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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

#221

Post by teraflop »

ilya_m wrote: post #212
teraflop wrote: post #124

Earlier quoted context omitted.

On top of everything else, Scientist-1 doesn't come off looking too good. He was contracted to make a synthetic dataset, based on a small set of records which were supposedly randomly sampled from a larger original dataset. He didn't really have any way of knowing he was being lied to at that point, or what his work would be used for. But when he invoiced $13k for his services, including a detailed breakdown of what…

I am sure if she could pull the wool of JP Morgan's eyes, she could convince Scientist-1 that it was legit. "I want to expense it under Marketing not R&D, which would let us pay you more. My CPA's eyes glaze over, can you uplevel it?" or something

You could imagine something like that happening, but from the email conversation quoted in the indictment, it doesn't seem like there was even a token attempt at justifying it.

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

#222

Post by duxup »

sontek wrote: post #129
cactusplant7374 wrote: post #26

Earlier quoted context omitted.

> Seems like the most basic of OLAP queries and two days of effort would reveal very suspicious userbase. What would those queries look like?

SELECT COUNT(*) FROM users WHERE date_deleted IS NULL AND date_last_activity >= CURRENT_DATE - INTERVAL '120 days';

I don't think that would work, the stories said they generated fake data. There would be users presumably.

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

#223

Post by danpalmer »

This feels like a case of both parties getting caught up in their own bullshit.

It seems unlikely that the founder was intentionally fabricating data in order to commit fraud. Far more likely is that the founder was caught up in Silicon Valley startup culture, told they were disrupting industries and changing the world, and didn't put enough into actually doing the work, and ended up thinking their company was much more important than it was. Throw in some of the toxicity of #girlboss culture (this is a criticism of the negative aspects, we do need more female founders), and you get a Dunning-Kruger situation. I can see how someone would then keep digging rather than pull out if things started to turn.

On the other side, JPMorgan obviously didn't do any real due diligence. They were too caught up in the industry hype, and want to continue their cosplay as a tech disruptor. Finding this would have taken almost no effort, there wasn't much attempt to hide it. Promoting what the company wants to be true rather than what is actually true is a clear sign of a rotten culture – people won't speak up even when there is literally no good outcome that can come from staying silent. JPMorgan got exactly what they deserved with this deal.

I feel sorry for the founder getting caught up in the cultural currents that led to this, and while they need some accountability, a prison sentence probably isn't right.

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

#224

Post by duxup »

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…

How much depth does due diligence really involve?

I'm involved with a company taking some investment from the outside. We're really just sending them copies of our documents and data.

IF someone chose to blatantly lie on that paperwork (we're not), I'm not sure how much they could spot.

In the meantime this outside group isn't querying out DB that's for sure, but even then in the example of this case, they actually generated fake user data and records.

I'm not saying you're wrong generally, but I think a lot of due diligence really does trust that someone wouldn't blatantly fake ... everything.

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

#225

Post by HWR_14 »

teraflop wrote: post #124
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…

On top of everything else, Scientist-1 doesn't come off looking too good. He was contracted to make a synthetic dataset, based on a small set of records which were supposedly randomly sampled from a larger original dataset. He didn't really have any way of knowing he was being lied to at that point, or what his work would be used for. But when he invoiced $13k for his services, including a detailed breakdown of what…

That was after he generated the data. It's not like Scientist-1 could just not do the work at that point.

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

#226

Post by duxup »

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…

Reminds me of the old "I did not go to jail" story:

https://a16z.com/why-i-did-not-go-to-jail/

Sometimes getting outside advice is a good idea.

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

#227

Post by duxup »

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.

Did the judge do any due diligence on that list?

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

#228

Post by dboreham »

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…

If I hadn't seen something like this myself I would never believe it. In the late 90s I worked at a very large tech company, for the CTO. The company was considering investing in a startup that claimed to be able to transmit fiber-like data rates on high voltage transmission lines, somehow by using microwave. I was asked to comment on this. Within a few seconds I said it had to be a scam per Shannon, and at any rate said high voltage lines typically already have fiber on the ground wire at the top of the towers. The company went ahead with the investment.

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

#229

Post by dboreham »

magicalhippo wrote: post #171
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…

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 a…

I think we called these "fairy cake" schemes, after the Douglas Adams bit.

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

#230

Post by [deleted] »

fsckboy wrote: post #116
ajross wrote: post #54

Earlier quoted context omitted.

Right, it doesn't change the direction of criminality. But nonetheless JPM is out that money regardless (maybe some will get clawed back, but probably most of it was spent). "I got scammed and the perp is going to jail" isn't a good excuse to tell your boss about you lost $175M, either. Lessons abound here. Slow down on the tech habit folks, especially if you're an investment bank and not a VC incubator.

> JPM is out that money regardless ... probably most of it was spent an MBA entrepreneur who starts a business and sells it to you for $175 million through normal channels is not likely to spend the money. this wasn't a fund wiring scam.

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