Investors Lose Over $500 Million to AI Scammers Using Fake Financials

Federal prosecutors have brought fraud charges against several companies accused of defrauding investors out of more than $500 million by exploiting the surge in interest in artificial intelligence. The scammers allegedly used fabricated financial documents, including fake sales reports and doctored bank statements, to entice investors seeking the next major tech jackpot.

Among the companies facing allegations are the pre-IPO investment platform Linqto, AI startup SKAEL, and chatbot company GameOn. Former executives from Linqto and SKAEL have pleaded guilty to fraud charges, while the founder of GameOn awaits trial.

"This is the worst we’ve seen in the 40 years I’ve been auditing and observing the industry—companies just saying whatever they want, in particular in pre-IPO situations," said Francine McKenna, a CPA and former PricewaterhouseCoopers internal auditor who teaches accounting at Montclair State University. McKenna cautioned that the tactics used are particularly concerning as major AI companies like Anthropic and OpenAI prepare for potential initial public offerings (IPOs), which could make their shares accessible to a broader range of investors.

Linqto Fraud Allegations

San Jose-based Linqto is accused of defrauding over 13,000 customers out of more than $450 million by promising access to private companies such as Kraken and Ripple before they went public. According to federal prosecutors, Linqto founder William Sarris allegedly imposed markups on shares, with some exceeding 200%, while falsely telling customers they were paying market prices. Indictment documents include Sarris joking about a new pricing tool, saying it would be "a little Wizard of Oz… don’t pay attention to that man behind the screen," and adding, "fake it till you make it, baby."

The company also allegedly created artificial scarcity by telling customers that offerings were sold out when shares were still available. Former executive Joseph Endoso pleaded guilty to fraud charges on August 27 and is cooperating with prosecutors. Sarris, 75, was arrested on September 2. His attorney has stated that Sarris is innocent and intends to fight the charges.

SKAEL and GameOn Cases

SKAEL, a San Francisco-based startup, reportedly raised over $40 million by marketing software it called "digital employees." Founder Baba Nadimpalli admitted to inventing revenue from companies that had not subscribed to their services and from customers who had already canceled. Prosecutors allege he also provided bank records showing customer payments that never actually arrived. Nadimpalli pleaded guilty to securities and wire fraud in June 2025 and received a sentence of one year and one day in prison.

In a separate Securities and Exchange Commission (SEC) case, proceedings against Nadimpalli were temporarily halted in an October 5 order while the agency considered a proposed settlement.

GameOn's founder, Alexander Beckman, is accused of raising more than $60 million between 2018 and 2024. Prosecutors allege that Beckman and his wife, attorney Valerie Lau, spent over $4 million in investor funds on real estate, private schools, and a wedding before indictments were filed. The indictments also claim Beckman forged audit reports using the names and trademarks of accounting firms. In June 2024, Lau allegedly delivered a fraudulent bank statement to a branch for Beckman to collect, showing over $13 million in an account that actually held $26, according to prosecutors. The couple faces a 25-count indictment, with a jury trial scheduled for September 13, 2027.

Broader Market Concerns

McKenna noted that the mindset of some tech entrepreneurs appears to be, "Make it till you get caught. Ask for forgiveness, not permission." She added that there is a greater tolerance for such behavior, viewing it as simply part of doing business. This behavior is particularly concerning as major AI companies approach the public markets.

Anthropic is reportedly preparing for an IPO with a valuation potentially around $1.5 trillion, a revision from earlier expectations of $2 trillion. OpenAI has also indicated its annualized revenue is approaching $50 billion, though this is reportedly lower than previous figures. McKenna advised potential investors to be cautious of non-public companies lacking audited financial statements, emphasizing that companies nearing an IPO should have such documentation readily available.

Both Anthropic and OpenAI have issued warnings regarding unauthorized stock deals. OpenAI has stated that any stock transfers violating its restrictions will not be recognized and will have no economic value. Anthropic has declared that stock sales made without board approval are void.

Records show the SEC filed 456 enforcement actions in fiscal year 2025, a decrease from the previous year. In the first half of fiscal 2026, the SEC initiated only five actions against public companies and their subsidiaries, the lowest number for that period in at least 16 years. SEC Chairman Paul Atkins has defended the agency's focus on the quality of enforcement cases over their quantity.

For many investors in companies like Linqto, the pursuit of high returns has resulted in a struggle to recover any value from bankruptcy proceedings. As lawyer John Deaton noted in a class-action lawsuit related to Linqto, customers believed they were purchasing shares in companies like SpaceX, but that was not the case. McKenna concluded, "There’s an enormous hunger to get in on the next big thing. People want to hit the jackpot."