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CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

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Re: CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

#111

Post by solumos »

pge wrote: post #102
solumos wrote: post #98

Earlier quoted context omitted.

> Regular audits should be standard practice for any company of that size. The company was audited twice, but the auditors tied the fraudulent bank statements to the fraudulent financial statements (woops). > In any case, it will be interesting to see what consequences there are for board members that appear to have failed in their basic responsibilities. Full cooperation with the SEC can get you a long way, especial…

Are you sure they were audited? I havent seen that in the material released so far, only that an auditor was engaged for due diligence, which was fairly cursory, not anywhere near an actual audit. Typically an audit would involve a direct verification of bank balances from the bank. In addition, an audit would typically directly verify customer contracts and make sure big deposits tied out to contracts and invoices.…

You're correct, my understanding of "full audit" vs "due diligence" was off.

Re: CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

#112

Post by solumos »

acruns wrote: post #84
squashua667 wrote: post #23

Earlier quoted context omitted.

- where are the contracts corresponding to revenue? Yeah they are an SMB SaaS but this is financial, there will be contracts, NDAs, etc SMB, especially the small end of SMB, does not often have contracts. It's more subscription based. That said, there were 2 versions of the software running at NS8. One was the original software that Adam Rogas and a co-founder created early on. That version was rather "opaque" and re…

"if the customers are fake there is no load on the system. How does engineering not figure that out? There were real customers and the customer growth was happening, especially in 2020. The problem is that the customer base and growth was nowhere near what Adam Rogas was cooking up on the backend." This doesn't really answer the question. The article states 40-90% of customers were fictional, as a cloud architect I w…

> For example after an announcement or company meeting where they announce the number of new customers

Nothing like this ever happened, AFAICT

> I would see some red flags and I would like to think I would be smart enough to start looking for something new but I haven't been in such a situation thankfully.

"Brazen fraud" is not where Occam's Razor leads in this case. "Transparency growing pains" seems much more likely. Specifically - if working for this company I would raise concerns that there aren't KPIs being regularly tracked across all functions. I'm sure it's possible that some of the newly hired senior management was working on this.

Re: CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

#113

Post by whycombagator »

legerdemain wrote: post #16

Interesting. They reached out to me on TripleByte last year: remote position, rather high cash comp for a startup, and no coding or whiteboarding as part of the onsite!

They were on SO (Stack Overflow) jobs too, one of the postings was for up to $250k remote IIRC. It was for a principal engineer position with experience in java & k8s. Their lower engineering titles on SO jobs were decent salaries too (mid-late 100s I think).

Re: CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

#115

Post by csours »

pfraze wrote: post #25
AdmiralAsshat wrote: post #3

I feel sorry for any CEO who actually steps down to spend more time with his/her family. That explanation has now more or less been completely co-opted by "Our CEO got caught in an embarrassing scandal and they need to fade from the public eye for a bit." I now assume that anyone who gives that reason on their way out must have done something terrible that is yet or about to come to light.

It’s like Thiel’s point about how monopolies always talk about the open market and small fish talk about being a monopoly. In this case, if you’re actually stepping down to spend time with family, you say “I’m looking for my next challenge.”

Our company recently had two executives leave to "pursue other opportunities". I saw an announcement from another company about one of them, but not the other one. I wonder if they are "spending more time with their family"

Re: CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

#116

Post by smabie »

Uhhrrr wrote: post #101
PragmaticPulp wrote: post #43

Earlier quoted context omitted.

None of it makes sense in the context of a well-run business with proper executives in place. That’s because these frauds don’t operate like a well-run business. Usually, the upper management teams are extremely lean. The business is broken up into different silos such that few people can see the big picture. Each is led to believe they are a tiny fraction of the overall revenue, giving them the impression that the b…

Fun thought experiment: are there businesses where this structure is beneficial, or is it always a red flag?

In the past, traders were siloed and no individual trader would have access to the total positions of all the traders on the floor. Some firms still operate this way, though it's more common for trading operations to be broken up into "pods" or teams of traders and analysts.

The industry has largely moved away from this structure for a variety of reasons. One of the problems is that traders start to try and undermine each other, since the only thing that matters is your personal pnl. Another problem is that traders can unknowingly all pile into the same investments, resulting in massive risk. This is part of the reason why the Great Recession was so bad.

Re: CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

#117

Post by nvr219 »

csours wrote: post #109
PragmaticPulp wrote: post #43

Earlier quoted context omitted.

None of it makes sense in the context of a well-run business with proper executives in place. That’s because these frauds don’t operate like a well-run business. Usually, the upper management teams are extremely lean. The business is broken up into different silos such that few people can see the big picture. Each is led to believe they are a tiny fraction of the overall revenue, giving them the impression that the b…

This reminds me of why traders are required to take vacation - it may be the only time their scams are unraveled. https://www.newsday.com/business/columnists/help-wanted-carr...

When done right the vacation is sprung on them without notice. In reality they usually know when their vacation is coming so they can alert their cohorts.

Re: CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

#118

Post by rapnie »

liability wrote: post #63
PragmaticPulp wrote: post #43

Earlier quoted context omitted.

None of it makes sense in the context of a well-run business with proper executives in place. That’s because these frauds don’t operate like a well-run business. Usually, the upper management teams are extremely lean. The business is broken up into different silos such that few people can see the big picture. Each is led to believe they are a tiny fraction of the overall revenue, giving them the impression that the b…

Sometimes tribal/"team sport" group dynamics keep employees inline too. Executives can foster an "us against the world" mentality that blinds workers to that which is obvious to everybody else. When in this mindset, people have the ability to ignore even the most damning evidence. Here's an example: When Enron's CEO verbally attacked wall street analyst Richard Grubman for questioning Enron's accounting practices, En…

This is massively scalable. There are examples, but I do not want to get political.

Re: CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

#119

Post by dmurray »

nvr219 wrote: post #117
csours wrote: post #109

Earlier quoted context omitted.

This reminds me of why traders are required to take vacation - it may be the only time their scams are unraveled. https://www.newsday.com/business/columnists/help-wanted-carr...

When done right the vacation is sprung on them without notice. In reality they usually know when their vacation is coming so they can alert their cohorts.

The idea is everyone must take vacation (sometimes X+ consecutive days each year), not just the people you suspect of running scams.

Giving all of your employees two weeks unannounced vacation at random times is a disruptive way to run a company. It's certainly innovative but I wouldn't say it's HR "done right".

Re: CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges

#120

Post by donor20 »

This is a bit of an interesting and somewhat unusual situation.

In most cases, your finance team (internally) will be the one to pick up on the fact that stuff doesn't make sense.

They won't be able to tie the invoices to subsequent payment to get an accounts receivable schedule to show who still owes what.

They won't be able to get the stripe reports / merchant clearing disbursement reports to agree to the GL clearing accounts.

It's also rare for the CEO to have the only access to bank statements. Fraud risks are often higher in finance team, as they are the ones who catch problems elsewhere, but can be hard to catch problems with them.

This make me wonder how experienced the startups accounting team was.

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