The complaint, filed by the law firm Wolf Haldenstein Adler Freeman & Herz LLP, centers on claims that Netcapital improperly recognized revenue from entities controlled by John Fanning, the husband of the company's CFO and a former Napster executive. Prosecutors allege these consulting contracts were backdated or forged to mislead shareholders about the company's growth and operational health.

Legal pressure intensified after the SEC filed its own charges against Netcapital on August 10, 2026, triggering a series of disclosures that eroded the company’s market value. Shortly after the SEC action, the firm’s independent auditor, Fruci & Associates II, PLLC, resigned, citing the ongoing litigation. The turmoil deepened in late August when board member Avi Liss stepped down, explicitly citing the serious nature of the allegations against current and former executives in his resignation letter. Each of these disclosures resulted in double-digit percentage drops in Netcapital’s share price, prompting the current push for investor recovery.