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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

#171

Post by magicalhippo »

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…

I came up with a similarly impressive compression scheme as a young teen, shortly after I started programming.

It was beautiful in its simplicity. Take 5 bytes, compute a 4-byte checksum, and just store the checksum. After all the chances of a checksum collision is miniscule.

When decompressing just iterate over all 5-byte values until you get the correct checksum.

The fantastic feature was of course that you could apply this recursively if you needed higher compression ratios.

Took me a good hour or so before I caught up with reality.

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

#172

Post by mdemare »

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…

So bizarre! It really shook my belief in Philips' competence at the time.

I mean, take a 100 minute movie, sliced into 1-second clips. 8kB is not even enough to store all possible orders you could put those clips in. I would hate to think so ill of any of my friends or colleagues to think that they could believe such an obvious fraud.

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

#173

Post by danielmarkbruce »

TuringNYC wrote: post #154
danielmarkbruce wrote: post #131

Earlier quoted context omitted.

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 someti…

Doesn’t the Data Room solve this? https://carta.com/learn/startups/equity-management/data-room...

No.

There is no magic in buying/selling businesses, just put yourself in the shoes of the seller. JPM promise not to ever use that customer list you put in the data room should the deal fall over? How would you ever know if they did? You wouldn't trust a potential buyer and in practice companies do not. They'll put information in the data room, but not customer level details unless anonymized at which point you are back where you started as far as validating users.

So you are left with various legal/contractual solutions - things like "representations and warranties" (ask chatgpt about them), escrow agreements etc etc. And when it all goes to hell you go to court with your contract and attempt to get the money back. Such is life.

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

#174

Post by ryandrake »

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.

Unfortunately, it's an arms race of cheating. Everyone else was the president of 5 school clubs, volunteered at a soup kitchen and animal shelter for 2 years, tutored disadvantaged kids for 4 hours a day, was a varsity athlete in 3 sports, played the trombone in band, and won 10 academic awards... so everyone has to say that in order to at least seem like an average candidate to college admissions.

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

#175

Post by ryandrake »

randycupertino wrote: post #19

My favorite thing about this case is how she bragged to her lead engineer she wouldn't go to prison, "“Don’t worry — I don’t want to end up in an orange jumpsuit" when she was trying to convince the engineer to fabricate their user data. From the complaint: > In particular, CC-1 and JAVICE asked Engineer-1 to supplement a list of Frank’s website visitors with additional data fields containing synthetic data. > Engine…

This is why, as an engineer, it seems futile to make an ethical stand against something. They'll just find someone else to do it. Early in my career I was asked to write code to cheat a benchmark, essentially to make it seem our software performed better than it really did. I agonized over it because I was a junior developer just starting out my career, and eventually got the courage to tell my manager I wouldn't do it. He said, that's OK and then assigned it to Bob, three cubicles down who didn't have any problem with it and finished the cheat in a few days.

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

#176

Post by jcims »

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…

I'm sure there are those that have had different experiences, but I've been party to several M&A due diligence exercises (including >$1B) at a large financial and there is *tremendous* pressure (on both sides) to move quietly (MNPI baby), quickly and not destroy your relationship with the acquired entity in the process. The business wants the sale to close, you're looking for issues that could be leveraged in the deal and/or actual show-stoppers. The interactions are clumsy as they are managed through third party portals that keep the data locked down and in escrow. The sell-side entity still has every right to protect their intellectual property until it's parceled in a contract, so you're not going to get access to shit (unless they are stupid I suppose). It's going to be in an audit-like situation where you are going to ask someone for samples (which obviously can be groomed) or doing screen shares and taking screenshots or similar.

The fact that the acquirer is large is somewhat immaterial, the teams 'under the tent' doing the investigation are going to be relatively small on both sides, including folks from the business trying to close the sale, internal/external counsel and singular SMEs from relevant domains.

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

#177

Post by stackskipton »

bryanlarsen wrote: post #55
mothballed wrote: post #42

Earlier quoted context omitted.

Shkreli is the only one of those 3 that fully paid back his investors, and it took him pissing off virtually every politician and a bunch of wealthy insurance executives/administrators to get enough resources mobilized to get a conviction (and being one of the most uncharismatic people on earth, which didn't help him at trial). I think you are definitely in a much worse place for a fraud conviction if you lose money.

News stories said SBF investors were going to get 118% of their money back. Did that not happen? https://techcrunch.com/2024/05/08/ftx-crypto-fraud-victims-t...

No, those repayment numbers are what their crypto was worth at time of bankruptcy and interest is nowhere close to what you could have made just doing index fund on top of any damage done since they didn't have the money.

If I stole 1000 bucks from you 3 years ago and repaid 1080 back now, sure, you got some interest, but you still be pretty unhappy with not having access to that money. For some, lack of access to that money could have been extremely damaging.

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

#178

Post by Scubabear68 »

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…

I've been involved in a lot of due diligence efforts, from the tech side but I've seen all angles of it as the deals are often fast and intense and the various teams have to often coordinate to a degree (tech, legal, financial, tax, etc).

It is fairly common for the people initiating the acquisition to really want to close it in a hurry, and they do due diligence only as a check mark in someone's list. As someone else here mentioned, there is enormous pressure to close, and any red flags are often redirected, reworded, or even occasionally just squashed.

The further away a company is from something like private equity, who does acquisitions like we eat breakfast every day, the more likely you are to see rushed and potentially botched due diligence. Someone like a big bank may well have the main proponent not know anything at all about acquisitions or due diligence, and just wants to "get 'er done".

It is also very common for people to come in after-the-fact and do a second diligence, and while doing that diligence to hear one or more people opening the conversation with "I warned them about this before the acquisition...".

At the end of the day, particularly in a big public corp, people are focused on their bonuses and total comp, and people like that aren't going into a due diligence looking for red flags and "no's".

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

#179

Post by aeve890 »

mdemare wrote: post #172
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…

So bizarre! It really shook my belief in Philips' competence at the time. I mean, take a 100 minute movie, sliced into 1-second clips. 8kB is not even enough to store all possible orders you could put those clips in. I would hate to think so ill of any of my friends or colleagues to think that they could believe such an obvious fraud.

Is it a sort of reversible pseudo-hashing function even possible? Or something like a seed in a deterministic procedural generator. You could store arbitrary data in a few bits. 8kb for all the redundancies and metadata even.

On a second thought, the compression alone would destroy information. NVM.

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

#180

Post by dgfitz »

Esophagus4 wrote: post #161
rozap wrote: post #132

Earlier quoted context omitted.

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

I'm thinking a "Wharton Prison 30 Under 30" Venn diagram would have a decent sized center.

Stanford actually, but yeah.
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