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Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

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Re: Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

#131

Post by danielmarkbruce »

TuringNYC wrote: post #12

>> A prosecutor, Micah Fergenson, though, said JPMorgan “didn’t get a functioning business” in exchange for its investment. “They acquired a crime scene.” I do not understand how an acquisition this big got thru due diligence without noticing all the fake users. Anyone in corporate M&A know if it is normal to spend this much money without inspecting the goods? Seems like the most basic of OLAP queries and two days of…

You often don't get to "inspect the goods" at a user by user level.

Put yourself in the shoes of a non-fraud company where the asset is your customer set. Do you let JPM go through line by line confirming each one? No, you do not. You give redacted data or aggregate data.

In eyeballs/non-paying user businesses, this is just going to happen sometimes. In practice you don't get to do the diligence you want to do sometimes.

Re: Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

#132

Post by rozap »

firefoxd wrote: post #24

At an investor event, a desperate journalist was running around the room asking people their age. He ended up at our table, with a drink in hand, and a defeated look on his face. He had given up. We talked a bit, and he asked me, "are you under 30?" I answered "No. But this guy is." I pointed at the 28 year old cofounder of the start up I was part off. Before the evening was over, my colleague made it to the list of…

The forbes 30 under 30 to prison pipeline needs to be studied.

Re: Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

#133

Post by Dylan16807 »

pessimizer wrote: post #111
simonsarris wrote: post #99

Earlier quoted context omitted.

> What do you mean you have 4 million customers and a support staff of 20? Sure to the rest, but: Whatsapp had 55 employees and 450 million users when it was acquired. It's at least conceivable to tell a story (lie) that's two orders of magnitude smaller. (And the real number was "only" off by one zero.)

Whatsapp elaborately explained how it was doing this to the public, it was with a technology (Erlang/OTP) that had rarely been used before, and that technology had been designed for and very successful in an almost identically shaped context (telecom switches.) Also, more obviously, people you knew were using it every day. 450M is different than 4M, and way different than 300K. If Whatsapp were lying and saying they…

> Whatsapp elaborately explained how it was doing this to the public, it was with a technology (Erlang/OTP) that had rarely been used before, and that technology had been designed for and very successful in an almost identically shaped context (telecom switches.)

Sure. But the point is, Whatsapp had 0.5 total employees per 4 million users, and Frank had 20 support employees per 4 million supposed users.

Even if you think Whatsapp has a massive advantage, those numbers don't make it look like Frank is the one that's lacking in staff.

> Also, more obviously, people you knew were using it every day. 450M is different than 4M, and way different than 300K. If Whatsapp were lying and saying they had 4.5B users, I'd expect JP Morgan to catch that within a few hours, too.

For these reasons it would be much harder for Whatsapp to lie that way.

The corollary of that is it would be much easier for Frank to do it.

Re: Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

#134

Post by danielmarkbruce »

jerf wrote: post #60
brandall10 wrote: post #23

Earlier quoted context omitted.

She pushed back on any direct vetting of the list using privacy laws as a shield and JPMorgan didn't challenge it due to competitive pressure to get the deal done ASAP. Clearly, if only 10% of the list was real, it would be pretty easy to validate that with a small random sample.

The way that due diligence would have discovered this was not to take the list and start doing spot checks on it. The way due diligence should have found this is that it should have been written all over the financials. What do you mean you have 4 million customers and a support staff of 20? What do you mean you have 4 million customers but your revenue is {clearly too low}? What do you mean you have 4 million custom…

A good fraudster has a good chance in any space where users don't pay for the service. Users, traffic, basically everything that isn't cold hard cash can be faked very well these days.

Re: Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

#135

Post by onlyrealcuzzo »

It's interesting to me that fraud appears to be a crime again, with Theranos and now this, when it was going on for so long and so obviously, and no one seemed to care when people were lying and frauding as long as it went on long enough for them to make a profit.

Re: Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

#136

Post by cheema33 »

tverbeure wrote: post #75
TuringNYC wrote: post #12

>> A prosecutor, Micah Fergenson, though, said JPMorgan “didn’t get a functioning business” in exchange for its investment. “They acquired a crime scene.” I do not understand how an acquisition this big got thru due diligence without noticing all the fake users. Anyone in corporate M&A know if it is normal to spend this much money without inspecting the goods? Seems like the most basic of OLAP queries and two days of…

Back in the nineties, Philips was days away from signing a licensing deal for a revolutionary video compression technology that compressed whole movies down to 8KB. The former Philips CTO was a strong believer. And then the inventor died and nothing ever came of it. To be a fly on the wall during due diligence meetings between Philips engineers and management. https://lowendbox.com/blog/the-man-who-was-paid-e113000-f…

Video codec compression scams remained popular even in early 2000s. I worked for a very large public tech company. One of the top 10 in that era. And they fell hard for scammers from Las Vegas that promised revolutionary audio/video compression. We had to sign all sorts of NDA and couldn't look under the hood of what they delivered to us under penalty of breach of contract and all that stuff. I "accidentally" ended up looking under the hood and couldn't believe what I found. I reported the findings to my manager and told him to do what he wanted to with that information.

Long story short, the whole project got shut down and about 200 people working on project lost their jobs. Myself included. Luckily I quickly landed at a better place working on more meaningful things.

Re: Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

#137

Post by wat10000 »

brandall10 wrote: post #76
jerf wrote: post #60

Earlier quoted context omitted.

The way that due diligence would have discovered this was not to take the list and start doing spot checks on it. The way due diligence should have found this is that it should have been written all over the financials. What do you mean you have 4 million customers and a support staff of 20? What do you mean you have 4 million customers but your revenue is {clearly too low}? What do you mean you have 4 million custom…

The problem here is this wasn’t about MAU. JPMorgan wanted a verified student data asset they could market to, so stale accounts were fine. Diligence focused on whether Frank had “records” (name, email, DOB, etc.), not whether those records were active. Beyond that, JPMorgan didn’t want to push too hard and risk blowing up the deal as there was competitive pressure. Calling out “these numbers seem odd” could have spo…

Funny how that has the exact same shape as a typical scam targeted at individuals. They usually rely on creating a sense of urgency and the sense that you could blow the whole thing if you aren't careful. A warrant scam will tell you that they need payment (in gift cards, of course) right now or you're going to jail, and likewise if you hang up or tell anyone what's going on (and thus might have someone tell you that you're being had) you're going to jail.

Not far off from "you can't inspect the business you're buying too hard, or the deal is off." And just like with individual scams, that should be a sign that it's shady and you should bail out.

Re: Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

#139

Post by cheema33 »

simonsarris wrote: post #99
jerf wrote: post #60

Earlier quoted context omitted.

The way that due diligence would have discovered this was not to take the list and start doing spot checks on it. The way due diligence should have found this is that it should have been written all over the financials. What do you mean you have 4 million customers and a support staff of 20? What do you mean you have 4 million customers but your revenue is {clearly too low}? What do you mean you have 4 million custom…

> What do you mean you have 4 million customers and a support staff of 20? Sure to the rest, but: Whatsapp had 55 employees and 450 million users when it was acquired. It's at least conceivable to tell a story (lie) that's two orders of magnitude smaller. (And the real number was "only" off by one zero.)

> Whatsapp had 55 employees and 450 million users when it was acquired.

WeWork had the opposite problem. A lot of employees and expenses and not enough paying users. Having lots of employees and lots of expenses by itself doesn't mean much. WeWork still got billions in funding. Due diligence was an issue there as well.

Re: Founder sentenced to seven years in prison for fraudulent sale to JPMorgan

#140

Post by piker »

geor9e wrote: post #94

I wonder what really happened here: "The judge said Javice had assembled a “very powerful list” of her charitable acts, which included organizing soup kitchens for the homeless when she was 7 years old and designing career programs for formerly incarcerated women." At least for all my classmates doing the college application process, claims like that were almost always wild exaggerations of what we really did.

> designing career programs for formerly incarcerated women.

Gonna come in handy!

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