fundraising efforts to investors and prospective investors.
`Starting in or around spring 2019 through fall 2019, Shamim told a number of
`31.
`YouPlus investors that the company was pursuing a Series A fundraising round. Shamim
`suggested to investors that the fundraising efforts were going so well that he was in the fortunate
`position of being able to “pick the investors” he wanted. This was false. In truth, Shamim had
`not lined up any Series A fundraising commitments from prospective investors.
`During the spring 2019 through fall 2019 time period, Shamim falsely told other
`32.
`investors that YouPlus’s Series A fundraising was going well and that he did not need to raise as
`much money as he originally thought he did because revenues were increasing so quickly. In
`
`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
`
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`reality, YouPlus had generated minimal revenue and had not obtained any commitments from
`investors for a Series A fundraising.
`In or about April 2019, Shamim falsely told at least one investor that YouPlus
`33.
`had secured a commitment from a prominent Silicon Valley investor to invest $3-4 million in
`YouPlus’s Series A financing. Based in large part on that misrepresentation, the investor
`invested approximately $550,000 in YouPlus in or about May 2019.
`At the time Defendants made these misrepresentations about YouPlus’s 2019
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`fundraising efforts, Defendants knew, or were reckless in not knowing, that the statements were
`false and misleading. In reality, in 2019 YouPlus was running out of money to continue
`operations and had not secured any funding for a Series A financing, let alone any commitments
`from prominent Silicon Valley investors.
`Defendants’ Fraudulent Scheme Unravels
`C.
`35.
`In or about September 2019, Shamim approached at least one YouPlus investor,
`the venture fund that had invested $600,000 in December 2018, with a request for what Shamim
`characterized as emergency funding to meet payroll expenses. Although the venture fund agreed
`to invest approximately $250,000 at the time, the venture fund was concerned that YouPlus
`needed additional funds to meet payroll given the revenue figures that had been represented to
`the investor in 2018 and 2019. The venture fund requested that Shamim provide it further
`YouPlus financial information.
`On or about October 1, 2019, the venture fund invested another approximately
`36.
`$300,000 in YouPlus, but continued to press Shamim to provide more financial information
`regarding the company, and to substantiate the financial information that had been previously
`provided.
`In response to the venture fund’s repeated requests, Shamim did provide certain
`37.
`YouPlus financial documents. However, the documents provided did not support Defendants’
`previous revenue representations.
`
`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
`
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`38. Moreover, in an effort to deceive investors and to conceal Defendants’ fraudulent
`conduct, Shamim provided the venture fund with certain falsified documents, including bank
`statements. The bank statements were falsified to show deposits into YouPlus’s bank account
`from purportedly paying customers. In fact, the deposits were never made.
`On or about October 18, 2019, several representatives of the venture fund met
`39.
`with Shamim. At that meeting, the venture fund confronted Shamim about its concerns.
`Shamim agreed that YouPlus had exaggerated its historical revenues and customer traction, and
`conceded that he “got ahead of [himself].”
`On or about October 25, 2019, counsel for the venture fund sent Shamim an
`40.
`email memorializing the October 18, 2019 meeting. Counsel for the venture fund wrote that
`Shamim had “admitted to misrepresenting both YouPlus’s actual revenue earned to date, and its
`projected revenue for the 2019 fiscal year, in order to secure the [investor’s] investment in
`YouPlus.” He also noted that Shamim had “provided the [investor] with forged bank and payroll
`statements in an effort to conceal YouPlus’s true financial condition.” (emphasis in original).
`Shamim responded to the letter in an email sent on or about October 27, 2019.
`41.
`Shamim conceded that despite his previous representations that YouPlus has earned millions of
`dollars in revenue, YouPlus “did $499,972 in sales and other revenue since inception (from both
`USA and India).” Shamim also stated that he had personally received approximately $1.3
`million from the company.
`On or about October 29, 2019, Shamim and counsel for the venture fund met in
`42.
`person. At that meeting, Shamim again conceded that he had overstated YouPlus’s revenue in
`communications with investors. When asked whether he had made the false statements in order
`to get investors interested in the company, Shamim responded that he “probably” had.
`
`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
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`Case 5:20-cv-04855 Document 1 Filed 07/20/20 Page 9 of 11
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`
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`FIRST CLAIM FOR RELIEF
`Violations of Section 10(b) of the Exchange Act and Rule 10b-5
`
`By Both Defendants
`The Commission re-alleges and incorporates by reference Paragraph Nos. 1
`
`1.
`through 42.
`By engaging in the conduct described above, Defendants Shamim and YouPlus,
`2.
`directly or indirectly, in connection with the purchase or sale of securities, by the use of means or
`instrumentalities of interstate commerce, or the mails, with scienter:
`Employed devices, schemes, or artifices to defraud;
`(a)
`(b) Made untrue statements of material facts or omitted to state material facts
`necessary in order to make the statements made, in the light of the
`circumstances under which they were made, not misleading; and
`Engaged in acts, practices, or courses of business which operated or
`would operate as a fraud or deceit upon other persons, including
`purchasers and sellers of securities.
`By reason of the foregoing, Defendants violated, and unless restrained and
`3.
`enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and
`Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
`SECOND CLAIM FOR RELIEF
`Violations of Sections 17(a)(1), (2), and (3) of the Securities Act
`
`(c)
`
`By Both Defendants
`The Commission re-alleges and incorporates by reference Paragraph Nos. 1
`
`4.
`through 42.
`By engaging in the conduct described above, Defendants Shamim and YouPlus,
`5.
`directly or indirectly, in the offer or sale of securities, by use of the means or instruments of
`transportation or communication in interstate commerce or by use of the mails,
`with scienter, employed devices, schemes, or artifices to defraud;
`(1)
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`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
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`Case 5:20-cv-04855 Document 1 Filed 07/20/20 Page 10 of 11
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`(3)
`
`(2)
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`obtained money or property by means of untrue statements of material
`fact or by omitting to state a material fact necessary in order to make the
`statements made, in light of the circumstances under which they were
`made, not misleading; and
`engaged in transactions, practices, or courses of business which operated
`or would operate as a fraud or deceit upon purchasers.
`By reason of the foregoing, Defendants violated, and unless restrained and
`6.
`enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
`PRAYER FOR RELIEF
`WHEREFORE, the Commission respectfully requests that this Court:
`I.
`Permanently enjoin Defendants Shamim and YouPlus from directly or indirectly
`violating Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R.
`§ 240.10b-5] thereunder, and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
`II.
`Issue an order requiring Defendants Shamim and YouPlus to disgorge all ill-gotten gains
`or unjust enrichment derived from the activities set forth in this complaint, together with
`prejudgment interest thereon.
`
`III.
`Issue an order requiring Defendants Shamim and YouPlus to pay civil monetary
`penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)
`of the Exchange Act [15 U.S.C. § 78u(d)(3)].
`
`IV.
`Prohibit Defendant Shamim from serving as an officer or director of any entity having a
`class of securities registered with the Commission pursuant to Section 12 of the Exchange Act
`[15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act
`
`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
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`Case 5:20-cv-04855 Document 1 Filed 07/20/20 Page 11 of 11
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`[15 U.S.C. § 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and
`Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)].
`V.
`Retain jurisdiction of this action in accordance with the principles of equity and the
`Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and
`decrees that may be entered, or to entertain any suitable application or motion for additional
`relief within the jurisdiction of this Court.
`
`VI.
`Grant such other and further relief as this Court may determine to be just and necessary.
`
`
`
`Dated: July 20, 2020
`
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`Respectfully submitted,
`
` /s/ Bernard B. Smyth
`BERNARD B. SMYTH
`Attorney for Plaintiff
`SECURITIES AND EXCHANGE COMMISSION
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`COMPLAINT
`SEC V. YOUPLUS, INC., ET AL.
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