Investors accuse Netcapital of inflating revenue through sham deals

A NASDAQ-listed crowdfunding portal faces a class action alleging its leadership fabricated nearly $14 million in consulting revenue over roughly three years.

The complaint, filed October 8 in US District Court in Massachusetts, names Netcapital Inc. and four individual defendants - the company's chief financial officer, two successive chief executive officers, and a board advisor the SEC has described as a control person of the company. It covers investors who bought Netcapital securities between December 15, 2021 and September 3, 2026.

Netcapital operates an SEC-registered funding portal that helps small companies raise capital through internet-based crowdfunding. Its stock trades on NASDAQ under the ticker "NCPL."

The lawsuit follows an SEC enforcement action filed August 10, 2026, which alleged a scheme to overstate revenue through what the regulator called "sham, backdated, and in some cases forged consulting agreements" between Netcapital's advisory subsidiary and at least eleven companies the SEC says were controlled by the board advisor.

According to the class action, that claimed consulting revenue "inflated Netcapital's Relevant Period revenue by approximately 345 percent." The filing alleges the inflated numbers made their way into Netcapital's SEC reports and securities offering materials. While revenue was allegedly overstated, "investors in Netcapital's public and private securities offerings invested over $25.6 million," the complaint states.

The complaint says the consulting agreements "were backdated and in some cases forged, and Netcapital Advisors provided little if any meaningful consulting services." It details eleven specific deals and alleges roughly $5.1 million of the nearly $14 million - about 37% - "was recognized in periods in which no consulting agreement yet existed."

In one case, the filing says $502,174 was booked from an agreement that was not created until after the reporting quarter had already closed. In another, $975,000 was allegedly recognized from a deal that was not executed until two days before the quarter ended. Four of the agreements were "forged," according to the complaint.

The filing alleges Netcapital's quarterly and annual reports "misled investors regarding the related-party nature of the portfolio company consulting agreements" and that the company never disclosed that the revenue came from transactions involving the board advisor.

According to the complaint, that individual "acted as a Netcapital officer and was involved in significant operational and strategic decisions" while simultaneously exercising "control over the Portfolio Companies and owned significant amounts of their equity." The complaint alleges he held those companies "through intermediary companies that he also controlled," and that the companies' supposed managers "had no involvement with the companies, were unaware of the scope of their purported association with the companies, and/or acted subject to [his] direction."

The complaint alleges the company's CFO "knew or recklessly disregarded" that the advisory subsidiary "was not providing services to the Portfolio Companies commensurate with the revenue it was recognizing." One of the CEOs allegedly "negligently allowed Netcapital to improperly recognize revenue" from the agreements, "including in periods in which no agreements existed and no services were performed," the filing states.

A successor CEO who served from January 2023 to December 2025 allegedly oversaw a period when revenue was overstated by approximately 436 percent. According to the SEC's complaint, that individual was "unfamiliar with the Portfolio Companies and their purported managers, had no direct contact with them, and did not understand their businesses or know other basic information about them."

The fallout from the SEC's August complaint came quickly. The company's independent auditor resigned on August 12, stating it "had determined that it could no longer serve as the Company's auditor" in light of the SEC action. Netcapital stock fell approximately 28.6% on that disclosure, the complaint says. A board member separately resigned, citing "the serious allegations recently asserted against the Company and certain current and former officers, directors, and other individuals." The stock dropped further on that news.

The allegations in this complaint have not been tested, and no court has ruled on the merits.