The Accounting Tricks Behind a SPAC’s Sudden Fall

At the height of the pandemic-era market frenzy, SPACs; those “blank-check” companies that promised a fast track to going public, were Wall Street’s hottest ticket. They offered private firms a shortcut to the stock exchange without the drawn-out IPO process, and investors piled in, betting on the next big thing. But in the rush for speed, some companies weren’t just overconfident, they were allegedly rewriting reality. One of the most striking cautionary tales is Near Intelligence Inc., a Pasadena-based data analytics firm that went public in March 2023 and was bankrupt by December. Federal prosecutors now say that in the run-up to its SPAC merger, the company’s top brass used accounting sleight of hand to pump up revenues more than tenfold. It’s a story that links the explosive rise of SPACs, the collapse of investor trust, and the fine line between aggressive projections and outright fraud.

From Rocket Fuel to a Crash Landing

Special purpose acquisition companies, or SPACs, are essentially publicly traded shell corporations with one mission: merge with a private business and take it public, no roadshow, no IPO fuss. They were all the rage in 2020–21, fueled by meme-stock energy and low interest rates. Nearly 850 SPACs raised a staggering $245 billion during that frenzy. The pitch? SPACs could get promising firms onto the public markets quicker, with less regulatory red tape. The problem? Many companies weren’t ready for prime time, but investors, big and small, couldn’t resist the get-rich-quick vibe.

Source: Bloomberg

Near Intelligence was one of them. The Pasadena-based data analytics company joined the Nasdaq in March 2023 via SPAC KludeIn Acquisition Corp. Less than nine months later, it was filing for Chapter 11 with just $3.3 million in cash left and $100 million in liabilities.

Cooking the Books

According to federal prosecutors, Near Intelligence’s leadership didn’t just paint an optimistic picture of its future, they allegedly Photoshopped the whole scene. CEO Anil Mathews and CFO Rahul Agarwal, alongside Kenneth Harlan of MobileFuse, are accused of orchestrating a “round-tripping” scheme to artificially inflate revenue.

Here’s how prosecutors say it worked:

• Fake Invoices – Near Intelligence allegedly sent MobileFuse invoices for large sums far exceeding the value of actual services provided.
• Cash Boomerang – MobileFuse paid those inflated invoices, then received much of the cash back from Near Intelligence in a disguised flow of funds.
• Revenue Illusion – Near Intelligence booked the full payment as revenue, making income appear more than 10 times greater than reality.
• Personal Paydays – Prosecutors also allege that Mathews and Agarwal siphoned hundreds of thousands for personal expenses, from real estate to foreign transfers.

In accounting terms, the tactic blurred the lines between legitimate receivables and fabricated top-line growth. It also inflated valuation metrics critical to SPAC dealmakers and investors deciding whether to back the merger.

Investor Trust on the Chopping Block

This wasn’t just a one-off embarrassment. Near Intelligence’s implosion is part of a broader SPAC hangover that’s already wiped out over $46 billion in market value in 2023 alone. High-profile SPAC failures, from WeWork to Lordstown Motors, show how inflated projections, weak due diligence, and limited SEC oversight during the SPAC boom created a perfect storm for losses.

Source: Bloomberg

For investors, the takeaway is grim:

• Valuation checks in SPAC deals often rely heavily on management’s projections, which can be more “wish list” than financial forecast.
• Audit pressure increases when companies rush to go public, and some corners get cut in the name of speed.
• Post-merger scrutiny tends to reveal what the pre-merger hype obscures, sometimes in spectacular fashion.

The trust deficit now threatens the SPAC model itself. With regulators tightening rules and investors demanding better disclosures, the freewheeling SPAC era looks all but over.

Takeaways for Professionals

• Revenue Recognition Vigilance – Round-tripping and inflated invoicing are classic red flags. Ensure audit procedures probe not just amounts, but the substance of transactions.
• Due Diligence Discipline – SPAC speed shouldn’t mean skipping forensic-style reviews of revenue sources and customer contracts.
• Investor Communication – In high-risk listings, candor about readiness for public markets isn’t just ethical—it’s protective.
• Regulatory Horizon – Expect tighter SPAC rules from the SEC, including more IPO-style scrutiny of projections and sponsor disclosures.

The Road Ahead

Mathews and Agarwal face charges including conspiracy to commit securities fraud, wire fraud, and aggravated identity theft. If convicted, they could see up to 20 years behind bars. The SEC’s appetite for stricter SPAC oversight is growing, and future deals are likely to face IPO-level disclosure requirements. As for Near Intelligence’s assets, they’ve already been sold to distressed-lender Blue Torch Capital for $50 million in a debt-for-equity swap. But the bigger fallout is reputational, both for the executives involved and for the SPAC mechanism itself. If there’s a silver lining, it’s that this case could become a landmark in setting clearer accounting and disclosure standards for SPAC-backed listings. Whether that’s enough to lure back wary investors is another story.