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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

#201

Post by Calavar »

sailingparrot wrote: post #91
ajross wrote: post #64

Earlier quoted context omitted.

> she bragged to her lead engineer she wouldn't go to prison So... obviously she was wrong. But the line between "just cutting a few corners" and prosecutable criminality isn't nearly as bright as we in the peanut gallery like to think. Lots of very successful startup launches (Uber and AirBnB are famous examples) were kinda/sorta/prettymuch illegal by the plain language of the laws they were (not) operating under. A…

> But the line between "just cutting a few corners" and prosecutable criminality isn't nearly as bright as we in the peanut gallery like to think The line maybe isn't bright, but faking data to a potential buyer to make it appear like you have 15x your actual number of users is clearly way past the line you cannot see. That would be like saying it's hard to know if noon is during the day or night because the exact mo…

I think the difference is PG faked it until he could make it work at some future endpoint, Charlie Javice gave up on trying to make it work and instead faked it at the endpoint

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

#202

Post by layman51 »

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…

Is it just me, but doesn't it seem like the concept of Frank as a business just sounds like it wouldn't have lived that long and that it might even be predatory? Frank got in trouble with the Department of Education because they used the term "FAFSA" in their domain name. I was lucky enough to have mentors in my life who warned me away from clicking on sponsored links to paid preparers if I ever decided to Google search "FAFSA". So it makes me suspect like part of their business strategy was to convince low-income students who have great difficulty submitting the FAFSA to pay them to submit it for them. I don't recall what the environment was like years ago, but there had always been a desire on the part of ED to make the FAFSA easier to fill out, and this would have totally eroded the value of Frank even if it was a legitimate business. What's also confusing is that at some point they apparently had a `.org` domain, so maybe they were also a non-profit?

Apparently they also had some kind of service to submit an aid appeal letter to the student's financial aid office. This is also a ridiculous service for low-income students to pay for because I can almost guarantee that Frank wouldn't have the context necessary to actually convince a college's financial aid administrators to give more money to one of their users.

It's almost as if the people considering the deal might have been focusing more on the financial education aspects of Frank instead of how they actually would interface with the FAFSA.

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

#203

Post by pseudolus »

atombender wrote: post #197
tootie wrote: post #188

Earlier quoted context omitted.

I remember when HP announced their plan to acquire Autonomy. I was very familiar with their tech and their status in the industry at the time and knew they were approaching irrelevance with no chance to boost sales of anything. They completed the deal anyway, which was followed by HP firing their CEO, lawsuits for misrepresenting their financial status and a complete writedown of the total acquisition cost. It seemed…

Reading about Autonomy, it always confused me that Mike Lynch was found guilty of fraud in the UK but exonerated in the US — what's your take on that?

Different burdens of proof. The fraud charges in the US were criminal in nature which required a showing of guilt beyond a reasonable doubt. The fraud in the UK arose in the course of a civil trial with a lower burden of proof (balance of probabilities).

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

#204

Post by lokar »

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…

This was covered in "Money Stuff" (a free newsletter at Bloomberg, which is fantastic).

"Other financial firms, such as Capital One, considered buying Frank but declined after looking at a sample of the company’s user data."

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

#205

Post by Dylan16807 »

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.

> 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.

Using a low hurdle to show it still failing is a good rhetorical technique, but you lowered your hurdle too far here. Yes technically specifying the order of 6000 segments takes more than 8KB. Because it takes 8.14KB. That's a rounding error. What could have been a useful argument is now a nitpick. And what if the movie was only 98 minutes, now it fits? What a mixed message.

It's a good reference point, but I'd replace "is not even enough" with "would only be enough".

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

#206

Post by brandall10 »

layman51 wrote: post #202
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…

Is it just me, but doesn't it seem like the concept of Frank as a business just sounds like it wouldn't have lived that long and that it might even be predatory? Frank got in trouble with the Department of Education because they used the term "FAFSA" in their domain name. I was lucky enough to have mentors in my life who warned me away from clicking on sponsored links to paid preparers if I ever decided to Google sea…

As I mentioned a bit further down, the blind spot here is they really only cared about the user list. The product itself was immaterial, so they might have overlooked or simply not cared about some of the shadier tactics to acquire it.

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

#207

Post by AtlasBarfed »

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 think I remember this, or a similar scam around the same time. What stood out to me is that one of the big six was hired to certify the legitimacy of the "black box", despite the obvious mathematical impossibility. I'm trying to find the firm ... Hm, according to Google AI it was Ernst and Young (I did a search for Ernst certifies compression technology 1990s). They apparently did two different "audits or demonstrations.

I was working at Andersen Consulting at the time, offshoot of Arthur Andersen. The Arthur Andersen that signed off on Enron (AC had before then become Accenture and separated from the audit partnership).

I chuckled to myself a few years later when the NBA draft lottery was signed off on/audited/witnessed by another Big6 firm. Yeah, give them enough money and they'll "audit" anything within some degree of plausible deniability.

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

#208

Post by [deleted] »

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…

[deleted]

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

#209

Post by toast0 »

TuringNYC wrote: post #151
Dylan16807 wrote: post #133

Earlier quoted context omitted.

> 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 t…

WhatsApp doesn’t need staff because they weren’t processing regulated financial transactions. Thr app operated in a best efforts basis since it was mostly free. You don’t need customer support staff for that — there is no support.

FWIW, around 1/3 of the 55 were customer support. That's not a lot of support per user, but it's not none. And it is enough to get lots of feedback to engineering about things users are having trouble with, because the better you make the product, the less overloaded customer support is.

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

#210

Post by addaon »

neilv wrote: post #152
cheema33 wrote: post #136

Earlier quoted context omitted.

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…

> I reported the findings to my manager [...] the whole project got shut down and about 200 people working on project lost their jobs. Myself included. Good for you for reporting the threat. But I'm a little surprised that they let the messenger get killed along with all the other innocents. I knew someone who whistleblew to C-suite, about misrepresentations they realized, on something that was then an existential th…

I’m sure that that one line manager who reported the fraud to the CEO was well rewarded. How he learned what he did? We’ll never know. Too bad his team had to be let go.
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