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SEC fines Zenefits and former CEO for misleading investors
- runesoerensen 9y agoHere's the relevant SEC document: https://www.sec.gov/litigation/admin/2017/33-10429.pdf https://www.sec.gov/litigation/admin/2017/33-10429.pdf
- dang 9y agoUrl changed from https://techcrunch.com/2017/10/26/sec-fines-zenefits-nearly-1-million-for-misleading-investors/ https://techcrunch.com/2017/10/26/sec-fines-zenefits-nearly-..., which points to this.
- chroem- 9y agoIt's interesting that I can't think of any of these megagrowth tech startups that have gone off without a hitch. Zenefits, Uber, Snapchat, etc. are all in some form of trouble or another, and yet these companies are supposed to be the shining success stories that all other tech startups aspire to.
- JumpCrisscross 9y agoLyft, Spotify, Snap, SpaceX, to name a few.
- majormajor 9y agoSnap can't be both! :D
- kbenson 9y agoGive any company enough time. If you want to describe four strategies a company has used to become a shining success, your list could be Microsoft, Microsoft, Microsoft and Microsoft. If you want to describe four ways a company has really screwed up and was punished by the market and/or the government, your list could also be Microsoft, Microsoft, Microsoft and Microsoft. You can probably replace Microsoft with Apple or Google without much trouble too (but it's trivial for Microsoft).
- skinnymuch 9y agoSure, but companies like Snap or Twitter are much easier to poke holes at. They both tried their best to screw over a legit co-founder. Sadly Twitter succeeded. Both already had some toxic people near the beginning of their time. I'd say that makes them a toxic company from the get go too. You can't say the same thing for a ton of other companies. In these cases we didn't need to give much time at all. I think that's an important distinction.
- chroem- 9y agoSpaceX is not a traditional VC funded tech/ software business. Snapchat has a negative P/E ratio. In other words they are hemorraging money. I can't speak as much to Spotify and Lyft, but I don't remember them being very profitable either. Or at least profitable enough to warrant their valuations.
- s73ver_ 9y agoNeither are any of the shining examples cited above.
- QAPereo 9y ago...yet these companies are supposed to be the shining success stories that all other tech startups aspire to. reply A lot of people in this world, as you can see on most threads on this site, define "good" as "financially successful,” and care only about getting a piece of the action. In that regard, it doesn't matter if it's legal, quasi-legal, a shitty scam or any permutation (see ICO's) if you see yourself as smart enough to get rich from it.
- ericd 9y agoI don't think that's really the case here, HN doesn't seem to have many kind words for the makers of sham ICOs. How you get rich matters - if it's from making a huge business that's generally helpful, people admire you much more.
- QAPereo 9y ago“How you get rich matters...” Peter Thiel. The Bushes. Bill Gates. George Soros. Warren Buffett. IBM. Bayer.
- ericd 9y agoWhat's the point you're trying to get across?
- QAPereo 9y agoHow you get rich doesn’t matter to many people, especially those “strivers” like so many here hoping to become rich themselves. People don’t tolerate the likes of Thiel, Weinstein, Etc because they’re decent people... it’s just money and power. Edit: Do you have a point?
- ringaroundthetx 9y ago> How you get rich matters It really doesn't. There is a very narrow set of circumstances that would aversely affect your place in society based on how you earned it. Just think about how often it actually comes up regarding the wealthier people you may know or have heard about. Your wealthier neighbor. Odds are you never dug for all the civil litigation they encountered, or the relative morality behind each case or circumstance. They are just wealthier and society will reward them for that in perpetuity with access to better housing, better schools, better healthcare, and even more capital. End of discussion.
- shimon 9y agoThe reason to be skeptical of the "shining success story" ideal is the underlying, incorrect assumption that success is about being free of faults. Success is about achievement far in excess of the average. When a change is massive, it usually hurts someone. Sometimes things that seem really positive, like facebook helping kids stay in touch, contain massive negatives, like amplifying polarization in society. That's why we need to evaluate these things with more nuance. Just because Google's search engine is a massive boon to internet users doesn't mean none of their businesses should ever be regulated. Just because Uber's culture is misogynist doesn't mean taxi licensing is great policy. And if you succeed in doing something massive, remember that it isn't permanently good, and doesn't make you permanently good.
- gkoberger 9y agoHow about Slack ($5bn) and Stripe ($9bn)? That being said, when you get that big, of course there's problems. You have targets on your back, you're managing thousands of people, etc. Especially if you're entering into a market with regulations... someone is going to fight back.
- uhhhhhhh 9y agoFraud and problems should be seen as two different things. This looks like a clear case of fraud. lying to investors and regulators. That isn't a "growth problem" from having a target on your back, its a legal/cultural/approach issue that probably existed from the start and grew large enough to bite you in the ass.
- jackmott 9y agogentle/kind souls don't usually want to be CEOs/leaders and accept that stress and risk. People who are cutthroat and willing to step on other people to get ahead DO want to be CEOs. such is life
- spaceseaman 9y agoSorry but we live in a country that has rules and regulations for what CEOs and leaders do - regardless of how "cutthroat" they are. Their ambitions do not forgive their transgressions, and we have no obligation to accept that as "life". I do not see such behavior to be the essence of life, and I find it concerning you're so willing to accept it as the natural order.
- 20171026 9y agoWe as a civilization are two missed meals away from chaos. When that happens, there will be those who eat and those who starve. Laws are just there to compress the variance of outcomes. Where as in the past you would've starved, today you just struggle to get by.
- mbesto 9y agoIt doesn't help that VCs actively promote and foster founders who behave in ways that would get themselves in trouble. I guess in the case of Zenefits misleading investors is a rule that doesn't "matter". 4. Naughtiness Though the most successful founders are usually good people, they tend to have a piratical gleam in their eye. They're not Goody Two-Shoes type good. Morally, they care about getting the big questions right, but not about observing proprieties. That's why I'd use the word naughty rather than evil. They delight in breaking rules, but not rules that matter. This quality may be redundant though; it may be implied by imagination. Sam Altman of Loopt is one of the most successful alumni, so we asked him what question we could put on the Y Combinator application that would help us discover more people like him. He said to ask about a time when they'd hacked something to their advantage—hacked in the sense of beating the system, not breaking into computers. It has become one of the questions we pay most attention to when judging applications. http://www.paulgraham.com/founders.html http://www.paulgraham.com/founders.html
- ronilan 9y agoYep. And the googlepleasehire.me[1][2] guy was their VP Marketing through this ordeal. So maybe google does make some good hiring decisions after all[3]. [1] https://techcrunch.com/2011/08/03/google-please-hire-matthew-epstein/ https://techcrunch.com/2011/08/03/google-please-hire-matthew... [2] https://news.ycombinator.com/item?id=2840233 https://news.ycombinator.com/item?id=2840233 [3] https://techcrunch.com/2011/09/07/google-fails-to-hire-the-googlepleasehire-me-guy/ https://techcrunch.com/2011/09/07/google-fails-to-hire-the-g...
- austenallred 9y agoThat is a good and necessary thing in order to create a company. If you’re used to obeying rules (especially unwritten ones) you’ll never get off the ground in the first place.
- mbesto 9y ago> If you’re used to obeying rules (especially unwritten ones) you’ll never get off the ground in the first place. I know plenty of people who "get off the ground" by playing by the rules. I'd love for you to re-read your comment again and tell me that it doesn't sound dogmatic.
- dpandya 9y agoSuccess isn't really measured by the lack of negative outcomes but more like the sum of all outcomes, both negative and positive. If we were to look at only the lack of negative outcomes, a "company" that has 14 users that like the service would be a greater success than, e.g. Facebook, which isn't really how we use the "success" in conversation.
- Mz 9y agoIt's interesting that I can't think of any of these megagrowth tech startups that have gone off without a hitch. Doing anything in the real world is hard. Some military sayings come to mind: "No battle plan survives contact with the enemy." "Sometimes, a 90 percent solution now is better than a 100 percent solution later." (Meaning you could all be dead if you dick around looking for something too fussily perfect.) "You got to break a few eggs to make an omelet." (This is a saying about training deaths. They happen. Get over it. It is worse to not train them or to make training too sissified and safe and not enough like actual battle conditions.)
- loceng 9y agoTrouble isn't inherently a problem, and aligning this with VCs model of exiting either through being acquired or IPO'ing dumps the risk off onto someone else at whatever point it is decided that is best (for the company and some of its shareholders).
- ringaroundthetx 9y agobecause it is a cost benefit analysis. they received $583,000,000 and an amazing valuation by LYING. They would have received exactly $0 by not being so compelling. they pay $1,000,000 they still get to be a unicorn success story that everyone aspires for. deal
- austenallred 9y agoSlack? Stripe? Instacart? Docker? Twitch? Mixpanel? Doordash? Gusto? Coinbase?
- ChuckMcM 9y agoI isn't too surprising is it? Companies are made up of people and people are made up of complex psychologies. Something startups do is the they take people who may have very little experience at the senior level and thrust them up there into the limelight. That is contrasted with people who come up through the ranks of a large company, adjusting along the way to the norms of corporate behavior and the company's notion of right and wrong. I am fascinated by the lack of repercussions for investors. I had thought GroupOn and Zynga would have taught people the risks but no such luck.
- danielvf 9y agoIn addition to the fine, the SEC notes that the founder lost $65 million dollars as a result the drop in price and compensating early investors for that drop.
- QML 9y agoSince when did Buzzfeed cover business news?
- adambyrtek 9y agoZenefits paid a fine for misleading investors (with some contribution from the founder). The company is financed by investors, so in other words they indirectly paid the fine for being misled. Ironic?
- jjxw 9y agoThat is sort of the joke about all securities litigation. Shareholders will often sue companies that experience price drops due to "misleading investors" and, as you mentioned, the fine or damages end up being paid for by the investors themselves.
- amsilprotag 9y agoThis is a recurring theme in Matt Levine's Money Stuff. One thing that I occasionally mention around here is that every bad thing a public company does is also securities fraud: If you did the bad thing and didn't first disclose it to shareholders, then they can claim to have been defrauded by your failure to disclose it. (If you did the bad thing and did first disclose it to shareholders ... why?) https://www.bloomberg.com/view/articles/2017-08-22/stock-buybacks-and-securities-fraud https://www.bloomberg.com/view/articles/2017-08-22/stock-buy...
- perl4ever 9y agoIt's true that there is some overlap between the shareholders at different times, but there is some difference too. You can think of the shareholders that bought in cheaply after the price drop as compensating the shareholders that bought before the price drop and sold after. It's not clear to me whether this is a benefit to society.
- hkmurakami 9y agoThis is why (some) Theranos shareholders have agreed to not sue.
- JumpCrisscross 9y ago"Under the terms of the agreement, which contained no admission of liability, all Series A, B and C investors had the right to receive an increased equity stake in Zenefits in exchange for the investors releasing all claims against the Company. The increased ownership was effectuated by allowing such investors to exchange shares of Series A, B and/or C stock for a new series of Series A-1, B-1 and C-1 stock with a higher conversion rate of preferred shares to common, which had the effect of diluting the ownership of the other classes of existing shareholders (Founders Preferred Stock and Common Stock), including Conrad. Following the settlement, Zenefits had an implied post-money valuation of approximately $2.0 billion, down about 56% from the original valuation." [1] Value was re-allocated from founders and employees to investors. [1] https://www.sec.gov/litigation/admin/2017/33-10429.pdf https://www.sec.gov/litigation/admin/2017/33-10429.pdf § 46
- deleted 9y ago[deleted]