Commission Charges CEO of AI Company with Fraud

Artificial intelligence is one of the hot topics of the day. Sometimes it seems that it is only the topic. No doubt that will continue, at least until another subject emerges to take its place. Now however, the Commission has become part of the trend – the agency filed an action against a company supposedly involved in artificial intelligence, Centricity, Inc. SEC v. Brackett, Civil Action No. 1:24-0cv002965 (S.D.N.Y. Filed April 19, 2024).

Defendant is Michael Brackett. He has an MBA degree and had managed a $650 million dairy portfolio prior to his association with Centricity. He was the CEO of Centricity until his resignation in June 2021 when he moved to Zurich, Switzerland. On August 15, 2023, Mr. Brackett was arrested during a trip to Maine and charged with one count of securities fraud, U.S. v. Brackett, 23-cr-392 (S.D.N.Y.).

Centricity was created by Mr. Brackett in 2019. The firm, with a principal place of business in New York City, was a start-up technology company. It claimed to use artificial intelligence to analyze hundreds of millions of internet searches daily to provide clients with information regarding consumer demand in specific geographic areas.

Start-ups like Centricity typically raise capital in what are called “rounds” or “series” of external funding. Investors provide funding to the company in exchange for equity at a specific valuation. The initial round is usually the “seed” round. When the firm is sufficiently mature it will generate revenue and grow through a Series A round of financing.

Here then CEO Brackett raised about $2.8 million for Centricity through two rounds. The rounds were initiated in 2019 and continued for about two years. Potential investors were told that the firm had contracts with several large national companies. These arrangement supposedly created substantial revenue for Centricity.

While Defendant Brackett did raise revenue for the firm, Centricity did not generate substantial revenue. In 2020 and 2021 for example, the firm had revenue of less than $60,000. The representations Defendant made to investors about the company were false. The representations he made to investors about his background were false. The representations made to investors about the company were false. The complaint alleges violations of Securities Act Section 17(a)and Exchange Act Section 10(b). The case is in litigation.