A class action lawsuit filed in federal court accuses Netcapital Inc., a Nasdaq-listed crowdfunding portal, of inflating its revenue by roughly $14 million through sham consulting agreements. The complaint, lodged October 8 in the U.S. District Court for the District of Massachusetts, names the company and four individuals: its CFO, two former CEOs, and a board advisor previously identified by the SEC as a control person. The suit covers investors who bought Netcapital securities between December 15, 2021, and September 3, 2026.
Netcapital operates an SEC-registered funding portal that facilitates internet-based crowdfunding for small businesses. Its shares trade on Nasdaq under the ticker NCPL. The litigation follows an SEC enforcement action filed August 10, 2026, which alleged that Netcapital overstated revenue through what the regulator called "sham, backdated, and in some cases forged consulting agreements" between Netcapital's advisory arm and at least eleven companies the SEC says were controlled by the board advisor.
According to the class action, the claimed consulting revenue "inflated Netcapital's Relevant Period revenue by approximately 345 percent." The inflated figures allegedly appeared in Netcapital's SEC filings and offering documents. Despite the overstatement, the complaint notes that "investors in Netcapital's public and private securities offerings invested over $25.6 million" during the period.
The complaint details eleven specific deals and alleges that roughly $5.1 million—about 37% of the total—"was recognized in periods in which no consulting agreement yet existed." In one instance, $502,174 was booked from an agreement that was not created until after the reporting quarter had closed. In another, $975,000 was recognized from a deal executed just two days before the quarter ended. Four of the agreements were allegedly "forged."
The filing further alleges that Netcapital's quarterly and annual reports "misled investors regarding the related-party nature of the portfolio company consulting agreements" and failed to disclose that the revenue stemmed from transactions involving the board advisor. That individual, the complaint says, "acted as a Netcapital officer and was involved in significant operational and strategic decisions" while also exercising "control over the Portfolio Companies and owned significant amounts of their equity." The advisor allegedly held those companies through intermediary entities he controlled, and the companies' nominal managers "had no involvement with the companies, were unaware of the scope of their purported association, and/or acted subject to his direction."
The complaint alleges that the 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." A successor CEO, who served from January 2023 to December 2025, allegedly presided over a period when revenue was overstated by approximately 436%. 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 SEC's August action triggered immediate fallout. Netcapital'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's 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," which sent shares lower again.
This case underscores the regulatory scrutiny facing crowdfunding platforms. For context, the SEC recently alleged similar sham deals in another enforcement action, and a separate suit accused a firm of misusing investor funds. Advisors should note that due diligence on alternative investments remains critical, as most investors lack advanced risk knowledge.
