Founder Of Artificial Intelligence Start-Up Charged With Fraud

 

Defendant, Who Also Served as CEO, Charged with Misrepresenting Company’s Financial Condition Before Its Collapse

Damian Williams, the United States Attorney for the Southern District of New York, announced the unsealing of an Indictment charging MICHAEL BRACKETT with lying to investors about the financial condition of Centricity Inc., a technology company that BRACKETT founded in 2019.  As alleged in the Indictment, BRACKETT — who also served as Centricity’s CEO — persuaded a victim to invest $500,000 in the company by sending a falsified customer list that included grossly inflated revenue numbers.  Days later, BRACKETT resigned from Centricity, which ceased operations soon afterward.

BRACKETT was arrested earlier today in the District of Maine, where he will be presented before making an initial appearance in the Southern District of New York.  The case is assigned to United States District Judge John G. Koeltl in the Southern District of New York. 

U.S. Attorney Damian Williams said: “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.”

According to the Indictment unsealed today in Manhattan federal court:[1]

Centricity was a New York City-based technology company that sought to give retailers, especially grocery stores, better insight into consumers’ preferences.  According to public statements, Centricity used artificial intelligence algorithms that could analyze some 2.5 billion data points’ worth of internet traffic a day to predict demand for products, so that retailers could stock their shelves accordingly.

While serving as CEO of Centricity, BRACKETT repeatedly misrepresented the company’s financial condition.  In spring 2021, BRACKETT sent prospective short-term lenders a bank statement that BRACKETT had manipulated to reflect that Centricity had more funds in its account than it actually did.  In June 2021, BRACKETT sent a potential investor (“Victim‑1”) a spreadsheet that purportedly reflected Centricity’s current customers and monthly revenue.  In fact, the majority of the 13 companies listed on the spreadsheet were not Centricity’s customers, and Centricity’s revenue was only a fraction of the amount listed on the spreadsheet.

Relying on BRACKETT’s misrepresentations, Victim-1 signed a convertible promissory note and directed an associate to wire $500,000 to Centricity.  Within days, however, Victim-1 learned the truth about Centricity’s financial condition and attempted, unsuccessfully, to reverse the wire.  Days later, BRACKETT resigned from Centricity, and, soon afterward, Centricity ceased operations.  Victim-1 ultimately was unable to recover any of the $500,000 investment.

BRACKETT, 36, a U.S. citizen residing in Switzerland, is charged with one count of securities fraud and one count of wire fraud, each of which carry a maximum sentence of 20 years in prison.

The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.  

Mr. Williams praised the outstanding investigative work of the Special Agents from the U.S. Attorney’s Office for the Southern District of New York.

The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.