The founder of a Winnipeg-based technology company has been arrested and charged with wire fraud in California, where he is accused of defrauding investors out of about $120 million.
A criminal complaint alleges that Matthew Derrick Hudson distributed false financial statements to increase support for Invenia Technical Computing, a business that uses machine learning to analyze electricity markets.
The U.S. Attorney’s Office for the Northern District of California unsealed the indictment on September 24.
Mr. Hudson also faces a civil lawsuit from the U.S. Securities and Exchange Commission. The SEC alleges Hudson violated securities laws.
The allegations, which have not been proven in court, are the latest in a series of dramas at Invenia.
Hudson and his co-founders started the company 19 years ago in Winnipeg. Invenia touted it as a great way to predict the next day’s power usage through computer modeling. Such modeling was touted as helping to improve energy use and prevent waste.
The company was deeply involved in trading and investing primarily in the US overnight market. By mid-2017, it had about 20 people in Winnipeg and another 10 in Cambridge, England.
The SEC alleges in its 17-page complaint that the fraud occurred during two funding rounds between 2020 and 2022.
According to the documents, external investors invested approximately US$86.2 million in Invenia from October 2020 to March 2021, with an additional US$33.5 million invested through January 2022.
During this time, Hudson allegedly made “materially false and misleading statements” to investors. The SEC’s complaint states that the falsified 2019 audited financial statements state that Invenia’s total annual revenue was approximately US$227 million, an inflation of approximately 1,035 percent from the actual US$20 million.
The same statement resulted in Invenia’s net loss of approximately $10 million, but a net profit of approximately $114 million, the complaint continues.
Fake emails and forged invoices were added to the scheme, according to the complaint.
This article focuses on two San Francisco-based investors during the first funding round in question. One of the two second-round investors is a San Francisco resident, according to the SEC. (A total of five American investors reportedly participated in the first round.)
The SEC alleges that Mr. Hudson, Invenia’s then-chief executive officer and de facto acting chief financial officer, also sent inflated financial statements to other board members.
Things took a turn when an investor approached Invenia’s board about raising a second round of funding, according to the SEC.
“Hudson knowingly or recklessly fabricated virtually everything about the (second) financing round, which was never approved by the Invenia board,” the complaint states.
The board established a special committee in April 2022 to learn of the misleading financial statements. Both second-round investors were paid back by August 2022 at Hudson’s direction, the SEC said. The first round of investors claim they haven’t seen their money.
The board terminated Hudson in October 2022. Two months later, Bloomberg reported that venture capital firm Tribe Capital had slashed Invenia’s valuation by 95 percent, citing inflated financials and other irregularities.
Invenia’s roughly 75 staff spread across Winnipeg and Cambridge will be laid off in early 2023, the Free Press previously reported. Invenia’s board forced the company into bankruptcy earlier this year.
Meanwhile, Mr. Hudson was released on bond pending trial. He is scheduled to appear in US federal court on November 17th. The Free Press reached out to Hudson on Monday morning but did not receive a response by the end of the day.
If convicted, Hudson could face up to 20 years in prison, a $250,000 fine and restitution, the U.S. Attorney’s Office outlined.
The SEC is seeking a permanent injunction, including conduct-based injunctions, disgorgement and prejudgment interest, civil penalties, and officer and director prohibitions.
gabrielle.piche@winnipegfreepress.com
Gabriel Pichet
reporter
Gabriel Pichet reports on business for the Free Press. She interned at the Free Press and worked for its sister publication Canstar Community News before venturing into business in 2021. Read more about Gabriel.
All reports produced by Gabriel are reviewed by our editorial team before being published online or in print. It’s part of the Free Press’ tradition of producing trustworthy, independent journalism since 1872. Read more about the Free Press’ history and mission, and learn how our newsroom operates.
Our newsroom relies on readership to grow our journalism. If you’re not a paying reader, please consider becoming a subscriber.
Our newsrooms rely on our readership to power our journalism. Thank you for your support.
