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>This is a felony and it’s called fraud, even though it’s usually unintentional. This is incorrect. Fraud requires intent. Otherwise it's just negligence. Sho

>This is a felony and it’s called fraud, even though it’s usually unintentional. This is incorrect. Fraud requires intent. Otherwise it's just negligence. Should probably throw a legal dictionary in with the financial one.

AnimalMuppet 11y ago
But you can still get in legal hot water, and getting (mostly) back out involves having to prove that you were ignorant of the rules rather than deliberately trying to deceive. It's still going to be an incredible mess, and it's still going to wreck your reputation.
mindcrime 11y ago
But even without intent, negligence can, at times, rise to the level of being criminal[1]. Not sure if there's even been a case of a white-collar/financial negligence charge being considered a felony or not though... Either way, I think sama's point was that this stuff can be A Big Deal and is really important. I don't think any of this discussion contradicts that. [1]: https://en.wikipedia.org/wiki/Criminal_negligence https://en.wikipedia.org/wiki/Criminal_negligence
- jsprogrammer 11y ago
  Oh, negligence can certainly be criminal. Sam didn't claim that though, he specifically claimed that unintentionally stating incorrect jargon is a felony crime called 'fraud'. That is incorrect and somewhat ironic in a post about using correct terminology.
  - mindcrime 11y ago
    That is incorrect and somewhat ironic in a post about using correct terminology Sure. I'm just saying it doesn't detract from the underlying point. But you're right, it is ironic and slightly amusing... Just goes to show, we're all susceptible to making silly mistakes when we step outside of our primary domain(s).
tptacek 11y ago
That's a valid point, but if you think about what it's like to raise money, do you really want to be in the position of establishing --- to a prosecutor's satisfaction, since being dragged into court for this is game-over --- that you were unaware of the materiality of these distinctions when you improperly made them to potential investors? From model jury instructions, which might be misleading here: the "intent" a prosecutor needs to establish is that you knowingly said something false, in the process of seeking something of value, that the falsehood was material to the decision of whether to give the thing of value to you, and that the other party later gave you that thing. The bigger issue is it's very very very very very unlikely that a tiny startup is going to be prosecuted for attempting to defraud an accredited investor.
- rbcgerard 11y ago
  I agree, but there is also the civil aspect, and while its exceedingly unlikely that this would become a criminal matter, the civil liability could be substantial...
joshuaheard 11y ago
Strictly speaking, negligence has its own 4-part test (duty, breach, causation, damages). Fraud (intentional misrepresentation made to be relied on by another to their detriment) without intent (or reliance) is simply an unactionable misrepresentation.
- unreal37 11y ago
  I would bet that, with any inaccurate financial figures you quote to an investor, that "reliance" is easy to prove.
scrumper 11y ago
Article doesn't say "and it's called fraud". Maybe it's been edited since you quoted.
- jsprogrammer 11y ago
  The article has been edited without notice of modification. I don't know if a public reversion history is kept or if any of the caching engines picked up the version that I saw. First instincts of business is often to obfuscate, bury, and ignore. It's not completely unexpected or unusual. I've actually noticed quite a bit of text on HN that gets modified over time, often with no public revision history or even notice of modification. Bug? Feature? Oversight? Not sure.
vasilipupkin 11y ago
I don't think it's even negligence. When you are a startup, you are not required to file official SEC disclosures or anything of the sort. So you can use whatever you want as your terminology. Having said that, it's a really bad idea to use misleading terminology, because any sophisticated investor will know it and will consider you full of shit anyway
- rbcgerard 11y ago
  while its true that you may not have to file disclosures with the SEC, do not kid yourself, the second you discuss a potential investment in your company with someone you have to conform to both federal (sec) and state securities laws...
  - vasilipupkin 11y ago
    well, that's why startups talk to qualified investors who essentially sign something that says they are aware of all the risks of losing money, etc - not to general public. The point isn't the laws, the point is bullshitting sophisticated investors is a losing strategy
jxm262 11y ago
Agree with you here. Although negligence comes with it's own set of rules which may/may-not apply given what he mentioned in the post. I too found this ironically funny to call it fraud. Further for the sake of argument, not all fraud is criminal, so not all fraud convictions are felonies.
ixtli 11y ago
Thank you. I came here to see if someone pointed out the irony of his misusing a legal term in a post admonishing people for misusing business terms. EDIT: It looks like he ninja-edited the post as it no longer said what I'd read the first time.

AnimalMuppet 11y ago

But you can still get in legal hot water, and getting (mostly) back out involves having to prove that you were ignorant of the rules rather than deliberately trying to deceive. It's still going to be an incredible mess, and it's still going to wreck your reputation.

mindcrime 11y ago

But even without intent, negligence can, at times, rise to the level of being criminal[1]. Not sure if there's even been a case of a white-collar/financial negligence charge being considered a felony or not though... Either way, I think sama's point was that this stuff can be A Big Deal and is really important. I don't think any of this discussion contradicts that. [1]: https://en.wikipedia.org/wiki/Criminal_negligence https://en.wikipedia.org/wiki/Criminal_negligence

jsprogrammer 11y ago
Oh, negligence can certainly be criminal. Sam didn't claim that though, he specifically claimed that unintentionally stating incorrect jargon is a felony crime called 'fraud'. That is incorrect and somewhat ironic in a post about using correct terminology.
- mindcrime 11y ago
  That is incorrect and somewhat ironic in a post about using correct terminology Sure. I'm just saying it doesn't detract from the underlying point. But you're right, it is ironic and slightly amusing... Just goes to show, we're all susceptible to making silly mistakes when we step outside of our primary domain(s).

tptacek 11y ago

That's a valid point, but if you think about what it's like to raise money, do you really want to be in the position of establishing --- to a prosecutor's satisfaction, since being dragged into court for this is game-over --- that you were unaware of the materiality of these distinctions when you improperly made them to potential investors? From model jury instructions, which might be misleading here: the "intent" a prosecutor needs to establish is that you knowingly said something false, in the process of seeking something of value, that the falsehood was material to the decision of whether to give the thing of value to you, and that the other party later gave you that thing. The bigger issue is it's very very very very very unlikely that a tiny startup is going to be prosecuted for attempting to defraud an accredited investor.

rbcgerard 11y ago
I agree, but there is also the civil aspect, and while its exceedingly unlikely that this would become a criminal matter, the civil liability could be substantial...

joshuaheard 11y ago

Strictly speaking, negligence has its own 4-part test (duty, breach, causation, damages). Fraud (intentional misrepresentation made to be relied on by another to their detriment) without intent (or reliance) is simply an unactionable misrepresentation.

unreal37 11y ago
I would bet that, with any inaccurate financial figures you quote to an investor, that "reliance" is easy to prove.

scrumper 11y ago

Article doesn't say "and it's called fraud". Maybe it's been edited since you quoted.

jsprogrammer 11y ago
The article has been edited without notice of modification. I don't know if a public reversion history is kept or if any of the caching engines picked up the version that I saw. First instincts of business is often to obfuscate, bury, and ignore. It's not completely unexpected or unusual. I've actually noticed quite a bit of text on HN that gets modified over time, often with no public revision history or even notice of modification. Bug? Feature? Oversight? Not sure.

vasilipupkin 11y ago

I don't think it's even negligence. When you are a startup, you are not required to file official SEC disclosures or anything of the sort. So you can use whatever you want as your terminology. Having said that, it's a really bad idea to use misleading terminology, because any sophisticated investor will know it and will consider you full of shit anyway

rbcgerard 11y ago
while its true that you may not have to file disclosures with the SEC, do not kid yourself, the second you discuss a potential investment in your company with someone you have to conform to both federal (sec) and state securities laws...
- vasilipupkin 11y ago
  well, that's why startups talk to qualified investors who essentially sign something that says they are aware of all the risks of losing money, etc - not to general public. The point isn't the laws, the point is bullshitting sophisticated investors is a losing strategy

jxm262 11y ago

Agree with you here. Although negligence comes with it's own set of rules which may/may-not apply given what he mentioned in the post. I too found this ironically funny to call it fraud. Further for the sake of argument, not all fraud is criminal, so not all fraud convictions are felonies.

ixtli 11y ago

Thank you. I came here to see if someone pointed out the irony of his misusing a legal term in a post admonishing people for misusing business terms. EDIT: It looks like he ninja-edited the post as it no longer said what I'd read the first time.