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IANAL, and Sam mentioned a felony charge. Are there any legal protections for investors (or.... whoever this is protecting) for e.g. misrepresenting "signups vs
by duaneb 11y ago
IANAL, and Sam mentioned a felony charge. Are there any legal protections for investors (or.... whoever this is protecting) for e.g. misrepresenting "signups vs users vs active users"? Surely that falls under subjective fraud rather than a straight up objective lie, especially for sites e.g. reddit where the line between "active user" and "lurker" is extremely murky.
EDIT: Clearly I have no understanding of fraud.
- dudurocha 11y agoUsually and investor makes a Due Diligence in the company. Depending on the stage of the company, investor profile, this due diligence can be a formal one, where you hire external auditors to make the process or in a more early-stage phase you can do VC firm (or angel) makes the due diligence themselves. Either way, at least in Brazilian Law (I work with VC in Brazil, but I imagine there is something similiar in USA), we have a "Hidden Liabilities" clause in our termsheet. It says that anything prior to the investors investiment is liable to the founders only.
- jbverschoor 11y agoIf an investor does not include such a clause and doesn't do proper due diligence but everything was handed over... It works the other way around with all the ways people get screwed over by the other side.
- deleted 11y ago[deleted]
- unreal37 11y agoRE: "Subjective fraud". Regardless of whether the fraud is intentional or accidental, misstating something to investors (i.e. "our revenue was $1 million last month" when you're talking about GMV) will still subject you to a lawsuit and/or arrest.
- taylorwc 11y agoYour point stands, and this is a nit, but... Fraud, by legal definition, must be intentional. It is a deliberate attempt to mislead.
- unreal37 11y agoIs there a concept in law as "you should have known"? Like, its one thing to not know that the thing you are saying isn't true (i.e. "my co-founder went to Yale" when he actually believes that he did). But another to not know the definitions of words you are using when you should know that? Can you say "I have a million dollars in the bank" when you honestly believe "a million" = 1000?
- ams6110 11y agoYes it's probably the line between just being liable for damages vs. going to jail.
- duaneb 11y agoIgnorance of the law is no defense to criminal charges. But law might also specifically entail intent. For instance, this is the difference between first and second degree murder. IANAL and I have no knowledge of the business/financial/contract end of things. I do know I've signed quite a few "due diligence" and "reasonable effort" clauses. I don't know how legally defensible they are in situations like user reporting when it's not specified.
- taylorwc 11y agoThe concept of mens rea[0] touches on this. One of its applications is that ignorance is not an excuse for being culpable. All of this is not to say that lack of intent makes someone blameless, only that it is not fraud without intent. [0] https://en.wikipedia.org/wiki/Mens_rea https://en.wikipedia.org/wiki/Mens_rea
- adebtlawyer 11y agoI have reason to think oral statements about your financial condition aren't actionable as fraud by your creditors in bankruptcy. I know nothing of liability to investors, securities law, etc.
- MichaelGG 11y agoReally? Seems like that line is easily defined with a sentence or two.
- duaneb 11y agoSorry, I more meant it in terms of: 1. What to the investors think the terms mean. 2. What does the service provider think the terms mean. 3. Can the difference between 1 and 2 be construed as a violation of a contract. 4. If 3, is it possible to discern unintentional vs fraud. I used reddit because it so easily demonstrates the different tiers of the 1% rule[1], except with reddit there are un signed in users, signed in users who don't do anything, only voters, voters and commenters, people who submit, and "power users". I don't know the details now (and reddit has changed a lot), but last I checked they seemed to descend in numbers by about ~10%. This would be a place where you could easily portray a very different ecosystem than reality, intentionally or not, simply by categorizing the users as "active" or not, and how you're characterizing the value you're getting from them. [1] https://en.wikipedia.org/wiki/1%25_rule_(Internet_culture) https://en.wikipedia.org/wiki/1%25_rule_(Internet_culture)
- jsprogrammer 11y agoThere are substantial remedies. Civil courts allow actions for restitution and punitive awards. If the fraud rises to a sufficient level, you can attempt to have the state lock the person up and/or prevent the person from interacting with you.