SEC Charges Former Alfi CEO Paul A. Pereira With Fraud For Making False Statements On Social Media

On February 27, 2024, the Securities and Exchange Commission (the “SEC) charged the former co-founder and CEO, Paul A. Pereira ( “Defedant” or “Pereira”), of Alfi, Inc. (“Alfi") with fraud for making fasle and misleading statements on social media concerning its financial performance to increase the now defunct Alfi’s stock price.  

Facts Of The Case 

The case is about Defendant Paul A. Pereira, the former Chief Executive Officer (CEO) and co-founder of Alfi, Inc., an advertising technology company. Pereira engaged in a fraudulent scheme to deceive investors about Alfi’s performance, aiming to attract interest and inflate the company's stock price.

Between June 2021 and August 2021, Pereira disseminated materially false and misleading information concerning Alfi's revenues, an alleged partnership to deploy Alfi technology in retail settings, and the company’s present and anticipated advertising inventory. "Advertising inventory" denotes the potential advertising revenue from media assets like billboards or devices, crucial for Alfi’s performance. Pereira spread these falsehoods through anonymous social media posts, a YouTube interview, and a press release issued by the company.

Defendant And Relevant Entity

DEFEDANT 

Pereira, aged 62, resides in Miami Beach, Florida. He co-founded Lectrefy in April 2018, later renamed Alfi, and served as its CEO and on its Board of Directors from April 4, 2018, until his resignation on February 2, 2022.

RELEVANT ENTITY

Alfi, established as a Delaware corporation in 2018 and headquartered in Miami Beach, Florida, operated as an advertising technology company. It claimed to have developed technology for measuring and generating reports on audience presence, demographics, and responses to digital advertisements. 

Alfi’s common stock and warrants were registered with the Commission under Section 12(b) of the Exchange Act and were traded on the NASDAQ Stock Market from May 3, 2021, until October 27, 2022, when they were delisted. On October 14, 2022, Alfi filed for Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware. 

Charges Against The Defendant 

 ALFI’S BUSINESS AND INITIAL PUBLIC OFFERING

In April 2018, Pereira, along with his son and a business associate, co-founded Lectrefy, which later became Alfi. Alfi specialized in developing technology purportedly utilizing artificial intelligence and big data analytics to gauge and forecast human responses to advertisements.

Alfi’s business model involved creating advertising technology for tablets and kiosks and seeking contracts with brands and advertising agencies to display ads on these devices.

According to the company’s amended Form S-1 submitted to the Commission on April 26, 2021, their technology could discern various characteristics of viewers, such as age, gender, ethnicity, location, and emotions, and deliver tailored advertisements in real time. Pereira, in media interviews, illustrated the technology's capability by describing scenarios like displaying Louis Vuitton products to a young woman wearing yellow sunglasses. The success of Alfi hinged significantly on its advertising inventory, which denotes the potential advertising revenue from its media assets like screens and devices.

A pivotal aspect of Alfi’s strategy was partnering with Uber, Lyft, and taxi drivers to distribute Alfi-enabled devices in their vehicles for advertising purposes. However, by November 2020, Alfi had not generated any revenue and faced financial constraints. To address this, Pereira and the Alfi management, along with the Board of Directors, opted to conduct an initial public offering (IPO) of Alfi stock.

Alfi filed a draft Form S-1 registration statement with the Commission on November 30, 2020. The registration statement became effective on May 3, 2021, and trading of Alfi common stock and warrants commenced on the NASDAQ Stock Market on the following day. The company reportedly raised approximately $17.8 million through the IPO. Investors exercised Alfi warrants from around June 18, 2021, to September 20, 2021, resulting in approximately $16 million in proceeds from warrant sales.

PEREIRA CREATED A PSEUDONYMOUS ACCOUNT ON STOCKTWITS AND POSTED MATERIAL MISREPRESENTATIONS CONCERNING ALFI’S REVENUES

Following Alfi’s IPO on May 4, 2021, it garnered attention from the media and retail investors on social media platforms, being dubbed a "meme stock." This term refers to stocks experiencing extreme price volatility due, in part, to high trading volumes by retail investors during certain periods.

Alfi’s stock price underwent significant fluctuations, starting at $3.60 per share on its IPO day and reaching $9.22 per share by June 16, 2021, before declining gradually through July 2021.

Increasing Alfi’s presence on social media platforms, particularly those frequented by retail investors, became a priority for Pereira. He expressed concern to Alfi employees about the lack of attention on social media and instructed them to post favorable information about Alfi on platforms like Stocktwits.

Around May 18, 2021, Pereira created a Stocktwits account under the pseudonym "Uptix12." Over the ensuing five months, Pereira contravened Alfi’s social media policy by posting multiple times per week, and often per day, about Alfi on Stocktwits. Due to the pseudonymous nature of the account, users were unaware of Pereira's identity as the CEO of Alfi.

On June 3, 2021, Pereira posted a materially false statement on Stocktwits, claiming that Alfi likely had $10 million to $20 million in revenues, despite knowing or recklessly disregarding the fact that Alfi's reported revenues were significantly lower. Just the day before this post, Alfi had reported revenues of only $17,450 for the quarter ending March 31, 2021.

PEREIRA FALSELY CLAIMED THAT ALFI ENTERED INTO AN AGREEMENT WITH A THIRD PARTY FOR THE DEPLOYMENT OF ALFI TECHNOLOGY

On June 16, 2021, six days after Alfi reported meager revenues, Pereira gave an interview on a financial media company's YouTube channel. During the interview, Pereira falsely claimed that Alfi was entering into a contract with a large restaurant chain to deploy its technology in their establishments. However, Pereira knew or should have known that no such contract existed.

PEREIRA MADE MATERIAL MISSTATEMENTS AND OMISSIONS CONCERNING ALFI’S CURRENT AND PROJECTED ADVERTISING INVENTORY

By July 2021, Alfi had engaged an advisor to identify potential acquisition targets. Pereira sought to boost Alfi’s stock price and daily trading volume to improve its negotiating position for potential acquisitions.

On July 15, 2021, Pereira communicated to Alfi’s external investor relations consultant the need for specific stock prices and daily trading volumes to facilitate an acquisition. However, the stock price was declining, prompting concerns from Pereira and others.

On August 17, 2021, Pereira issued a press release stating that Alfi planned to distribute its devices to rideshare vehicles in 14 U.S. cities, claiming an advertising inventory of over $100 million by year-end 2021. Subsequently, he posted similar claims on Stocktwits. However, Alfi’s actual advertising inventory was significantly lower, with only around 20,000 tablets in physical inventory and distributed devices not exceeding 1,500 by August 2021.

PEREIRA’S RESIGNATION AND ALFI’S BANKRUPTCY

On October 22, 2021, Pereira was placed on administrative leave, and an internal investigation was launched by a special committee of the Board regarding corporate transactions unrelated to the present allegations. The investigation revealed Pereira's corporate governance abuses and inaccurate social media posts made from a pseudonymous account. Pereira resigned from his positions as director and CEO on February 2, 2022. On October 14, 2022, Alfi filed for Chapter 7 bankruptcy protection.

Relief Sought By The SEC

PERMANENT INJUNCTION AGAINST DEFENDANT

The SEC requests the court to issue a Permanent Injunction restraining Pereira from infringing Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 

CIVIL PENALTY

The SEC also requested the court to issue an Order directing Pereira to pay monetary penalties as stipulated by Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act. 

OFFICER AND DIRECTOR BAR

The Commission further requested the court to Issue an Order prohibiting Pereira, in accordance with Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act from assuming roles as an officer or director of any company with securities registered under Section 12 of the Exchange Act or obligated to file reports under Section 15(d) of the Exchange Act. 

ADDITIONAL RELIEF

The commission also requested the court to grant any other necessary and suitable relief as deemed appropriate.

RETENTION OF JURISDICTION

Furthermore, the Commission respectfully urges the Court to maintain jurisdiction over this matter to enforce and execute the terms of all orders and decrees it issues, and to entertain any pertinent application or motion by the Commission for supplementary relief within the Court's jurisdiction.

DEMAND FOR JURY TRIAL

The Commission requests a trial by jury on all matters deemed triable.

Key Takeaways For Investors

The key takeaways for investors from the case are as follows:

DUE DILIGENCE

Investors should conduct thorough due diligence before investing in any company, especially those undergoing an initial public offering (IPO). This includes scrutinizing financial statements, management backgrounds, and business models to ensure transparency and legitimacy.

BEWARE OF MISLEADING INFORMATION

Investors must be cautious of misleading or false information disseminated by company executives or on social media platforms. In this case, the CEO's actions in spreading false statements about the company's revenues and agreements led to inflated stock prices, ultimately harming investors.

IMPORTANCE OF REGULATORY COMPLIANCE

It's crucial for companies and their executives to adhere to securities laws and regulations. Violations can result in severe penalties, including permanent injunctions, civil penalties, and officer and director bars, as demonstrated in this case.

LEGAL RAMIFICATIONS

Investors should be aware of the legal consequences of securities fraud. In this instance, the Securities and Exchange Commission (SEC) pursued legal action against the defendant, seeking various forms of relief including monetary penalties and restrictions on future involvement in similar roles within publicly traded companies.