Climate-friendly fintech startup Aspiration's co-founder Joseph Sanberg has been arrested, and one of its board members, Ibrahim AlHusseini, has pleaded guilty to wire fraud in connection with allegedly fraudulent loans totaling $145 million. This development marks a dramatic turn of events for the company, which was once on the verge of a $2 billion public listing just four years ago.

According to a federal criminal complaint filed by the U.S. Attorney's Office of the Central District of California, Sanberg allegedly conspired to defraud two different funds of $145 million. AlHusseini, a former independent board member, pleaded guilty to wire fraud for falsifying documents to help Sanberg secure the loans. If convicted, Sanberg faces up to 20 years in prison, while AlHusseini faces the same maximum penalty, although he is cooperating with prosecutors.

The scandal revolves around a series of loans obtained by Sanberg using allegedly fraudulent tactics. In 2020, Sanberg negotiated a $55 million loan with an unnamed investor fund, pledging 10.3 million shares of his Aspiration stock as collateral. However, to secure the loan, Sanberg allegedly convinced AlHusseini to enter into a put option on the shares, which would obligate AlHusseini to buy if the fund wanted to sell. To facilitate this, Sanberg and AlHusseini allegedly created fake brokerage account and bank statements to inflate AlHusseini's assets by $80 million to $200 million.

As part of the scheme, AlHusseini received $6 million as a premium payment for guaranteeing repayment in case Aspiration went under. The loan was later refinanced with a second unnamed investor fund in November 2021, with Sanberg securing a $145 million loan. Again, AlHusseini allegedly agreed to a put option, this time for $65 million, and received $6.3 million as a premium payment. In total, AlHusseini received $12.3 million from the scheme, according to his plea agreement.

The scheme began to unravel when Sanberg defaulted on the $145 million loan in 2022, and again in the spring of 2023. The fund that provided the loan exercised its put option with AlHusseini, who failed to buy the shares, resulting in a loss of at least $145 million for the fund.

Aspiration, which had attracted a long list of high-profile investors, including actors Orlando Bloom, Leonardo DiCaprio, and Robert Downey Jr., musician Drake, and basketball coach Doc Rivers, had been under federal scrutiny for years due to questionable financial and carbon accounting practices. The company's plans to go public via a special purpose acquisition company (SPAC) in 2021 ultimately fell through in 2023.

The fallout from this scandal is likely to have significant implications for the fintech industry, particularly in the area of climate-friendly investments. Aspiration's troubles serve as a cautionary tale for investors and regulators alike, highlighting the importance of due diligence and transparency in the financial sector.

As the legal proceedings against Sanberg and AlHusseini continue, the future of Aspiration remains uncertain. However, one thing is clear: the company's once-promising trajectory has been irreparably damaged by the alleged fraudulent activities of its co-founder and board member.