5 ms·

Your point stands, and this is a nit, but... Fraud, by legal definition, must be intentional. It is a deliberate attempt to mislead.

unreal37 11y ago
Is 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 ago
  Yes it's probably the line between just being liable for damages vs. going to jail.
- duaneb 11y ago
  Ignorance 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 ago
  The 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 ago
  I 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.
- jforman 11y ago
  In American law, there are civil offenses (torts) and criminal offenses (crimes). Criminal cases are prosecuted exclusively by the government. In both categories of law, there is a subset of offenses that fall under "strict liability" — for which you can be punished regardless of your state of mind when committing the offense. Fraud, like most criminal offenses, requires establishment of mens rea (knowing wrongdoing), so Sam is incorrect in saying that financial misstates are "felonies" on their face. But once you've become an investor you can bring a claim of breach of fiduciary duty (a tort) — rather than establishing that the CEO intentionally misled you, in this case you only need to show that they breached a "duty of care" — essentially, "you should have known".
- lmm 11y ago
  We have the concepts of negligence and recklessness, which often constitute offences of varying severity. I don't know anything about the specifics of fraud.
- chernevik 11y ago
  I know nothing about startup investor terms. But I wouldn't be surprised if they often included some clause "accounting shall conform to Generally Accepted Accounting Principles [GAAP]", at which the signing company is responsible for knowing and using the GAAP terminology for various items. How those responsibilities translate over to criminal / civil law would be a question for a lawyer. I think Sam's use of "felony" might be meant to get people's attention. Even finding yourself in an argument with your investors over civil liabilities probably means you have huge reputational issues that could kill you among the investor community.

unreal37 11y ago

Is 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 ago
Yes it's probably the line between just being liable for damages vs. going to jail.
duaneb 11y ago
Ignorance 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 ago
The 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 ago
I 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.
jforman 11y ago
In American law, there are civil offenses (torts) and criminal offenses (crimes). Criminal cases are prosecuted exclusively by the government. In both categories of law, there is a subset of offenses that fall under "strict liability" — for which you can be punished regardless of your state of mind when committing the offense. Fraud, like most criminal offenses, requires establishment of mens rea (knowing wrongdoing), so Sam is incorrect in saying that financial misstates are "felonies" on their face. But once you've become an investor you can bring a claim of breach of fiduciary duty (a tort) — rather than establishing that the CEO intentionally misled you, in this case you only need to show that they breached a "duty of care" — essentially, "you should have known".
lmm 11y ago
We have the concepts of negligence and recklessness, which often constitute offences of varying severity. I don't know anything about the specifics of fraud.
chernevik 11y ago
I know nothing about startup investor terms. But I wouldn't be surprised if they often included some clause "accounting shall conform to Generally Accepted Accounting Principles [GAAP]", at which the signing company is responsible for knowing and using the GAAP terminology for various items. How those responsibilities translate over to criminal / civil law would be a question for a lawyer. I think Sam's use of "felony" might be meant to get people's attention. Even finding yourself in an argument with your investors over civil liabilities probably means you have huge reputational issues that could kill you among the investor community.