VerSe Innovation has categorically refuted all allegations regarding its commercial dealings with Builder.ai, the artificial intelligence startup that was once lauded as a rising unicorn but has now reportedly filed for bankruptcy.

Builder.ai is facing serious allegations concerning financial misconduct, casting a shadow over corporate governance and due diligence practices within the startup ecosystem.

The 'round-tripping' controversy

At the core of the accusations is a contentious practice known as "round-tripping," where it was claimed that two companies allegedly exchange similar amounts of money to artificially inflate revenue figures. Reports claimed that Builder.ai, in conjunction with VerSe Innovation and its subsidiary Quark Media Tech, engaged in reciprocal payments totaling nearly $60 million. These transactions were purportedly for services like app development and marketing. However, a media report claims that these exchanges frequently lacked any genuine delivery of services or products and were allegedly structured and timed to evade scrutiny.

Since then, Builder.ai's downfall has been swift and dramatic. The company, previously valued at $1.5 billion and having secured over $450 million in funding from prominent investors like Microsoft and the Qatar Investment Authority, recently disclosed that a major creditor had seized its funds, forcing it to initiate insolvency proceedings.

Further deepening the company's woes, US prosecutors have reportedly issued a subpoena to Builder.ai, demanding customer lists, financial records, and accounting policies. Separately, Bloomberg reported that the startup allegedly overstated its projected 2024 sales by a staggering 300%, purportedly misleading lenders.

VerSe Innovation denies allegations

Meanwhile, VerSe Innovation has rubbished all allegations. In a virtual meeting, company founder Umang Bedi, Chief Information Officer Jai Thomas, and Head of Mergers & Acquisitions Abhishek Khaitan presented documents including invoices, product details, and service delivery records pertaining to their transactions with Builder.ai.

"We have shown you all evidences of how we did business with Builder.ai. All these documents are dated and part of our accounts. Revenue recorded in our financial statements, including the revenue from Builder.ai, relates to legitimate services rendered and delivered—either directly or through its subsidiaries. Similarly, expenses recorded by VerSe Innovation correspond only to services actually received, including from Builder.ai or its affiliated entities. This has been verified periodically by reputable independent third parties. Hence, media reports are not only factually incorrect and baseless, but also defamatory and misleading," Bedi stated.

Bedi emphasized that VerSe Innovation "expressly reserves the right to pursue all appropriate legal remedies, with all consequences borne solely by those responsible," in response to any published or disseminated claims. He also added that while the company is open to any inquiry, no authority has approached them for one thus far.

Addressing the recent departure of VerSe Innovation's Group CFO, Sandip Basu, Bedi clarified that Basu left due to age-related health issues, as he is 65 and facing health challenges.

In a detailed statement, VerSe Innovation further asserted, "Any insinuation that VerSe Innovation colluded with Builder.ai to inflate revenues, engaged in reciprocal billing without corresponding services, or manipulated invoicing practices to conceal any arrangement or payments were intentionally interspersed in timing and amount of the invoices to avoid suspicion is entirely false, defamatory, and irresponsible. VerSe Innovation rejects any such mischaracterizations and reiterates its commitment to transparency and legal compliance."

The company's statement elaborated on their business relationship, stating that over the past five years, VerSe Innovation engaged Builder.ai for services such as hyperscale cloud deployment and system migration, and customized app development and software solutions, at a cumulative spend of $80 million.

During the same period, Builder.ai engaged VerSe Innovation for advertising services, resulting in total payments of $53 million to VerSe Innovation. VerSe maintains that this balance of trade "further disproves any allegation that the payments were of similar amounts and part of any coordinated arrangement or round tripping."

VerSe Innovation also highlighted that their statutory audit for FY24 included a comprehensive examination of several transactions, including those with Builder.ai. The company confirmed that each transaction was validated and thoroughly checked, including reviews of services rendered, supporting documents, and payments. The statutory audit for FY24 concluded with an unqualified opinion from the auditors, confirming a true and fair view of VerSe's financial statements.