Fraud Beneath The Canopy

Eight years ago, Vikram Kashyap left his job as an associate with Battery Ventures, in order to get the type of operating experience he felt was required to become a “world class” investor. After stops at eMeta and American Express, Kashyap launched Canopy Financial, a company whose technology helps streamline the administration of Health Savings Accounts. Canopy raised over $88 million in VC funding, including $62.5 million this past summer from Spectrum Equity Investors and return backer Foundation Capital.

Today, Kashyap is unemployed andseveral Canopy executives areexpectedto face both criminal and civil accusations of fraud (although no charges have yet been filed).


As first reported this morning by TechCrunch, Canopy Financial appears to have largely been a facade. Its technology is real, but many of its tax statements, customer records and financial results were bogus. Sources tell peHUB that the company laid off approximately 100 of its 120 employees last Thursday, after an investor audit showed signs of severe impropriety.

“The entire company thought everything was going great until two or three weeks ago,” says a former employee who asked not to be identified. “Once that [audit] happened things moved very fast. The last week in our office was like going to a funeral.”

What’s really amazing here isn’t just the alleged audacity, but also the ability to deceive. We’re told that lead investor Spectrum went through all of its typical due diligence processes before investing, including reviews of company financial statements, discussions with customers, discussions with existing investors and a review of the company’s technology.

Spectrum declined to comment, but a source tells us that the firm now believes that most of what it viewed was bogus. This includes a supposed audit from KPMG, including KPMG letterhead and boilerplate. The source says that KPMG may have been retained by Canopy, but it did not produce the audit provided to investors (the accounting firm is not expected to face any charges).

Spectrum and Foundation Capital each did their own work over the past few weeks, trying to reconcile numbers that they felt were note adding up. “It became obvious pretty quickly that something was wrong,” says a source.

Kashyan told peHUB last year that Canopy had 2007 revenue of $9.4 million. TechCrunch reported today that the figure was at $60 million by last year, and we hear that Spectrum and Foundation were given even an even higher figure before investing in July. TechCrunch also reported that initial Canopy Financial investor Granite Global Ventures may have taken up to $25 million off the table during the most recent round — in which it did not reinvest — and that it could be named as a defandant. peHUB has been unable to confirm this information.

We are playing phone tag with Canopy, and have put in calls to Spectrum, Foundation and GGV. If we connect with any of them, we’ll update this post. I’ve also left a message for Financial Technology Partners, which served as placement agent on the recent round. Here’s a PDF copy of their tombstone upon the deal’s completion. (Note: The PDF was removed at the request of Financial Technology Partners. -Ed.)

Deborah Gage assisted in the reporting of this story


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  • In early 2007, I remember seeing Mr. Kashyap at a HSA luncheon in DC. A short figure with very little to say. It was always mind-boggling to hear about Canopy in the news, having being told then that their only client was a little known Shawnee Administrators. A lot has to be said about their ability to raise capital without a lot of clients or revenue to show for. The growth from quarter of a million in sales in 2005 to 19 million in 2008 was remarkable, keeping in mind that not many (if any) had figured out a way to make HSA administration into a profitable business.

  • Ok first off, every starting business has small clients to begin with. Just because the only client they had was Shawnee in the beginning does not mean anything. As of 3 weeks ago, we had SEVERAL big name clients that worked with us helping peoples lives work better with their HSA’s. Has anyone ever thought of the fact that if a company does in fact have great technology and a GREAT product, that the company would infact succeed? Just because 2 stupid people high enough in the company decided that their salaries were not enough, does not make the rest of the company crappy. There were 118 other employees there that cared a ton for that company…putting in late hours and working extra to make sure things got taken care of…..all to get layed off….so please if you are going to criticize the company, please criticize the 2 dumba$$’s who decided to make it go down, not Mr. Kashyap or the company itself.

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