Builder.ai, the UK-based AI startup once valued at over $1 billion, is facing severe allegations of faking business deals to inflate sales figures, particularly with the Indian social media firm VerSe Innovation. These allegations have surfaced amidst the company's recent announcement of insolvency proceedings and an ongoing investigation by US federal prosecutors.

According to sources and documents reviewed by Bloomberg, Builder.ai allegedly engaged in a practice known as "round-tripping" with VerSe Innovation between 2021 and 2024. This involved the two companies routinely billing each other for roughly the same amounts, creating a false impression of revenue generation. The core accusation is that these transactions did not represent genuine services rendered or products exchanged. Effectively, Builder.ai is accused of using these artificial transactions to deceive investors by presenting inflated revenue figures.

VerSe Innovation, co-founded by Umang Bedi, has denied these allegations. Builder.ai, on the other hand, has not yet issued an official statement regarding the matter.

This controversy coincides with broader scrutiny of Builder.ai's financial practices. Internal investigations have revealed that the company significantly overstated its revenues, with some reports suggesting overstatements exceeding 300%. Provisional accounts for 2024, for instance, saw revenue forecasts slashed from $220 million to a mere $55 million. Similarly, 2023 revenues were adjusted from $180 million to $45 million. These substantial revisions raise serious questions about the accuracy and legitimacy of the company's financial reporting.

Further complicating matters, the U.S. Attorney's Office for the Southern District of New York has launched an investigation into Builder.ai, focusing on inflated revenues and potential fraud. Builder.ai's General Counsel, Adi Vinyarsh, has instructed employees to preserve documents, including accounting policies and customer lists, in response to requests for information from the prosecutor's office.

Concerns have also been raised regarding sales made through resellers, particularly in the Middle East. An internal investigation reportedly focused on whether some of these resellers were genuine, suggesting that some sales might have been fabricated or improperly accounted for.

These issues have had significant repercussions for Builder.ai. Lenders have called a default on a $50 million loan raised in October after the company's restated accounts revealed the drastic downward revisions in revenue estimates. The company has since initiated insolvency proceedings, marking a dramatic fall from grace for a startup once touted as a unicorn.

The downfall of Builder.ai also led to a leadership shakeup. Sachin Dev Duggal was replaced as CEO by Manpreet Ratia in March. Prior to Duggal's departure, concerns were raised about long-uncollected sales, prompting an internal investigation by a law firm. The findings of this investigation, presented to leadership and stakeholders, reportedly indicated potential efforts to inflate revenues, casting a shadow over the company's previously reported financial success.