Former Kubient CEO pleads guilty to accounting fraud scheme

Paul Roberts, the founder and former CEO of digital advertising technology company Kubient, pleaded guilty on September 16, 2024 to securities fraud charges related to an accounting fraud scheme that inflated the company's revenue figures.

According to the U.S. Attorney's Office for the Southern District of New York, Roberts executed a scheme from October 2019 to March 2021 that caused Kubient to improperly recognize over $1.3 million in fraudulent revenue in its financial statements. This fraudulent revenue represented:

• Over 94% of Kubient's reported revenue for 2020 at the time of its initial public offering (IPO) in August 2020
• Over 74% of reported revenue for 2020 at the time of its secondary offering in December 2020
• Approximately 45% of Kubient's total reported revenue for 2020

At the center of the scheme was a fraudulent $1.3 million transaction Roberts arranged between Kubient and another digital advertising company. Under the agreement, Kubient was supposed to use its Kubient Artificial Intelligence (KAI) fraud detection tool to scan the other company's data for ad fraud. However, no services were ever actually performed by either company.

To conceal the fraud, Roberts directed Kubient employees to generate fake KAI reports, initially based on Kubient's own data and later using entirely fabricated metrics. He misled employees about the purpose of these reports, claiming they were samples to show potential investors.

In reality, Roberts used the fake reports to deceive Kubient's auditors into believing the company had fulfilled its contractual obligations, allowing the fraudulent revenue to be recognized in financial statements.

Roberts also made material misrepresentations in SEC filings about KAI's effectiveness, falsely claiming it provided clients "the ability to prevent the purchase of non-human or fraudulent advertising traffic" and was "identifying and preventing approximately 300% more digital ad fraud" than clients' existing partners. In fact, KAI had never actually scanned any client data or delivered any fraud detection results.

These misrepresentations about KAI's capabilities and Kubient's revenue helped the company raise over $12.5 million in its August 2020 IPO and over $20 million in a secondary offering in December 2020.

U.S. Attorney Damian Williams stated: "Today's charge and guilty plea sends a message that this Office is committed to holding corporate executives accountable when they resort to fraud."

The charge of securities fraud carries a maximum sentence of 20 years in prison. Roberts is scheduled to be sentenced on December 18, 2024.

This case was investigated by the U.S. Postal Inspection Service. The SEC has also filed a civil action against Roberts following his guilty plea.

Kubient was a technology company founded in 2017 that aimed to transform digital advertising into audience-based marketing. Based in New York, the company developed a cloud-based platform called the Audience Cloud, which served as an open marketplace for advertisers and publishers to connect with digital audiences.

Kubient's infrastructure was designed to optimize the advertising supply chain, offering programmatic advertising tools with a focus on efficient liquidity in digital advertising markets. A key feature of their offering was an AI-powered fraud prevention system called KAI (Kubient Artificial Intelligence), which they claimed could monitor advertising auctions and detect fraud in under 10 milliseconds.

The company positioned itself as providing advanced solutions for targeted advertising, moving beyond cookie-based approaches to device fingerprint targeting and tracking.

The fraud ultimately led to Kubient's shares being delisted from the Nasdaq stock exchange in November 2023. At the time of delisting, Kubient's share price had fallen to approximately $0.10, down from a high of $16.26 in February 2021.

Key facts

• Defendant: Paul Roberts, former CEO of Kubient Inc.
• Charge: One count of securities fraud
• Plea: Guilty on September 16, 2024
• Fraudulent revenue: Over $1.3 million
• Percentage of revenue fraudulent: 45-94% depending on time period
• Funds raised through fraud: Over $32.5 million total from IPO and secondary offering
• Sentencing date: December 18, 2024
• Maximum potential sentence: 20 years in prison