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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

#141

Post by mbesto »

brandall10 wrote: post #23
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…

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.

> 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.

DD guy here.

This is more common then people think. M&A deal dynamics are funny and this is usually a tactic that investment bankers who represent sellers use. According to my cursory research she didn't use an investment banker. For someone fresh out of biz school with no M&A/banking experience that's umm...BOLD.

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

#142

Post by wat10000 »

vjvjvjvjghv wrote: post #17
upupupandaway wrote: post #13

Earlier quoted context omitted.

One previous company I was CTO of got acquired by Amazon and they spent 60 days going through everything, including every line of code. I doubt a fraud of this caliber would have gone unnoticed with that kind of due diligence.

Sometimes I wonder if there is a lot of scrutiny in small things but when things get large and complex they basically give up and wave it through. I see a similar thing at my work in medical devices. In theory we have to validate all libraries we are using. So if you want to share some code you have to create a ton of documents. But when we use something like nodejs with hundreds of dependencies the whole process bas…

In programming, this is called bikeshedding. You present plans for some massively complicated industrial plant, and people will mostly skim it. Then you want to build a small bike shed for construction workers to use during the project, and now that they're presented with something understandable, everyone involved has to have input and the whole process drags out.

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

#143

Post by bryanlarsen »

BobaFloutist wrote: post #112
bryanlarsen wrote: post #89

Earlier quoted context omitted.

Sure, if you believe crypto is a currency.

Ok, I deposit stock shares, you lose 50% of them under the couch, but the stock price goes up 110% so when the government seizes and liquidates your assets I have slightly more cash than the original value of what I deposited. Did you lose me money?

I didn't lose you your stake, I lost you your gains.

Losing the gains put SBF in jail for 25 years. Mothballed original comment was "So I'm thinking the crime would be nothing,".

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

#144

Post by bryanlarsen »

Macha wrote: post #103
bryanlarsen wrote: post #89

Earlier quoted context omitted.

Sure, if you believe crypto is a currency.

It’s not super relevant. If you were responsible for managing a property for someone and instead sold it outside your agreed authority and dumped the money into nvidia shares in 2020, you’d still be in trouble with the owner of that property even if the nvidia shares did better in USD terms than the property would have

Yes, which is why SBF is in jail for 25 years.

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

#145

Post by wat10000 »

masfuerte wrote: post #115
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.

It seems like the effect of these college requirements is to teach ambitious young Americans that the way to get ahead is to cheat.

It's a valuable lesson.

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

#146

Post by mbesto »

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.)

> Sure to the rest, but: Whatsapp had 55 employees and 450 million users when it was acquired.

JPM regularly acquires businesses that do not look like WhatsApp and look more like Frank. For 99% of the acquirers out there, seeing a business with $450m in ARR with 55 employees definitely makes your eyes bulge.

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

#147

Post by cheema33 »

onlyrealcuzzo wrote: post #135

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.

This lady could say that she was a victim of Biden justice dept. Say good things about Trump and follow it up with a large donation to Trump. That ought to be enough to get a pardon.

This is exactly what the convicted fraudster Trevor Milton, founder of Nikola Motors did, to get a pardon.

When signing the pardon, Trump said that he doesn't know anything about Trevor but heard that he likes Trump.

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

#148

Post by lumost »

cheema33 wrote: post #136
tverbeure wrote: post #75

Earlier quoted context omitted.

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 u…

Was the scam that the codec had the raw video in it, so the "files" could be made trivially small?

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

#149

Post by TuringNYC »

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 didn’t process financial txns and wasn’t in a regulated marketplace.

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

#150

Post by brandall10 »

wat10000 wrote: post #137
brandall10 wrote: post #76

Earlier quoted context omitted.

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…

Of course, but this is basic human psychology when power asymmetry is at play. Frank "held the cards" in this deal, so to speak, and was helmed by a CEO that demonstrated sociopathic tendencies willing to do whatever it took.

You can of course hold to a particular standard, but if a competitor is willing to relax that standard, you lose a distinct advantage.

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