Former federal inmate here who was recently released from prison a month ago today (I did 18 months): The big deal here was the loss amount, which can be construed any number of ways whether we like it or not. This will jack up the points and tilt the scale for the sentencing guidelines, and believe me they are archiac.
After all is said and done, Charlie Javice will be hanging out at a prison camp—probably down there with Holmes and Maxwell, because it's cushy—and do no more than 4 years on the 7 assuming she completes all her programming requirements.
>> 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 effort would reveal very suspicious userbase.
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.
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.
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.
> 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 threat to one of the top companies in its market. A series of layoffs and (IIUC) some M&A later, most of the employees were gone, but that one middle-aged engineer who warned C-suite (averting an even worse fate for the company) escaped all the layoffs, and was still there.
Once upon a time, I was strenuously recruited by a startup with similar, if not quite as extreme, codec promises. When I understood that my job would be rigging demos while trying to realize the non-software founder’s “algorithm”, I pretty much had to fake my own death to escape them. Shudder…
I did DD on that for another group of investors and caused them to walk away. Interestingly, they too were scammers but of a completely different level.
I think the 'inventor' (loose use of the term, nothing really got invented) was a true believer, he basically thought that if only he could get his hands on some capital that he would be able to make it work. He simply did not have the background required to see that it could never work in the way that he proposed. Nicely faked demo though :)
I would do a write-up if I didn't think the case was more of a sad one than of someone trying to rip off investors, Jan Sloot just wasn't that kind of guy from my interaction with him. Maybe he did invent something: "Fake it before you make it".
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.
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 customers but your website spend is {clearly too low}?
It's over an order of magnitude. It should be written all over the company. Experienced DD should have smelled a rat within about 2-3 hours, although nailing it down could take much longer. The logical conclusion I draw is that there was no experienced DD done. In isolation this would a tough claim, however, I look around and I see a lot of Wall Street activity on this time frame that shows no evidence of Due Diligence being done and it seems to be part of a pattern.
(The question of why there was no DD is a separate one.)
> 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.
> 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.
Consider it holistically, rather than one at a time. Every company has its own footprint of "per customer" resource usage, and every company probably has unusually low aspects one way or another, but when a company comes back as "low" to "very low" for every such metric, it's time to investigate harder. Maybe they're just that genius, or maybe there's something about the company you don't understand yet, or maybe they're cheating you... the whole point of due diligence is to resolve those "maybes" into "certainlies", because they all factor in to your decisions.
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 had 4.5B users, I'd expect JP Morgan to catch that within a few hours, too.
> 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.
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.
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 spooked Jauvice, and they figured the reps & warranties in the contract gave them enough protection if things went south.
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.
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.
>> 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.
This isnt about inactive data, they had an outside data scientist create an artificially generated usage dataset!
JPMorgan thought they were getting legitimate users of the product at some point in time - they didn't care whether or not they were currently active, hence vetting ops didn't really matter much.
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.
> 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.
You could also obfuscate all PII and just join the user table with the website clickstream table and notice that only 10% of the users had any associated clickstream.
Presumably JPM didn't have prod db access to run whatever queries they want, and had to ask for access. They also faked user tables. What makes you think they wouldn't have faked the user activity table as well?
Ok so sometimes when people come to me for an angel investment I ask to look at their Pendo/GA records. I mean you could fake those, but that’s a lot of work and possibly harder than actually getting the business in the first
I wonder if there was an aspect to it where the scam was so audacious that they figured it wasn’t a scam. Like a “there’s no way they would generate millions of fake users which would obviously get caught post-acquisition, we must be missing something”
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.
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 basically gets handwaved away because validating everything would be too much work.
I wouldn’t be surprised if they waved it through because “who would be dumb enough to provide us a fraudulent list of customers?” She was always going to be discovered once they tried to market to the list. So I could see them speedrunning due diligence under the assumption that, if it’s totally fraudulent, it will be obvious eventually and then we’ll sue her. The deal is not large enough to affect our bottom line, and the obvious risk of defrauding us makes it unlikely she’s defrauding us.
It's not that complex, there was nothing technical here. You could say this was 'social engineering' at some level.
She pushed back against access to the customer list claiming privacy laws as a shield. JPMorgan was overly eager and didn't want to blow up the deal by challenging her.
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.
If you read the details in some of the earlier articles about this, they avoided plenty of due diligence. But she also went to great lengths to prevent them from completing that due diligence. And for the minimal due diligence she did permit them to undertake, she only ever sent them fraudulent data and documentation.
There was an article on Bloomberg or WSJ that said the Director in the acquisition had a Teams chat where she said "sometimes you don't need to do due diligence at all" lol
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.
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.
> Meanwhile, Amar purchased a list of 4.5 million real college students and their data from ASL Marketing for $105,000. Frank executives later supplemented that list — which only had email addresses for a portion of the students — by purchasing more data from an information services company.
"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.
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.
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.
> Engineer-1 was uncomfortable with the request and stated, in sum and substance,
“I don’t want to do anything illegal.” JAVICE and CC-1 claimed to Engineer-1 that it was legal. JAVICE stated to Engineer-1, in sum and substance, “We don’t want to end up in orange jumpsuits.” Engineer-1 declined the request from JAVICE and CC-1.
> shortly after Engineer-1 had declined the request to create a synthetic
data set—CHARLIE JAVICE, the defendant, contacted Scientist-1 and asked him to create the synthetic data set. In JAVICE’s communications with Scientist-1, she falsely represented that the data she provided to Scientist-1 was a random sample of a much larger database of Frank users.
> Also on or about August 3, 2021, JAVICE forwarded to Scientist-1 the Access Link
Email sent to her by Engineer-1. JAVICE wrote, “here is the link. will share credentials offline.” Based on Scientist-1’s communications with JAVICE, Scientist-1 understood that the data available via the Access Link Email—a data set of approximately 142,000 people—was a random sample of a larger database which contained data for approximately 4 million people.
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 he did, Javice came back and offered him an extra $5k if he would change the invoice to a one-liner that just said "data analysis services". And he immediately agreed.
I find it hard to believe someone could get that request and not understand that they were being asked to be complicit in fraud. At best, it's really poor judgment.
> 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. And they got stinking rich! PG himself has an example in one of the very early essays about how Viaweb kinda just skipped most of the early bureaucracy and accounting they were supposed to have been doing, figuring it would all just work out. And it did.
Kids see those examples and figure that a little cheating here or there probably isn't going to send them to jail. And it usually doesn't. Except when it does. And the distinction, for a lot of people in this community and right here on this forum, is very much a "There but for the grace of God go I" phenomenon.
Startup culture tells you to cheat, basically. Knowing how not to cheat isn't in the instruction manual.
> 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 moment that qualify as "dawn" is hard to discern.
> 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.
Not prosecuted, and not prosecutable, are two different things.
> And they got stinking rich!
Which in no way validates their actions, ethically nor legally.
The takeaway here is that you can defraud people and you can defraud the state, and will likely get away with it with a slap on the wrist (unless you steal a crazy big amount like FTX did). If you defraud rich and powerful investors, well that's a different story.
I guess it all depends on how you're cheating. Are you defrauding others in your cheating? Or are you just bypassing bureaucracy like not having a Taxi service license?
Potato/potatoe. Existing taxi medallion holders were absolutely harmed by Uber. Existing licensed hotel operators were absolutely harmed by AirBnB. And we all celebrated that to great effect here. But it was breaking the rules. We just think THOSE rules were bad but THESE rules are good.
Well, it's not our call to make, it's the prosecutors'. And you (yes, you personally) aren't nearly as insulated from this kind of risk as you think.
> Existing taxi medallion holders were absolutely harmed by Uber. Existing licensed hotel operators were absolutely harmed by AirBnB.
Then they should have sued and sought a judgment if they had a claim.
This is the NIMBY argument in a different market: Can't let anyone else build anything because it might reduce the value of what I have, thereby harming me.
It's not the same as materially misrepresenting a financial investment.
No, your logic doesn't hold. The distinction being drawn here is between civil and criminal liability. Operating an unlicensed taxi service in most municipalities (maybe all of them) is a civil infraction, not a crime.
The founder in the linked article thought that she was on the right side of the line. She wasn't. You personally might think you're too smart to[1] fall afoul of this kind of thing and that all your cheating[2] will be non-prosecutable.
But quite frankly most "criminally liable" misrepresentations to investors aren't prosecuted (basically none of them are), so the fact that this one was is more a statement about the influence of JP Morgan and the mind of this one prosecutor. And blanket statements that absolutely none of Uber's shenanigans were prosecutable seem laughable. Crimes abound.
The point wasn't to nitpick about crimes and penalties. It was that this crime happened in the context of a culture that structurally encouraged it, and we would all do well to recognize that instead of nitpicking fake reasons why it would never happen to us.
[1] The ironic analogy to hubris in security analysis isn't lost on me
[2] Because again in this world All Founders Cheat a Little Bit. We all know it.
> We just think THOSE rules were bad but THESE rules are good
That's kind of how society evolves isn't it? Rules are always changing and that's generally a good thing. Some rules are pretty set in stone throughout history - eg. murder and fraud are generally bad. Other rules around free speech, slavery, energy usage/production, social safety nets, etc., have changed for the better.
You could argue that Uber and Airbnb are worse but I think the fact that they've stuck around despite allegedly breaking rules means that most people prefer the new state of affairs that they resulted in. If something else comes up that breaks rules set by Uber and results in something better (eg. autonomous vehicles?) then I'm sure people will gravitate to that new thing as well.
What was the fraud? Limo services were always allowed in NYC, and didn't have to abide by the medallion system. All Uber did was make it more efficient to find and book a Limo.
Material misrepresentation of a business is blatant financial fraud.
If you sell someone a yellow-painted piece of metal but you tell them it's solid gold, you're not bending the rules a little bit. You're just defrauding them.
> 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. And they got stinking rich!
I, for one, would hope "don't commit crimes!" is taught in business school ethics. (LMAO as if an MBA has ethics)
It's interesting how nobody talks about due-diligence being completely broken. We raised $$$ from many VCs and the DD for some of them was crazy: line item by line item with calls to customers etc. Tech folks were on phone with me and had to explain them stuff step by step, revealing a lot of confidential recipes. Also did this for bigger customers. And the $175M deal.. isn't there an earnout? Like $10M cash now, 1/4*$175 wired on 1yr cliff, and then the rest over 4 years if some milestones are hit? The whole thing looks weird.
I think there is so many factors involved. I've been in ones where they are cutting the check before the elevator pitch has finished. If the founders are rock stars with prior receipts, then that DD goes out of the window. Especially if there is likely to be a ton of competition.
> It's interesting how nobody talks about due-diligence being completely broken.
The majority of the talk around this case has been about the due diligence failures. The judge even called it out.
Consumer businesses are harder to vet. It's not like a B2B with a dozen top customers where you can call them all and confirm that sales are happening. Non-response and customer churn is expected to be a high and changing number. From what I read she also invoked various privacy law excuses to give them the run-around while they were pressured to close the deal.
But JPMorgan's failures don't excuse the criminal actions. If someone enters your house and steals your computer, it doesn't matter if you negligently left the door unlocked. A crime is a crime.
>From what I read she also invoked various privacy law excuses to give them the run-around while they were pressured to close the deal.
And that should have been a massive red flag for JPMC. They should have nope'd out of that deal on the spot.
I run a hybrid B2B and B2C consumer packaged good company. I have a few small investors. They know who my top clients are, because they ask in good faith, and I answer in good faith.
> I run a hybrid B2B and B2C consumer packaged good company. I have a few small investors. They know who my top clients are, because they ask in good faith, and I answer in good faith.
Right, because it's easy to share your customer list when you have a small number of customers and they are repeat customers.
Her company helped with student loans. Her customers were mostly one-time customers. The customer count was supposed to be indicative of how many new college students they could expect to sign up each year.
Oh don't worry, the judge absolutely LIT UP JPMorgan in the judgement. This is only a taste
> Still, the judge criticized the bank, saying “they have a lot to blame themselves” for after failing to do adequate due diligence. He quickly added, though, that he was “punishing her conduct and not JPMorgan’s stupidity."
No. She's required to make restitution far in excess of the total proceeds of the sale, including as a minor component a sum that captures her own personal proceeds.
“Javice perpetrated a $175 million fraud—repeatedly lying about the success of her startup company and even hiring a data scientist to create fake data to back up her lies. For that, Javice has been sentenced to 85 months’ imprisonment and ordered to pay over $300,000,000,”
I don't know how they run that in federal prisons, but in some states they'll just put that balance on your commissary account, so you'd go to buy some noodles and you'd be -$300m before you start.
Maybe JP did actually smell something during DD but decided to go ahead because of FOMO and confidence that they could just sue later if their concerns turned out to be true...
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.
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 forbes 30 under 30.
The people I know who made the 30 under 30 list approached it like a massive campaign they had to win. It was a full-court press to get in front of the right people and their startup's PR releases were all timed to impress for the 30 under 30 during that period.
Maybe times changed since it became more of a running joke. At one point it was a selling point for fundraising that people would compete hard over.
Every person I personally know on this list made it their life mission to be on the list. It was lost on them that the whole thing has become a running joke that everyone else thinks is just full of grifters.
The Onion had a listicle entitled "80 Under 80 -- and five 79-year-olds to watch out for." Once again they nailed the inherent vacuousness of modern news.
Being on the 30 under 30 list only means you are more likely to scam people out of money than make it:
> The Forbes 30 Under 30 have collectively raised $5.3B in funding. They’ve also been arrested for frauds and scams worth over $18.5B. Incredible track record.
Some of the more notable: Martin Shkreli, Elizabeth Holmes, Charlie Javice, SBF, Caroline Ellison, Nate Paul.
Fun fact, filter for Stanford in those numbers and the disparity grows starker still.
I see the string of “30 Under 30” being a statistically valid predictor of future likelihood to go to prison continues. These lists feed on the narcissistic tendencies of grifters who are desperate to get on the list and then tell you about it on LinkedIn.
These lists have such a bad reputation these days that legit top folks are asking their PR people to keep the off!
> In seeking a 12-year prison sentence for Javice, prosecutors cited a 2022 text Javice sent to a colleague in which she called it “ridiculous” that Holmes got over 11 years in prison.
This seems utterly irrelevant to the sentencing, but what do I know.
Sentencing can be impacted by several factors like this. If the criminal shows a blatant disregard for the law and views lawbreaking as a risk-reward tradeoff to get what they want, they're more likely to commit crimes in the future.
If there had been more evidence that she reluctantly went with the scheme under desperation or pressure and held immense regret and remorse, in theory that would suggest a shorter sentence.
If I recall correctly, Elizabeth Holmes' lawyers tried to push the angle that she was pressured into committing the frauds as a way to lower the temperature of the case.
No different than ozy.com's story, and Carlos Watson got the pardon. It helped that he was basically Powell-Jobs's pet (one of the owners of the Democratic Party), then kissed Trump's ass on top. His entire deal was making connections with rich white people who wanted a black friend to tell them they were not only good people, but the best people. Excellent work if you can get it.
I don't think you can start this charm offensive after the crime, though. The only person I've ever seen manage that is Rob Blagojevich.
As has been said, the value of standing under a huge tree is more the shade, not the fruit. Your rich friends may never do anything for you, they might only value your friendship because you're one of the few who have never asked them for anything. But, consistent with that, if somebody attacks you they'll defend you as hard as they defend their other possessions. That kind of armor enables you to pluck fruit from other trees.
Believe it or not, smaller fraudsters get prosecuted all the time, too. One of the news reporters I followed on Twitter in my area liked to follow all of the small cases of real estate and business fraud in my area. There were a lot of prosecutions for people who were stealing <$10K at a time through affinity fraud and fake business investments.
You just don't hear about them as much because someone going to jail for stealing $60K from a couple families from their church in a fake real estate scheme isn't as exciting as a massive fraud against JP Morgan.
A few years ago the manager of our local Menards got convicted of stealing over a half-million dollars over 5 years. She only got 180 days, too, and was allowed to leave the jail for work. Depending on how high on the hog she lived for those five years, she might figure it was worth it.
I knew one local HVAC company where the office manager skimmed off six figures over something like 20 years before she got caught. Just slow and steady, never taking enough to be obvious, I guess. It happens more than people would think.
I knew a guy whose parents basically invented thrift stores. He’s accountant did the same thing while he was battling drug addiction. Not sure if she ever got prosecuted I think the owner wanted to move on. Then he died of a heart attack.
Still what she did was fraud. From the article - "Still, the judge criticized the bank, saying “they have a lot to blame themselves” for after failing to do adequate due diligence. He quickly added, though, that he was “punishing her conduct and not JPMorgan’s stupidity.” "
Not to justify it, but why isn't the founder of UPS (edit: Fedex) in prison? I don't think it was legal to go and literally spend their money at the casino.
If you turn a profit no one cares (unless you're Shkreli, don't think his investors lost money, but he pissed off some politicians because he said the quiet parts out loud about how the pharma industry works), if you lose it's fraud.
When all the winners are doing it, hard to compete otherwise... not that it makes it right.
why isn't the founder of UPS in prison? I don't think it was legal to go and literally spend their money at the casino
That was FedEx’s founder, Fred Smith. It wasn’t UPS
He only had $5,000 of funds remaining, which he gambled playing blackjack, so the potential loss to investors was small. He’d already lost almost all their investments through operating FeDex
At that point he had been stiffing his pilots on wages for weeks or months, and with many also paying fuel bills on their personal credit cards/checks, since many fuelers had canceled FedEx's accounts.
Yeah, $5K isn't a whole lot, but if I'm a pilot struggling to put food on my family's table, and the CEO takes company money to Vegas, I'm not thinking "Oh, but the investors" or "Sure, it's not that much money anyway".
I don't see why people (not saying you, in particular) see this as some heroic founder "risking it all". He wasn't. He was risking the company's "all", after asking the employees to suck up his mismanagement.
some heroic founder "risking it all". He wasn't. He was risking the company's "all", after asking the employees to suck up his mismanagement.
I agree. He was asking employees not to cash their paychecks sometimes. $5000 is inconsequential compared to that forced investment from employees and business partners
There is truth to this. She was exposed because JP Morgan ran a marketing campaign that converted extremely poorly. Better purchased data might've prevented significant forensics. The poor due diligence had already been signed off.
While she committed fraud, I feel sorry for her because of her naivety. It must've been a sick moment when they asked to examine the data during due diligence. If she'd known that would be used for marketing integration so quickly, maybe she would have backed out of the deal.
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.
> Engineer-1 was uncomfortable with the request and stated, in sum and substance, “I don’t want to do anything illegal.” JAVICE and CC-1 claimed to Engineer-1 that it was legal. JAVICE stated to Engineer-1, in sum and substance, “We don’t want to end up in orange jumpsuits.” Engineer-1 declined the request from JAVICE and CC-1.
She's not naive. She was told this was illegal and then did it still. She knew this was fraud.
Yes, read the same. Naive in thinking she could get past that and they wouldn’t do anything particularly revealing with the data. A smarter fraudster would’ve backed out earlier with less damage.
If you spend investor money at a literal casino while advertising a non-casino related business, and pay the investors back, probably people will view you as not committing a crime.
If you get investor money or get a loan on the basis of funding logistics investments, bet it on roulette red, and go bankrupt, I would expect you'd be looking at hard jail time for fraud.
So I'm thinking the crime would be nothing, because he was a winner, and the optics totally changed, and fraud relies on very subjective opinions of a jury.
There are lots of examples of people going to jail despite investors getting their money back, like SBF and Shkreli. Even Madoff investors got 94% of their investments back.
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.
No because the assets ('money') deposited to SBF were crypto, and you just gamified it by doing a currency exchange to USD while disingenuously failing to note that in that time the USD value of the crypto went up.
If you want an accurate reflection, note how much of the crypto deposited went in, and then how much came back out after SBF lost it.
This would be like me depositing USD, someone stealing some of it, then you bragging the value went up because I have a larger quantity as measured in Venezuelan Bolivars. What actually happened is their % they recouped was less than 100 until you artificially change to an entirely different 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?
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
> (unless you're Shkreli, don't think his investors lost money, but he pissed off some politicians because he said the quiet parts out loud about how the pharma industry works)
What's the TL;DR? His wikipedia page doesn't make it obvious.
Shkreli's schtick was to buy out or control pharma companies that had a monopoly and jack the everliving fuck out of the prices. He had some programs for uninsured people, but he would milk the insurance companies absolutely dry, which gave him some wild profits.
This made a bunch of powerful people absolutely enraged, as he was basically publicly bragging about jacking the ever living fuck out of the prices. Pharma companies do this but Shkreli would publicly say it and tell the truth that basically the other companies were doing it while pretending to be good people, and he was only being honest about it. Poor people were pissed because they were told they couldn't get their drugs (I'm unaware if the program that allowed uninsured people to get them for cheap was real or not), and the rich insurance people pissed because he was basically he was bilking them.
So they went back and discovered one or some of his other early enterprises weren't profitable, but that he had used money he made off his later pharma enterprises to pay back his earlier investors.
In trial, his investors testified they were happy with the situation, lost no money, and would invest with him again. But they still convicted him for fraud, even despite the 'victims' themselves did not believe they were defrauded. It didn't help that Shkreli is probably one of the most profoundly unlikeable people you can possible listen to, unless you're not bothered to hear a hyper-capitalist be honest about how they do business.
Sounds like basically the big boy version of how all the other psychiatrists who run plausibly deniable pill mills will screech about the one running a flagrant pill mill until they lose their license.
Victims not wanting prosecution doesn’t absolve the perpetrator as wife beaters learn all the time. I also think Skhreli’s biggest mistake was threatening Hillary Clinton.
If a wife says at trial she wasn't beat, it's extremely likely you're getting a conviction. I'm aware of a recent high profile case (Mike Glover) where the partner even had signs of broken bones and a beaten down door and the partner just later changed her story to those being due to a recreational accident outdoors and that pretty much terminated the case between that and her not providing a favorable testimony. But that's aside the point.
In this case the wife never called the cops, and then when the cops showed up she claimed she wasn't beat, and not only that she has no visible marks or bruises or anything.
And none of this is justifying any of it. Just showing how far outside of what we commonly see in fraud cases that actually get convicted.
He would paint himself as a working man's hero, "I'm making insurers pay more so you can get your drugs cheaper", always avoiding the awkward questions of where the insurer's money came from and why premiums kept rising (note that I'm also not siding with insurers here, especially those who have implemented PBMs to leech money into their pockets). He basically treated the public as useful idiots who thought that insurance was paying more for their drugs out of ... charity? Goodwill? The money fairy?
Then there was also the fact that at least once (and to a slightly lesser extent, twice), he went to the FDA to block the approval of a new drug, arguing it shouldn't be on the market. Why?
Not because it was less effective than the market options - it had better results.
Not because it had more/worse side effects, complications and interactions - it had better results there too.
Not because it was prohibitive, or patenting or anything stifling to the market.
No, it was because Shkreli had recently purchased a manufacturer of one of those existing drugs and their portfolio, and had been in the process of ramping up his price gouging on that drug, i.e. "The FDA should block approval of this better drug because it limits my ability to profit from my 'worse' drug."
Regardless on your take about his antics, it seems clear the fraud prosecution had a lot more to do with his pharma antics than the government actually caring that much about how he paid back investors at prior companies, especially since to my knowledge none of his investors were going to the government with complaints. No one gave a shit about the guy until his (seemingly legal) pharma 'gouging' practices pissed off a huge segment of influential people.
I do unfortunately agree with that. But to this day I still see people who see him as some unsung hero, and the prosecution of him for one of many horrible acts was one that only doubled down on that vision.
I was about to go on a rant about, "Why is it ethical to put people in jail for doing things that only affect money? Was anybody at JPMorgan hurt as bad as jail will hurt this person?" But you already answered the question.
A number of people from JPMC have gone to prison for financial crimes in general, including some (e.g. https://www.justice.gov/archives/opa/pr/former-jp-morgan-tra...) which occurred during 2008. Nobody from JPMC has gone to prison for causing the 2008 financial crisis because there's no evidence that someone from JPMC caused the 2008 financial crisis.
Lol the biggest loser here is the ad tech company that was used to validate the entirely generated emails and somehow gave JPMC the belief that the emails matched in the DB. Get fucking rekt.