How Gab Has Raised Millions Thanks to This Crowdfunding Company
Three months after a man radicalized on Gab.com killed 11 Jews in a Pittsburgh synagogue, the social media website that has become a hub for white nationalists and neo-Nazis remains financially viable thanks to an Obama-era law and an online crowdfunding broker, a Hatewatch investigation reveals.
The JOBS Act of 2012 was designed to help startup companies use crowdfunding to raise up to $1.07 million a year. The law has allowed Gab’s parent company, Gab AI, Inc., to raise $2 million since 2017 from two crowdfunding rounds handled by StartEngine Crowdfunding, Inc., a Los Angeles securities brokerage firm that helps companies prepare regulatory filings and sell investment shares to the public.
A handful of investors – 1,000 in 2017 and 1,900 in 2018 – purchased $1 million of highly speculative securities in Gab through StartEngine, providing the company enough capital to allow it to continue to operate.
Revenue has otherwise been scarce. Payment processors like PayPal and Stripe dropped Gab in the aftermath of the Oct. 27, 2018, terror attack at the Tree of Life Synagogue, causing a 90 percent drop in subscription revenue from premium services, Gab stated in a Dec. 19 Securities and Exchange Commission (SEC) filing.
The company was relying on snail mail and cryptocurrency to sell premium subscription services, but announced on Tuesday it formed a relationship with an obscure company called 2nd Amendment Processing to help with future credit card payments.
StartEngine, meanwhile, has earned $450,000 in fees from Gab in the last two years by helping the site raise money – including signing a $200,000 contract with Gab in December – two months after the synagogue shooting.
Gab CEO Andrew Torba is using a portion of the crowdfunding money to prepare two additional public offerings of Gab stock worth up to $20 million. Gab is tapping another JOBS Act provision that allows companies to sell up to $50 million worth of speculative securities per year at a far lower expense than a traditional Initial Public Offering that can cost millions of dollars in legal, accounting and marketing fees.
Federal regulators, however, have not approved Gab’s two $10 million offerings filed under SEC Regulation A, preventing the company from moving forward with the stock sales. StartEngine also prepared and filed Gab’s SEC Regulation A offering memorandums.
One of the Regulation A offerings has been pending before the SEC for a year, raising questions of whether it will ever be approved. SEC spokesman John Nester declined to comment on the standards used to determine whether or not to approve the offerings. Two private investment analysts contacted by Hatewatch say the SEC has no time limit to make a decision but the fact an offering has not been approved after a year suggests the SEC has concerns about allowing the sale to go forward.
Without access to private investors, Gab’s financial outlook is uncertain. Gab has lost more than $350,000 since it began operations in August 2016 through June 30, 2018. Gab can seek a third $1 million crowdfunding round in September, and given the speed at which the previous crowdfunding rounds were fully funded, the company may continue to survive on yearly injections of capital from a relatively small number of investors.
The fact that an Obama-era law aids in the survival of a website wherein the former president remains the butt of countless racist jokes would likely be too heavy-handed for fiction, but nothing about Gab, a self-described “free speech social network” where users regularly praise terrorists like Dylann Roof, Anders Breivik and Timothy McVeigh, has ever been subtle.
Gab hypes its services – and possibly, its numbers
Gab’s September 2018 promotional page on StartEngine for its second $1 million crowdfunding round makes the kind of boasts typical for any company trying to raise money.
“We put people first, providing them with the tools they need to create and shape their own online experience,” the page claims. “Gab was launched to appeal to consumers unhappy with censorship.”
But within that page Gab makes the promise of three features: “Gab TV,” a live-stream and video service on the site; “Live Topic,” an internal mechanism for grouping users around specific subject matters, like Twitter’s trending topics; and “Chat Rooms.”
The trouble is that Gab TV doesn’t exist. As of Jan. 23, the link https://gab.ai/tv produces no content.
Gab did experiment with Gab TV at one point. “Crying Nazi” Christopher Cantwell, a white nationalist podcaster who enjoys posting violent and hateful rhetoric on Gab and sometimes celebrates the racist murders committed by Dylann Roof there, used it to host a livestreamed podcast in early 2018. In Cantwell’s podcast, Andrew Anglin, founder of the neo-Nazi site the Daily Stormer, bragged about his desire to recruit 11-year-old boys into the white nationalist scene. But the TV feature was only operating sporadically before the summer of 2018, according to Gab users. And the link went dead soon after that.
Gab’s misrepresentation of the functionality of its TV feature in its September 2018 crowdfunding documentation raises questions about the legitimacy of other information it provides to current and prospective investors.
Gab, for example, has not publicly provided information on the number of active users on the site. Instead, Gab has focused on the number of “registered users,” or sometimes refers vaguely to “users” or “people” in its public statements about site activity. Registered users are not a reliable indicator of overall web traffic because they could potentially be inflated by bots or people who sign up for multiple accounts under different names. Social media companies like Facebook, Twitter and Snapchat publish reports about their total numbers of active users.
Gab reports in documents promoting the crowdfunding rounds that website users have steadily increased in the platform’s short history. In its 2017 crowdfunding promotion posted on StartEngine, Gab states traffic increased from around 1,000 users when it went live in August 2016 to 191,000 by May 2017. In its 2018 crowdfunding promotion also posted on StartEngine, Gab claimed users passed 600,000 by August 2018.
Immediately after the Tree of Life shooting, the company stated on Twitter there were “800,000 Gab users.” Gab claimed in last month’s SEC filing that as of Dec. 13 it has “approximately 835,000 persons registered on our platform from around the world.”
Just six days later, on Dec. 19, Gab claimed on Twitter that the site had “850,000+ people.” This would mean roughly an average of 2,500 new users registered on Gab across the six days between the SEC filing and that statement.
Gab’s boasts of increasing users are not supported by other evidence, including its own statements.
Storyful, a social media intelligence company owned by News Corp that analyzes data from fringe platforms, estimated the number of Gab’s active users – human beings who actually log into the site and post content – to be something far smaller than those promoted by Gab. Storyful analyzed Gab posts that were published between Jan. 9 and Jan. 16 in response to a request for data on the site’s active users from Hatewatch. The company found only 19,526 unique usernames had posted content during that seven-day time period. Storyful’s calculation does not account for the possibility that people are manning more than one account on Gab, thereby artificially boosting those numbers.
Gab’s own statements also cast doubt over its claim of more than 850,000 registered users. Gab stated in its Dec. 19 SEC filing that only 5,000 users are paying for yearly or monthly subscriptions to the site. This means that Gab has convinced only a small fraction of its supposed 850,000-plus users to subscribe to premium services. Gab subscriptions currently run at $30 for a six-month subscription, $60 for one year, and $200 for five years. The premium services allow users to create chat rooms for up to 50 people as well as use the currently non-functioning Gab TV feature.
It’s not uncommon for users of the site to mock how empty it feels, and unsatisfied premium subscribers sometimes accuse Torba of buoying his numbers with Gab accounts they suspect are not tied to actual human beings. The number of members who are in different topic areas also appears limited, with none having more than 5,000 members in a group out of Gab’s reported 850,000 plus users.
Gab’s new web host is confirmed, but they’re not talking
So far Epik, a small domain registrar, has stolen many of the headlines about Gab’s return to the internet after the Tree of Life shooting. Part of the reason is Epik CEO Rob Monster’s willingness to appear publicly with extremists like Joseph Jordan, a white nationalist Gab user who habitually produces antisemitic content under the alias “Eric Striker.”
Gab’s current web host, Sibyl Systems LTD, has gone relatively unnoticed.
Gab pays Sibyl $1,175 a month, according to the Dec. 19 SEC filing. In return, Sibyl provides the internet infrastructure for the website.
Gab states in the SEC filing that Sibyl is based in Norway. But other business records show the company is based in Liverpool, England, and began operation on Oct. 22, 2018, just five days before the Tree of Life terror attack took place.
Sibyl’s principle officers are Cristina Silva and Marcelo Goncalves. Repeated efforts by Hatewatch to arrange an interview with Silva and Goncalves were unsuccessful after an exchange of emails. Silva and Goncalves, like Monster of Epik, were made aware that other registrar and web hosts have ceased doing business with Gab because of its content through emails sent by Hatewatch.
If Sibyl is based out of England, their relationship to Gab could potentially attract the attention of British law enforcement. Gab claimed on Twitter on Nov. 21, 2018, to have received requests for information about its users from a U.K.-based law enforcement agency.
Gab responded to the request with the showy disdain that has become synonymous with Torba’s social media persona. Gab cited America’s First Amendment and wrote, “Free Speech is not a crime. #England.”
Sibyl, if issued a subpoena from U.K. police under the Regulation of Investigatory Powers Act of 2000 (RIPA) for information on Gab’s users, might not have the same flippant response, especially if the company is based in England. RIPA allows British law enforcement to obtain limited user information from internet service providers.
Legal expenses and the possibility of more information to leak
Gab is facing potentially significant legal expenses after the Pennsylvania Attorney General’s (AG) office issued a Nov. 5 subpoena seeking records related to the company’s commercial and trade practices. Gab exposed the subpoena, which was supposed to remain secret, in a Nov. 7 Twitter rant lashing out at the AG.
“You will be a made fool,” the @getongab Twitter handle posted. “I promise you that. We will not be bullied or intimidated.”
Gab’s imprudent statement to law enforcement continues a well-established pattern of provocative outbursts. Torba is known for inflammatory statements on social media, including a comment that he would “raise his kids to hate journalists” and comments about Jewish people that critics viewed as antisemitic.
Gab took a more subdued tone in response to the subpoena in its Dec. 19 SEC filing. The company simply stated it responded to the subpoena on Nov. 19 and followed up with a stark warning that the inquiry could shut down the company.
“We do not believe we have violated any laws, however, if we are deemed to have violated any laws, the same could result in fines and penalties, or an order for us to cease operating our business,” the company states in the Dec. 19 SEC filing.
Gab’s response to the subpoena could produce new and potentially damaging information about Gab. Robert Bowers, the alleged Tree of Life killer who posted on Gab under the handle @OneDingo, was also active in the site’s chat rooms, Hatewatch has learned.
“Jack Corbin,” a pseudonymous Gab user who Right Wing Watch recently identified as Daniel McMahon of Brandon, Florida, told Hatewatch that he worked with Bowers in creating high-resolution images of antiracist activists from video on Gab’s chat feature for the purpose of outing those men and women to the white nationalist community. Bowers collaborated publicly with Brad Griffin aka “Hunter Wallace” of the neo-Confederate group League of the South to out antiracist activists on Gab, according to screenshots preserved by Hatewatch.
It’s unclear what else Bowers talked about with McMahon and other users in Gab’s private chat rooms, where the congregation of far-right extremists was commonplace. If the subject of violence was discussed, it would further reinforce the website’s reputation as one of the premier online organizing hubs for dangerous white supremacists.
“One of the guys in the chat killed himself immediately after the shooting, presumably because he knew he would be implicated for having been in the chat with Bowers,” Anglin wrote on the Daily Stormer about 23-year-old Edward Clark, a Gab user who fatally shot himself shortly after news broke about shooting at Tree of Life synagogue. “Gab has chat rooms. The wignats on that site were in these chats – I assure you – talking about all kinds of acts of violence.”
“Wignat” is a derogatory term used by some white nationalists to refer to working-class whites in their movement. It’s unclear if Anglin is accurate in his assessment of the discussions that took place in the underbelly of Gab in the leadup to the October terror attack, but he would know better than most, given the number of Daily Stormer writers who have populated Gab at different points.
Losses mount, but crowdfunding methods provide a lifeline
Gab survives in 2019 for one key reason: crowdfunding.
The SEC crowdfunding regulations allow certain small companies to raise up to $1.07 million a year with minimal disclosure requirements. Gab, which is based in Clarks Summit, Pennsylvania, raised $1 million in 2017 and 2018 through crowdfunding that was brokered by StartEngine.
StartEngine typically charges a company a 5 percent fee on whatever is raised through crowdfunding rounds. Gab raised $2 million in crowdfunding through StartEngine’s platform which should have generated $100,000 in fees for StartEngine.
Neither StartEngine’s spokesman nor Howard Marks, its CEO, returned repeated emails and phone calls from Hatewatch seeking comment about its relationship to the controversial website.
Marks is a leader in the crowdfunding movement and preparing SEC stock offerings for startups. He frequently writes on Medium.com about the issues facing the rapidly emerging funding option for startup companies. Marks provided insight into his business philosophy in an Oct. 11 Medium post:
The only things that should impact an entrepreneur’s ability to raise capital successfully is whether their business idea is a good one and whether they have the technical and business acumen, the endurance and the grit, to see it through.
Without the $2 million raised through crowdfunding on StartEngine’s website, Gab would likely have gone out of business long ago.
Gab reported a net loss of $160,454 for the first six months of 2018 on top of a net loss of $201,704 for all of 2017. The company’s Dec. 19 SEC filing states “there will be a significant decline in our revenue” in the last three months of 2018 after Gab’s payment processors dropped the site following the Pittsburgh shootings.
Gab pins financial future on SEC approval to sell stock
Unless it finds significant private capital, Gab’s long-term financial success hinges on whether the SEC will grant the company permission to move ahead with the two Regulation A public offerings seeking to raise up to $10 million each. The money, according to the company, would be used to build internal infrastructure so that it would not have to rely on third-party web providers and payment processors.
The offerings have gone nowhere because the SEC has not given the company approval to sell the securities. But under Regulation A, a company can accept “commitments” to purchase the securities in the future if, and when, the SEC approves their sale.
Again, StartEngine comes into the picture.
In January 2018, StartEngine prepared Gab’s SEC filing requesting permission to sell up to 2 million shares of Class B stock at $5 a share. StartEngine then posted the offering on its website. Gab’s offering received $5.7 million in commitments from 1,868 potential investors.
However, the stock cannot be actually sold until the SEC qualifies the offering. While Gab must wait to potentially sell the stock, Gab paid StartEngine $200,000 up front to prepare the SEC offering statement, in addition to other corporate filings and marketing services, according to Gab’s agreement with StartEngine.
In mid-December, StartEngine filed a second Regulation A offering on Gab’s behalf, this time seeking to sell up to 2 million shares of Class A stock at $5 a share. Gab paid StartEngine $150,000 on Dec. 19 after StartEngine filed the stock offering documents with the SEC. Gab will pay StartEngine another $50,000 when the latest stock offering appears on StartEngine’s website. That has not happened as of Jan. 22.
Once again, the SEC has remained silent on the offering. The SEC will file a notice on Gab’s SEC disclosure page if it approves either of Gab’s pending Regulation A offerings.
Torba stands to reap millions if the SEC approves stock sales
Torba’s financial strategy is based on leveraging the $1 million crowdfunding rounds to cover the company’s operating losses and underwrite the cost of preparing the $20 million in Regulation A offerings.
Gab pays Torba $80,000 a year, but he could make a fortune if the SEC gives Gab the go-ahead to sell the two Regulation A offerings and an active secondary market emerges for Gab stocks that would allow Torba to sell his shares of stock in the future. Neither Torba nor his attorney, Jeffery S. Marks of Newport Beach, California, returned phone calls from Hatewatch seeking comment.
Torba, 27, and two other officers issued themselves 9 million shares of Class A stock for $270 when the company was founded in 2016. Torba currently controls 6 million shares. The other 3 million shares were canceled after the other two executives left the company last year, according to the Dec. 19 SEC filing.
It’s clear Torba has grand plans for Gab. But the inability of the company to receive SEC approval for its Regulation A offerings leaves Gab in a vulnerable financial position. The company can’t seek another $1 million in crowdfunding until September 2019 because of the SEC restriction limiting crowdfunding rounds to once a year. It’s losing money at a rapid clip and could face massive legal fees stemming from the Pennsylvania Attorney General’s investigation.
A lack of oversight in the preparation of its SEC disclosures is also apparent.
In an SEC filing in connection with the second crowdfunding round that raised $1 million last September, Gab states on page 17 of the 61-page document, “We have a Regulation A+ pending before the SEC to sell up to an additional 100,000,000 Gab Tokens for $5.00 per share, or an aggregate offering price of $50,000,000.”
Apparently, no one bothered to check the arithmetic. And, like many things about Gab, the numbers just don’t add up.
Photo illustration by SPLC