SANTA CLARA – The founder of a Silicon Valley-based artificial intelligence startup will serve 2½ years in federal prison for bilking investors out of millions of dollars, authorities said.
Shaukat Shamim, 53, of Santa Clara, previously pleaded guilty to one count of securities fraud.
Shamim founded YouPlus in 2013. The focus of the startup evolved to develop artificial intelligence tools to analyze online video content, and by the time Shamim resigned in November 2019, YouPlus had raised about $17 million from angel investors and venture capital firms, according to the U.S. Attorney’s Office.
Prosecutors said Shamim lied to investors about the startup’s product, sales and customer adoption.
Shamim, for example, claimed YouPlus had created a search engine that used neural networks to analyze videos and predict marketing outcomes. Those tasks, however, were actually performed by a team of employees in India, according to prosecutors.
In a plea agreement, Shamim also admitted he lied to investors about the number of customers who had signed up for continuing services and paid recurring subscription fees. Prosecutors said no customers had signed on to pay monthly fees for the service.
In February 2019, Shamim told investors YouPlus had earned $4.6 million in revenue the previous year when it actually made less than $100,000, according to prosecutors. He also claimed in May 2019 the startup had earned $3.5 million in the first four months of 2019; however, YouPlus, made less than $280,000 that entire year.
Prosecutors said YouPlus was running low on cash by September 2019, leading Shamim to seek Series A financing from venture capital firms and bridge loans from existing investors to cover costs. Investors in turn asked Shamim to provide more detailed financial information to back up the revenue he claimed the startup was making.
Shamim altered statements for YouPlus’ bank accounts in India and the United States and received roughly $6.4 million from investors, according to prosecutors.
On June 14, 2022, a federal grand jury handed down an indictment charging Shamim with three counts of wire fraud and one count of securities fraud. The court dismissed the wire fraud charges in exchange for Shamim pleading guilty to securities fraud.
In addition to the 2½-year prison term, a judge on Monday ordered Shamim to pay a $50,000 fine and serve three years of supervised release, which will begin after he leaves prison.
Prosecutors said Shamim is out on bond and will begin serving his sentence on April 28.