David Fairfull, the founder of failed AI marketing startup Metigy, has been sentenced to nine years jail for lying to investors, falsifying financial statements and using his position as a director dishonestly.
He raised $39 million using doctored bank statements and imaginary earnings and almost launched another capital raising of $50 million before being found out.
Along the way he used millions of dollars of the funds raised to help finance a house on Sydney’s lower north shore and a weekender at Kangaroo Valley.
The 58-year-old former We Are Social managing partner will be well into his 60s before he is released. He must first serve a non-parole period of five years and four months.
After pleading guilty, Fairfull was convicted in the Federal Court on one count each of making false and misleading statements to investors and dishonestly using his position as a director for personal gain.
Fairfull believed he was justified making false statements to persuade investors to invest in his business because he believed the product would be successful, and investors would not lose out in the end.
He “was convinced that all investors would be reimbursed their investments down the track,” the court was told.
The Federal Court was unimpressed with Fairfull’s apologies and his argument that anxiety and depression materially contributed to the commission of his offences, such as to lessen his moral culpability.
“He engaged in multiple acts of dishonesty using his position of trust and control, which included forging banking documentation to induce others to invest and provide capital for his business,” the judge, Wendy Abraham, said.
“His deception escalated over time. He took the approach of the ends justified the means; it enabled the companies to continue working towards the product being produced, and its success from which he would benefit.
“Knowing the financial circumstances of the companies, he nonetheless provided to himself a substantial personal benefit of $7.7 million through the director loan to acquire residential luxury properties.”
The judge described Fairfull’s acts as deliberate, premeditated, sophisticated and rational ones to achieve a purpose.
“They were dishonest acts designed for personal gain,” the judge said.
Metigy went into voluntary administration in August 2022 leaving its 75 staff without jobs.
Initial seed capital raising started in 2019 and in the end investors included Cygnet Capital, Regal Funds Management, OC Funds and Five Venture Capital.
An early pitch deck showed Metigy with 2018 financial year revenue of $1.2 million, when the actual number was no more than $11,859.28.
In 2020, Fairfull gave Cygnet updated financial information representing that Metigy’s revenue for May was $750,000. The true figure was $1,083.16.
In the same year, falsely claimed the full-year revenue for 2019/2020 was $5 million.
In February 2021, Fairfull sent investors a quarterly update putting Metigy’s “Total net revenue” for July to December 2020 as $6,160,567.22, when it was really $12,522.27.
The same update falsely represented net revenue for January 2021 as $1,512,000, when the real figure was $2,277.70.
Fairfull told AdNews in 2021 that Metigy was a digital marketing solution for SMEs that traditionally haven't been great at digital marketing, and because of COVID, it's been on trend.
“Suddenly digital marketing was a hot topic, regardless of anything prior to that,” he said.
”It just became paramount that every SME becomes good at digital marketing. So timing is great, and it accelerated for us.
“We were, in the prior year, growing about 10% month on month, and that's kicked up to about 14% month on month since COVID, so that's a pretty good lift rate.
“Many businesses have obviously found it difficult to pivot and do things differently but we've been lucky enough to be on trend, and accelerate our growth because of it.”
Ben McCallum at Regal Funds Management told AdNews at the same time that the numbers showed the business continued to grow.
“Month on month, it had just continued to grow and grow,” McCallum said. “Over a period of time, they continued to outperform our expectations and their own internal budgets, which meant that it was growing at an extremely rapid pace.
“And they managed to keep that growth at the same rate, despite the fact that they were getting bigger and bigger.”
Sarah Court, the chair of corporate regulator ASIC, which launched the investigation into Fairfull, said that misconduct related to directors’ duties is an enduring enforcement priority.
“Fairfull’s actions were a breach of the integrity and honesty expected of directors, and his imprisonment reflects the seriousness of his crime,” she said.
“Fairfull fed investors false statements about the company’s financial performance and misused company funds for his own personal benefit.
“ASIC will continue its focus on director misconduct, and we will not hesitate to take action in response to serious governance failures.”
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