Quantum computing startup probed in report, securities suit
From alleging wild falsehoods to questioning man behind the curtain, Scorpion stings hell out of IonQ
Quantum computing startup IonQ is facing a securities fraud lawsuit after a barrage of accusations came to light in a blistering report from Scorpion Capital, which claims the company lied about the maturity (and even existence of) its quantum device in addition to a smattering of claimed financial fictions.
The Scorpion Capital report, issued May 3, provides a rigorously scathing assessment of the IonQ technology, which is described as "a useless toy that can't even add 1+1" as assessed by internal experiments run by unnamed but numerous quantum experts hired by Scorpion and exhaustively detailed in the full report [PDF].
It's not just the company's technology on the chopping block, either. Scorpion Capital calls the startup "a part-time side-hustle run by two academics," one of whom, CEO and founder, Peter Chapman, "appears to be making up his MIT educational credentials," something we'll get to momentarily.
Today, Los Angeles-based law firm Glancy Prongay & Murray announced it has filed a proposed class-action complaint against IonQ, built on and referencing the Scorpion report's claims. The lawsuit seeks to represent those who invested in IonQ securities between March 30, 2021 and May 2, 2022. The complaint also includes a number of alleged misrepresentations and omissions in SEC and other company filings, as well as in marketing and website documents issued by the publicly traded IonQ.
IonQ's stock price fell nine percent on the release of the Scorpion report, and is down about 30 percent over the past month.
First and most damning are the lawsuit's allegations that, as the law firm summarized, "IonQ had not yet developed a 32-qubit quantum computer" and that their existing "11-quantum qubit computer suffered from significant error rates, rendering it useless."
In addition to claiming the flagship 32-bit quantum computer never existed and the tiny one they had was so error-prone, and that the technology was "not accessible despite being available through major cloud providers," the lawsuit also alleges some financial misdeeds, including a claim that "a significant portion of IonQ's revenue was derived from improper round-tripping transactions with related parties."
In colloquial fashion, Scorpion Capital added that "IonQ's top holders are the some of the usual purveyors of SPAC trash" and with no disguise for disgust, Scorpion goes on to add that "no charade is complete without Softbank popping up as a top holder, and it appears that Silver Lake, Google, and Michael Dell's family office have been bamboozled as well. We further note the Quantumscape (QS) CEO's appearance on IonQ's advisory board. We published a report on that SPAC last year, which is down 61 percent since."
Haters gonna hate…
All of this sounds damning, to be sure, but we should urge some caution: these are allegations.
Scorpion Capital is run by Kir Kahlon, who is focused exclusively on finding and calling out what he sees are fraudulent securities. Kahlon, a noted short-seller with a stated Harvard MBA, has worked for a number of top-tier investment firms, including Tiger Global, Seligman Investments, and Bain & Co, as well as founded "an enterprise software company" where he raised $15 million in capital, according to his LinkedIn. We've reached out to Kahlon for comment.
IonQ addresses Kahlon and common short-selling techniques in its public statement following the report: "As the first public 'pure-play' quantum company, IonQ is an easy target for questionable stock manipulation tactics such as publishing misinformation and betting against the company through a short-selling strategy."
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IonQ's CTO Jungsang Kim, and chief scientist Christopher Monroe, added, "The report is riddled with disinformation, demonstrating a breathtaking ignorance of the quantum computing industry in general and IonQ technology in particular. However, the disclosure page is clear – it admits that Scorpion has a financial incentive for devaluing IonQ, it does not vouch for the accuracy of any of the report contents, and it acknowledges editing interviews with paid experts and former employees while suppressing positive opinions on IonQ."
Scorpion has a financial incentive for devaluing IonQ, it does not vouch for the accuracy of any of the report contents
We can find many references to the work of Dr Kim, a Duke University professor, and Monroe of the University of Maryland, and their years of work in the quantum computing field. This stands in stark contrast to the lack of public information about short-seller extraordinaire, Kir Kahlon. It is the fact that these two academics retain "real jobs" that leads Khalon to claim IonQ is a "side hustle."
On the point of concerns about the company's CEO and his claim to MIT fame, Scorpion Capital said Chapman's narrative is that he is a "child prodigy who began programming at the MIT Artificial Laboratory at age 16" but that this was a pre-adult experience and not a graduating degree.
As the Scorpion report goes: "Far from being a child prodigy, we suspect his purported gig at MIT at age 16 was simply nepotism. Chapman has stated his father was an astronaut, who we believe to be Philip Chapman, whose Wikipedia profile states did his doctorate at MIT in the 1960s and then appears to have remained in the Cambridge/Boston research scene. We note that Peter Chapman's profile on the IonQ site and in SEC filings not only fails to list MIT, but lists no educational credentials at all."
We have reached out to Chapman for comment and clarification.
But here's why you read this to begin with….
The reason this story matters is because it (too easily) gives you what you wanted: a toothy tear-down of a technology that is so difficult to describe and compare that it is ripe territory for actual fraud.
The Scorpion report deals some solid savagery for what it calls a "quantum Ponzi scheme" and a "brazen hoax." For those in the words business, as we are, it is clear this report, which is far from a dry academic assessment of performance and claims, that you are meant to feel something. And after all, isn't that what guides investment decision-making when real data is scant?
From the report: IonQ's tactics are "reminiscent of Nikola's shenanigans, our research indicates that IonQ's purported 32-qubit "world's most powerful quantum computer" is a brazen hoax. The machine is featured near the top of its homepage and is its claim to fame as well as the basis of its SPAC. We believe that IonQ's only actual machine is a useless, experimental, error-ridden toy with far fewer qubits, similar to science projects one can use for free from its competitors."
It would be foolish to say there is not a general appetite for quantum technology company tear-downs that provide meaty detail and rabid attack language. After all, in the real world – the one we all knew back in the boring old CMOS days – you had to prove what you did worked. How dare these upstarts walk away with millions in funding to develop something that is a roving Schrödinger's cat: both real (funded/employing people) and dead (because it never materializes in the real world). ®