Class motion alleges Netcapital fabricated $14M in consulting turnover

A NASDAQ-listed crowdfunding portal faces a category motion alleging its management fabricated almost $14 million in consulting turnover over roughly three years.

The grievance, filed October 8 in US District Court in Massachusetts, names Netcapital Inc. and 4 particular person defendants – the corporate’s chief monetary officer, two successive chief govt officers, and a board advisor the SEC has described as a management particular person of the corporate. It covers traders who purchased Netcapital securities between December 15, 2021 and September 3, 2026.

Netcapital operates an SEC-registered funding portal that helps small firms increase capital via internet-based crowdfunding. Its inventory trades on NASDAQ below the ticker “NCPL.”

The lawsuit follows an SEC enforcement motion filed August 10, 2026, which alleged a scheme to overstate turnover via what the regulator referred to as “sham, backdated, and in some instances solid consulting agreements” between Netcapital’s advisory subsidiary and no less than eleven firms the SEC says had been managed by the board advisor.

According to the category motion, that claimed consulting turnover “inflated Netcapital’s Relevant Period turnover by roughly 345 p.c.” The submitting alleges the inflated numbers made their means into Netcapital’s SEC reviews and securities providing supplies. While turnover was allegedly overstated, “traders in Netcapital’s private and non-private securities choices invested over $25.6 million,” the grievance states.

The grievance says the consulting agreements “had been backdated and in some instances solid, and Netcapital Advisors supplied little if any significant consulting companies.” It particulars eleven particular offers and alleges roughly $5.1 million of the almost $14 million – about 37% – “was acknowledged in intervals through which no consulting settlement but existed.”

In one case, the submitting says $502,174 was booked from an settlement that was not created till after the reporting quarter had already closed. In one other, $975,000 was allegedly acknowledged from a deal that was not executed till two days earlier than the quarter ended. Four of the agreements had been “solid,” in response to the grievance.

The submitting alleges Netcapital’s quarterly and annual reviews “misled traders relating to the related-party nature of the portfolio firm consulting agreements” and that the corporate by no means disclosed that the turnover got here from transactions involving the board advisor.

According to the grievance, that particular person “acted as a Netcapital officer and was concerned in vital operational and strategic selections” whereas concurrently exercising “management over the Portfolio Companies and owned vital quantities of their fairness.” The grievance alleges he held these firms “via middleman firms that he additionally managed,” and that the businesses’ supposed managers “had no involvement with the businesses, had been unaware of the scope of their purported affiliation with the businesses, and/or acted topic to [his] course.”

The grievance alleges the corporate’s CFO “knew or recklessly disregarded” that the advisory subsidiary “was not offering companies to the Portfolio Companies commensurate with the turnover it was recognizing.” One of the CEOs allegedly “negligently allowed Netcapital to improperly acknowledge turnover” from the agreements, “together with in intervals through which no agreements existed and no companies had been carried out,” the submitting states.

A successor CEO who served from January 2023 to December 2025 allegedly oversaw a interval when turnover was overstated by roughly 436 p.c. According to the SEC’s grievance, that particular person was “unfamiliar with the Portfolio Companies and their purported managers, had no direct contact with them, and didn’t perceive their companies or know different fundamental details about them.”

The fallout from the SEC’s August grievance got here rapidly. The firm’s impartial auditor resigned on August 12, stating it “had decided that it may not function the Company’s auditor” in mild of the SEC motion. Netcapital inventory fell roughly 28.6% on that disclosure, the grievance says. A board member individually resigned, citing “the intense allegations just lately asserted in opposition to the Company and sure present and former officers, administrators, and different people.” The inventory dropped additional on that information.

The allegations on this grievance haven’t been examined, and no courtroom has dominated on the deserves.