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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

#101

Post by Uhhrrr »

PragmaticPulp wrote: post #43
billyhoffman wrote: post #13

Being an executive at a (substantially smaller) SaaS startup I have no idea how having up to 90% of your revenue be fabricated could happen without others knowing: - where are the contracts corresponding to revenue? Yeah they are SaaS focused on SMB but this is a financial product, there will be contracts, NDAs, etc - if the majority of the customers are fake there is such little load on the system. How does engineer…

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?

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

#102

Post by pge »

solumos wrote: post #98
pge wrote: post #94

Earlier quoted context omitted.

Where was the board during this whole time? I have trouble understanding how a board allows a management team to operate in such a way that controls aren't in place (eg basic segregation of duties in finance) that would prevent or at minimum reveal this kind of behavior. The board should be seeing enough information that most of the flags you highlight should be visible to them. Not to mention, clearly the company wa…

> 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. An audit would also have flagged the lack of segregation of duties as a major risk factor (though that should have been obvious to any board member). As a side note, I also wonder if Rogas was fastidious enough to ensure the GAAP financial statements all tied out with the fraudulent numbers.

I guess if an audit couldn't catch this, you have the wrong auditor. This is exactly what audits are for.

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

#103

Post by pge »

tdons wrote: post #88

An auditor was fooled while he was in the room watching while the ceo downloaded bank account statements (pages 10/11 of https://www.justice.gov/usao-sdny/press-release/file/1317641... ): d. As part of its due diligence process, the Audit Firm had an employee (the “Auditor”) conduct a physical site visit at NS8’s offices in Las Vegas, Nevada. The Auditor was directed by a more senior Audit Firm employee to have someo…

Thanks for the link - interesting reading. It looks like he modified the PDFs from the bank which is pretty sneaky, since most people assume PDFs are inviolable (this topic has come up on HN before). In my experience, auto-generated PDFs from reporting systems are fairly easy to manipulate (for the record, I have only done so for automated data extraction, not to change the document!).

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

#104

Post by marcinzm »

rococode wrote: post #15

Have VCs started skimping on DD because problems come up so rarely? Lightspeed (who led the last round for these guys) isn't a no-name firm, they invested in Snap, GrubHub, Telegram, etc. Surely they have the experience to find out gigantic major problems like this? This feels like something that should've come up in diligence before they sent them 120 million bucks... There are so many places it could've shown up or…

Based on other comments, NS8 was audited by Ernst-Young and passed. So they had an expert do an audit and find no issues.

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

#105

Post by heartbeats »

rmason wrote: post #99

If you're a VC firm shouldn't the amount of due diligence you do increase with the amount of money you're investing? Or was their investigating capacity so poor that it's a miracle they weren't cheated before? Or are there other startups they've invested in that just haven't been found out yet? If I was one of their LP's I'd be asking some hard questions.

No, it should decrease. If you're a gazillion dollars deep, your best incentive is to cover up the fraud and try to dump it on someone else.

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

#106

Post by edm0nd »

pstoica wrote: post #59
edm0nd wrote: post #52

Earlier quoted context omitted.

How much were you being paid a year to do basically nothing?

Decent salary, but that's not the point. I'm distraught to realize I spent 5 months on nothing, and it's not something I'm proud to have or explain on my CV. It's cruel how much money these people throw away, but we were misled into thinking it was real. I wouldn't have taken this position to support such a scumbag.

Man/Gal, that sucks! Keep your head up <3

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

#107

Post by dane-pgp »

jessaustin wrote: post #69
heartbeats wrote: post #64

Earlier quoted context omitted.

Well, it is a cyber fraud startup. They didn't lie about that.

Reminiscent of Jesse's advice to Walt about a " criminal lawyer".

Also reminiscent of the aptly named company "Fraud Guarantee":

https://www.law360.com/articles/1311477/giuliani-allies-char...

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

#108

Post by dmix »

tempsy wrote: post #44
billyhoffman wrote: post #13

Being an executive at a (substantially smaller) SaaS startup I have no idea how having up to 90% of your revenue be fabricated could happen without others knowing: - where are the contracts corresponding to revenue? Yeah they are SaaS focused on SMB but this is a financial product, there will be contracts, NDAs, etc - if the majority of the customers are fake there is such little load on the system. How does engineer…

Have you seen $GSX, a publicly traded $20B stock on Nasdaq that claims it's growing faster than early Google or Facebook and has been the subject of 5-6 short seller reports and an ongoing SEC investigation?

Seems like the main research company that exposed GSX has made a business out of exposing Chinese public companies

https://grizzlyreports.com/research/

Some interesting stuff here.

The company of course refuted the research with some vague stuff about APIs having encryption so the data would be wrong. This was back in June and the stock seems to be still going along strong... http://gsx.investorroom.com/2020-06-03-GSX-Refutes-Grizzly-R...

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

#109

Post by csours »

PragmaticPulp wrote: post #43
billyhoffman wrote: post #13

Being an executive at a (substantially smaller) SaaS startup I have no idea how having up to 90% of your revenue be fabricated could happen without others knowing: - where are the contracts corresponding to revenue? Yeah they are SaaS focused on SMB but this is a financial product, there will be contracts, NDAs, etc - if the majority of the customers are fake there is such little load on the system. How does engineer…

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...

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

#110

Post by [deleted] »

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.…

[deleted]
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