4 ms·

As a private company, are there any laws that restrict me from lying to the public about my financials? As long as I'm not defrauding an investor or lying to th

by trotsky 16y ago

As a private company, are there any laws that restrict me from lying to the public about my financials? As long as I'm not defrauding an investor or lying to the tax man or various regulatory bodies I can say anything I want, right? I only ask because Blodget has proven himself very willing to do just that kind of thing in the past, though I'm unsure what the angle would be.

uyhtghjkjh 16y ago
No of course you can't lie. You have to selectively report, optimize withholding, use legitimate tax minimization strategy, diversify into a range of activities and shell companies. But certainly not lie....
- trotsky 16y ago
  Are you sure you aren't thinking of public companies? I've been in a fair number of sales and M&A meetings where I heard people lying up a storm about corporate health or financials. Any laws to cite?
olalonde 16y ago
It could possibly fall under misrepresentation[1] law under certain circumstances. For example, as a service company, pretending you have solid revenues might induce a potential client into buying your services (if your client has a policy of only dealing with established companies). [1] http://en.wikipedia.org/wiki/Misrepresentation http://en.wikipedia.org/wiki/Misrepresentation
ynniv 16y ago
Umm, not paying taxes? Declaring a virtual loss on millions of dollars revenue would make for a nice tax "bonus".
akashs 16y ago
can't directly lie, but people play games with accounting numbers all the time. for all we know, a large chunk of that revenue could be going to pay year-end bonuses. but given they have 45 people, after salaries and benefits, and after all the costs of running the site, that kind of net profit doesn't seem entirely unreasonable on $4.8M rev.
- deleted 16y ago
  [deleted]
  - akashs 16y ago
    I'm a little confused, perhaps I was unclear. It sounds like I'm in agreement with you that I don't think the numbers are crazy. However, accounting is more of an art, and you can play games with numbers. E.g., large companies typically have two sets of books (and are allowed to), one for investors, one for the IRS. The latter typically makes things look worse so you don't have to pay as much tax. I'm no lawyer, but given the company has investors, I'm pretty sure the SEC can still come after them if they're misleading their investors. Sending out a press release saying your company is making $100B would be very much like what Madoff did. They can still come after you. Also, think revenue numbers are a bit harder to fudge, so doing a sanity check off of those based on how many people they have, I think it's in the right ballpark. Edit: Falsifying statements: http://www.law.cornell.edu/uscode/18/usc_sec_18_00001001----000-.html http://www.law.cornell.edu/uscode/18/usc_sec_18_00001001----... Tax evasion: http://en.wikipedia.org/wiki/Tax_avoidance_and_tax_evasion http://en.wikipedia.org/wiki/Tax_avoidance_and_tax_evasion
    - trotsky 16y ago
      Agreed that if you're misleading investors that's generally going to be fraud of some type of another. But presumably his investors already had his numbers, they aren't waiting for a blog post linked to by tech crunch to find out. It seems like you're blurring the line between a public company and a private company. Why use accounting tricks? This isn't a 10Q, it isn't certified, it wasn't prepared by an auditor. It also isn't his tax return, or testimony to the government. I also think you're overestimating your ability to back out rev numbers from headcount. I've worked at a similar sized company that booked $0 in rev, and I'm sure plenty of 1 person companies book more than that. My point really isn't about the numbers, it's about credibility. This guy got barred from the securities industry by the SEC for telling the public one thing when he believed the opposite.
      - 16y ago

by trotsky 16y ago

uyhtghjkjh 16y ago

No of course you can't lie. You have to selectively report, optimize withholding, use legitimate tax minimization strategy, diversify into a range of activities and shell companies. But certainly not lie....

trotsky 16y ago
Are you sure you aren't thinking of public companies? I've been in a fair number of sales and M&A meetings where I heard people lying up a storm about corporate health or financials. Any laws to cite?

olalonde 16y ago

It could possibly fall under misrepresentation[1] law under certain circumstances. For example, as a service company, pretending you have solid revenues might induce a potential client into buying your services (if your client has a policy of only dealing with established companies). [1] http://en.wikipedia.org/wiki/Misrepresentation http://en.wikipedia.org/wiki/Misrepresentation

ynniv 16y ago

Umm, not paying taxes? Declaring a virtual loss on millions of dollars revenue would make for a nice tax "bonus".

akashs 16y ago

can't directly lie, but people play games with accounting numbers all the time. for all we know, a large chunk of that revenue could be going to pay year-end bonuses. but given they have 45 people, after salaries and benefits, and after all the costs of running the site, that kind of net profit doesn't seem entirely unreasonable on $4.8M rev.

deleted 16y ago
[deleted]
- akashs 16y ago
  I'm a little confused, perhaps I was unclear. It sounds like I'm in agreement with you that I don't think the numbers are crazy. However, accounting is more of an art, and you can play games with numbers. E.g., large companies typically have two sets of books (and are allowed to), one for investors, one for the IRS. The latter typically makes things look worse so you don't have to pay as much tax. I'm no lawyer, but given the company has investors, I'm pretty sure the SEC can still come after them if they're misleading their investors. Sending out a press release saying your company is making $100B would be very much like what Madoff did. They can still come after you. Also, think revenue numbers are a bit harder to fudge, so doing a sanity check off of those based on how many people they have, I think it's in the right ballpark. Edit: Falsifying statements: http://www.law.cornell.edu/uscode/18/usc_sec_18_00001001----000-.html http://www.law.cornell.edu/uscode/18/usc_sec_18_00001001----... Tax evasion: http://en.wikipedia.org/wiki/Tax_avoidance_and_tax_evasion http://en.wikipedia.org/wiki/Tax_avoidance_and_tax_evasion
  - trotsky 16y ago
    Agreed that if you're misleading investors that's generally going to be fraud of some type of another. But presumably his investors already had his numbers, they aren't waiting for a blog post linked to by tech crunch to find out. It seems like you're blurring the line between a public company and a private company. Why use accounting tricks? This isn't a 10Q, it isn't certified, it wasn't prepared by an auditor. It also isn't his tax return, or testimony to the government. I also think you're overestimating your ability to back out rev numbers from headcount. I've worked at a similar sized company that booked $0 in rev, and I'm sure plenty of 1 person companies book more than that. My point really isn't about the numbers, it's about credibility. This guy got barred from the securities industry by the SEC for telling the public one thing when he believed the opposite.
    - 16y ago