Former CEO Of Kubient, Inc. Charged And Pleads Guilty In Connection With Accounting Fraud Scheme

Damian Williams, the United States Attorney for the Southern District of New York, and Daniel B. Brubaker, the Inspector in Charge of the New York Division of the U.S. Postal Inspection Service (“USPIS”), announced today the filing of an Information charging PAUL ROBERTS, the founder, former Chief Executive Officer, and former Chairman of the Board of Directors of Kubient, Inc, a digital advertising technology company, with securities fraud.  The charge results from ROBERTS’s execution of a scheme to defraud investors and auditors of Kubient, during which he caused Kubient to improperly recognize more than $1.3 million in fraudulent revenue in Kubient’s financial statements at the time of Kubient’s initial public offering and made material misrepresentations about the efficacy of Kubient’s proprietary fraud detection tool, Kubient Artificial Intelligence (“KAI”).  ROBERTS plead guilty today before U.S. District Judge Jennifer L. Rochon and is scheduled to be sentenced on December 18, 2024.

U.S. Attorney Damian Williams said: “Paul Roberts, the founder and former CEO of Kubient, inflated his company’s revenue and lied about the performance of one of its signature products, an AI-powered tool that was supposed to detect ad fraud in the digital advertising industry.  To carry out his scheme, Roberts had fake documents created to mislead the independent certified public accountants engaged to audit Kubient’s financial statements.  Today’s charge and guilty plea sends a message that this Office is committed to holding corporate executives accountable when they resort to fraud.”

USPIS Inspector in Charge Daniel B. Brubaker said: “Mr. Roberts was caught lying about Kubient’s AI fraud detection tool.  And in this case, the only thing that was detected as fraudulent was what Mr. Roberts told investors to improperly bolster his company’s revenue during Kubient’s IPO.  This is our promise to the American public: Postal Inspectors along with our law enforcement partners will continue to protect investors from falling victim to greedy individuals.”

As alleged in the Information:

In or about May 2017, ROBERTS founded Kubient, Inc. (“Kubient”), a digital advertising technology company headquartered in New York, New York.  From in or about August 2020 to in or about November 2023, Kubient’s shares were publicly traded on the Nasdaq stock exchange under the ticker “KBNT.”  At various times relevant to the Information, ROBERTS was Kubient’s Chief Executive Officer, Chairman of the Board of Directors, Interim Chief Executive Officer, President, and Chief Strategy Officer.

From at least in or about October 2019 through at least in or about March 2021, ROBERTS executed an accounting fraud scheme at Kubient.  During that time, ROBERTS caused Kubient to improperly recognize more than $1.3 million in fraudulent revenue in Kubient’s financial statements (the “Fraudulent Revenue”).  The Fraudulent Revenue was over 94% of Kubient’s reported revenue for 2020 at the time of its initial public offering (“IPO”) in or about August 2020, over 74% of its reported revenue for 2020 at the time of its secondary public offering in or about December 2020, and approximately 45% of Kubient’s reported revenue for all of 2020, as reported in Kubient’s 2020 annual financial statement filed with the U.S. Securities and Exchange Commission (the “SEC”) on SEC Form 10-K in or about March 2021.  With his scheme, ROBERTS misled Kubient’s auditors and deceived the investing public about Kubient’s financial condition.

At the core of the accounting fraud scheme by ROBERTS was a fraudulent $1.3 million transaction that ROBERTS arranged between Kubient and another digital advertising technology company (“Company-1”) and one of Company-1’s affiliates (the “Company-1 Affiliate”).  In a set of three contracts negotiated and executed together in or about October 2019, Kubient and Company-1 agreed to provide certain services to the other for nearly identical fees.  Under the terms of two contracts, Kubient agreed to use its proprietary fraud detection tool Kubient Artificial Intelligence (“KAI”) to scan data provided by Company-1 and the Company-1 Affiliate for instances of digital ad fraud and then deliver the results of KAI’s findings to Company-1 and the Company-1 Affiliate (the “KAI Agreements” of the “KAI Transactions”).  At the same time, pursuant to a Data Services Agreement, Company-1 agreed to sell Kubient other data and provide certain data-related services.

From in or about January 2020 through in or about November 2020, Kubient paid Company-1 $1,300,336 and Company-1 paid Kubient $1,300,338.03 (which Kubient fraudulently recognized as revenue), but neither company ever provided any of the services they agreed to provide to the other company under the contracts.  For example, with respect to the KAI Transactions, Company-1 and the Company-1 Affiliate never sent Kubient any data to be scanned by KAI, Kubient never scanned any Company-1 or Company-1 Affiliate data with KAI, and Kubient never delivered any results or reports to Company-1 or the Company-1 Affiliate with any findings by KAI.

To conceal his fraudulent scheme, ROBERTS directed Kubient employees to generate fake KAI reports and misled them about how he intended to use such reports.  Rather than receive data from Company-1 or the Company-1 Affiliate to be scanned by KAI, ROBERTS had Kubient employees create “sample” KAI reports based, at first, on Kubient’s own data and then eventually based on made-up metrics and no underlying data at all.  ROBERTS told Kubient employees he needed these “samples” to demonstrate for bankers and potential investors the kind of reporting of which KAI was capable.  In fact, ROBERTS needed the “sample” KAI reports to mislead Kubient’s independent certified public accountants (the “Audit Firm”) into believing that Kubient had performed its contractual obligations to Company-1 and the Company-1 Affiliate under the KAI Agreements when, in fact, Kubient had not, so that Kubient could recognize the associated revenue in its financial statements.

ROBERTS repeatedly made material misrepresentations in SEC filings and in management representation letters submitted to the Audit Firm relating to Kubient’s KAI revenue recognition.  Contrary to representations ROBERTS made in these filings and letters, Kubient did not perform its obligations to Company-1 and the Company-1 Affiliate under the KAI Agreements and, consequently, none of the Fraudulent Revenue should have been recognized as revenue in Kubient’s financial statements.

In addition, ROBERTS repeatedly made material misrepresentations in SEC filings about the efficacy of KAI in identifying and preventing digital ad fraud, including in connection with Kubient’s initial and secondary public offerings when Kubient was touting KAI as one of the company’s premier products that would differentiate it from its competitors.  For example, ROBERTS personally added language to Kubient’s SEC Form S-1 registration statements that ROBERTS signed and that Kubient filed in or about July, August, and December 2020, stating that, in 2020, KAI provided “two large enterprise clients” [i.e., Company-1 and the Company-1 Affiliate] “the ability to prevent the purchase of non-human or fraudulent advertising traffic” and that “KAI was identifying and preventing approximately 300% more digital ad fraud then [sic] the client’s current partners.”  ROBERTS made these statements knowing that they were false.  More specifically, ROBERTS knew that Kubient never received any data from Company-1 or the Company-1 Affiliate to scan with KAI pursuant to the KAI Agreements, that Kubient never scanned any of Company-1’s or the Company-1 Affiliate’s data with KAI, and that Kubient never delivered any results or reports to Company-1 or the Company-1 Affiliate with any findings by KAI, let alone that KAI was not “identifying and preventing approximately 300% more digital ad fraud” than Company-1’s and the Company-1 Affiliate’s “current partners.”

Fueled by the misrepresentations about Kubient’s KAI revenue recognition and the efficacy of KAI in identifying and preventing digital ad fraud that ROBERTS made in Kubient’s SEC filings and elsewhere, Kubient raised more than $12.5 million in its IPO in or about August 2020, resulting in its shares being publicly traded on the Nasdaq stock exchange, and more than $20 million in its secondary public offering in or about December 2020.  Kubient’s IPO and its secondary public offering would not have been possible without ROBERTS’s fraudulent misrepresentations about KAI and the KAI Transactions.

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ROBERTS, 48, of Melville, NY, is charged with one count of securities fraud, which carries a maximum sentence of 20 years in prison.

The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

Mr. Williams praised the outstanding work of the USPIS.  Mr. Williams also thanked the SEC, which filed a civil action against ROBERTS after he pleaded guilty, for its assistance and cooperation in the investigation.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Justin V. Rodriguez and Alex Rossmiller are in charge of the prosecution.