Until recently, Las Vegas-based cybersecurity company NS8 enjoyed the trappings of a successful internet startup.
Its Holsum Design Center offices in the Arts District bustled with young tech workers. CEO Adam Rogas spoke to business conferences, billed himself as a thought leader, and said the four-year-old company was profitable. And NS8 just received a $123 million investment, valuing it at nearly a half-billion dollars.
Now the company has laid off almost its entire workforce, Rogas faces investment fraud charges, and federal authorities are investigating what happened to the money.
The acting U.S. attorney for the Southern District of New York, where the case was brought, called Rogas “the proverbial fox guarding the henhouse.” Authorities allege the company’s veneer of success was built on doctored bank statements and bogus spreadsheets.
Lightspeed Ventures, a top Silicon Valley venture capital company, was a major investor in NS8. It issued a statement that read, in part, that it “believes that we and other investors were deceived in the due diligence process by the company and were defrauded of millions of dollars.”
David Jeans is a writer for Forbes magazine, who has written about what happened at the startup.
Jeans said there were two complaints against Rogas. One from the Justice Department and one from the Securities and Exchange Commission.
“Taken together, they both allege that he’s committed fraud for the last few years,” he said.
According to the SEC complaint, the problems stemmed from Rogas' control over a company bank account that was supposed to hold the revenues the company received.
“Using that account, he was allegedly doctoring the bank statements to show there was a lot of revenue coming in as early as 2018, and then June of this year, that had snowballed from much smaller amounts to the false bank statements stating around $62 million in revenue when the true figure was closer to $28,000,” Jeans said.
A large chunk of the investment money was going to pay for business operations, Jeans said, which wouldn't have mattered much — if the revenue the company was reporting actually aligned with reality.
“The other thing that has been alleged is, using those very large revenue figures from the false bank statements, Rogas was able to sell his shares," worth $17 million, to new investors, Jeans said.
Dan Birlew was a technical product manager at NS8 before he was laid off just a few weeks ago. He managed the team that actually built the product.
He explained that was a digital download that a business could install on their e-commerce site to monitor transactions, then NS8 would let the businesses know which transactions were likely fraudulent.
Birlew said the product worked. His team was working on some improvements to its function on some sales platforms before they got word about the layoffs.
“It was like a bomb blast. It was a shock to almost everyone in the company,” he said.
Birlew said Rogas had told the employees in several meetings that the company's position was strong, especially because the coronavirus pandemic had boosted e-commerce, and its revenues were enough to take them through the next two years.
“To come back from the Labor Day weekend and be told that Adam had resigned and we no longer had the funds to run the company was just completely shocking and unexpected,” he said.
Birlew said the people in the company liked Rogas and believed him when he said the company was in a strong position. He admits it is difficult to understand what Rogas was thinking, and it is difficult to hear that revenues were not what employees were told.
“It would have been preferable to have a better picture of where the company stood so that we could all act appropriately at the time,” Birlew said.
Now that he's out of a job, Birlew is talking with recruiters at other tech companies.
“My spirits are good. I feel like there are a lot of opportunities for me at the moment," he said, "I’m not so sure the opportunities are available for everyone in the company, of course.”
Besides the technical side of the product, Birlew noted there were marketing, sales and design personnel that were all let go.
“It really is concerning to me that all 230 of these people were laid off at the same time," he said, "I do want to state the case for them. They’re all like me. They were all as, basically, shell-shocked as I was.”
While he's optimistic about getting a new job, he wants employers to seek out the other employees from NS8 who are not jobless. Birlew said no one, including the company board, knew about the allegations of fraud.
In addition, he believes everyone regrets continuing to hire people without knowing NS8 wasn't on secure financial footing.
He said the company was still hiring people two weeks before it closed, “which, to me, is just unconscionable.”
Birlew says it is hard to say what led to the company's downfall.
“I wonder if there wasn’t just some wishful thinking that was going on that sort of led these actions," he said.
However, he finds it impossible to get over the fact that they never got important data like user statistics, subscriber information and revenues.
He said it is difficult to know if Rogas was using a "fake it 'til you make it," plan, or if there was actual fraud.
Jeans communicated on LinkedIn with Rogas after he resigned from NS8 but before his arrest. At the beginning of the conversation, Rogas told Jeans that he didn't walk away with company money and that it was spending much more than it was taking in.
“He then went on to say that the reason he really resigned for personal and family health reasons,” Jeans said.
Rogas told him that he, and his wife, had tested positive for the coronavirus, plus there were other health issues that he needed to attend to.
“The last thing he said was that, ‘There are a number of questions that I don’t have answers for but I’m appalled at how the amazing team of professionals we built was treated when the board started to decide what was best,’” Jean said.
David Jeans, writer, Forbes; Dan Birlew, Ex-technical product manager, NS8