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CEO of Cyber Fraud Startup NS8 Arrested by FBI, Facing Fraud Charges
- pstoica 6y agoEx-employee here. Adam Rogas is a pathological liar and sociopath who dragged this out for years. I don't know how multiple audits failed to raise red flags over multiple $999,999.99 fake Stripe payouts. He literally inserted millions every few lines that didn't match up with the data around it. They never asked anyone else to produce the same report. Everyone involved should never be responsible for this amount of money again (looking at you, Lightspeed). If your CEO is actively siloing all financial and customer information, your entire company needs to speak up and get on the same page. Don't let this happen to you.
- wakeywakeywakey 6y agoWhy did you choose not to blow the whistle?
- pstoica 6y agoI didn't have all the information that's coming out now. People tried. Read the article. The last investment was finalized days after someone raised concerns after realizing we didn't contact 70% of our customers.
- wakeywakeywakey 6y agoThe details of your post go beyond those mentioned in the article. Could you provide additional links?
- pstoica 6y agoI was someone at the bottom of the totem pole who tried to do my job and ask what questions I could. I certainly noticed a lack of analytics or basic traffic/revenue/customer data. Retroactively, it was obvious that this was essentially a fake job, but I couldn't piece this together and there wasn't enough company-wide transparency. The fake financial statements were publicly released: https://www.justice.gov/usao-sdny/press-release/file/1317641/download https://www.justice.gov/usao-sdny/press-release/file/1317641...
- edm0nd 6y agoHow much were you being paid a year to do basically nothing?
- pstoica 6y agoDecent salary, but that's not the point. I'm distraught to realize I spent 5 months on nothing, and it's not something I'm proud to have or explain on my CV. It's cruel how much money these people throw away, but we were misled into thinking it was real. I wouldn't have taken this position to support such a scumbag.
- CatShitTodd 6y agoWhat is cruel is I am having to file bankruptcy because of this.
- NationalPark 6y agoWere you an investor?
- CatShitTodd 6y agoNo, not an investor. Without giving a way too much, we are a company in the technology space. They paid us a fee per user. They paid us fees based on these fake numbers of users that they submitted to their investors. Which means they essentially over paid us what is a lot of money for our small company. We made business decisions around that money in the past and for the future. Now it looks like that not only will we get no more money, but they also want like 90% of what they paid us back.
- deleted 6y ago[deleted]
- caymanjim 6y agoNot sure if you're being serious, but if you were an early investor, isn't it on you to make sure the business is legit? Anyone can be misled by a fraudster, but some responsibility lies with the VCs and angel investors throwing money at these companies and enabling this sort of thing to happen.
- pjc50 6y agoWhy would you? Even if you've got all your ducks in a row you've made yourself a target for media attention and lawsuits.
- libria 6y agoWhy not? Anonymously demanding moral action from others makes me righteous and costs me nothing. =)
- pstoica 6y agoAnyway folx, don't invest in a "hot startup" you've never heard of.
- elliekelly 6y agoDo you know when the company/Rogas first came under investigation?
- pstoica 6y agoThe SEC tried investigating since December 2019, possibly earlier. Again, public information.
- tomashertus 6y agoAnd how was the quality of product? Was it something breathtaking that it attracted $157.9M in funding?
- pstoica 6y agoHell no, a $400 million valuation made no sense, but he kept feeding us these lies.
- AdmiralAsshat 6y agoI feel sorry for any CEO who actually steps down to spend more time with his/her family. That explanation has now more or less been completely co-opted by "Our CEO got caught in an embarrassing scandal and they need to fade from the public eye for a bit." I now assume that anyone who gives that reason on their way out must have done something terrible that is yet or about to come to light.
- WrtCdEvrydy 6y agoLOL, if I ever make it at that level, my explanation for wanting to spend more time with my family will be "wanting to spend time with hookers"
- mandelbrotwurst 6y agoWhen you've invested that much into something you're not very likely to suddenly decide to make that sort of strategic blunder for giggles.
- odshoifsdhfs 6y agoYou must really not know me (or a lot of people).
- marcinzm 6y agoThe people who would say something like that are also unlikely to not say something long enough to get to such a position.
- pengaru 6y agoMost of the value hookers bring to the table is not having to spend time with them to get what you want. Your comment makes little to no sense.
- draw_down 6y agoI never feel sorry for CEOs.
- threetimesy 6y agoSame thing the former CEO of HeadSpin has reportedly done.
- joering2 6y agoSounds like a witch hunt. Big corpo tries to get rid of competitor. And once again government destroyed someones life. Now that he cannot do his part anymore its so easy to proof he deceived investors because well he doesn’t have any numbers to show si yeah he was lying. And besides, who didn’t flex a slide or two to show future numbers how they hoped it will look instead of honest truth. If thats the case then DOJ has to come and knock at door of every Hacker News user, or any IT person in that matter.
- pstoica 6y agoThis is simply not the case. Adam lied to everyone's face for years. Read the documents and financial statements if you think this is just a little "flex" every couple of slides.
- nickphx 6y agoit doesn't surprise me. i worked with him over 20 years ago when he ran hiphopsite.com, he was a shifty guy then.
- teej 6y agoCitation(s) needed
- caust1c 6y agoTake your libertarian dreams to international waters. Regulation exists to create opportunity, not destroy it. Unless you have facts to back up your claims, don't spread misinformation.
- duncan_bayne 6y agoTheir position isn't Libertarian. I'm a Rand quoting free market extremist, and I'm A-OK with this guy going to jail for fraud. Fraud is, after all, morally equivalent to physical coercion. On a related note, most people who heap scorn on Rand seem to have missed the fact that many (most?) of the major villains in Atlas Shrugged are corrupt businessmen. Hang 'em high.
- billyhoffman 6y agoBeing an executive at a (substantially smaller) SaaS startup I have no idea how having up to 90% of your revenue be fabricated could happen without others knowing: - where are the contracts corresponding to revenue? Yeah they are SaaS focused on SMB but this is a financial product, there will be contracts, NDAs, etc - if the majority of the customers are fake there is such little load on the system. How does engineering not figure that out? - How does no one see an insanely low COGs when paying the cloud services bills, or the lack of allocated resources when looking in the management interfaces? - Even saas Products with supposedly a no touch sales process still have sales people and sales engineers for key accounts. What are all the sales people doing if they’re not running trials? - let’s say he hid all of this by having tens of thousands of $10 a month customers. How does your VP of sales not get totally freaked out that the overwhelming majority of revenue is coming from no touch sales? If that’s the case that radically changes your growth and go to market strategies. The entire go-to- market team should be wondering what is going on? Same with product management. Your roadmap would be completely different with a long tail of extremely low revenue customers. - how does sales/client success not notice that no one is expanding? How they aren’t talking to small customers about expansions? - How does no one notice a complete lack of analytics or actions being generated by all the supposed customers? - product management is going to want to get feedback from all of these customers. They’re going to be looking in analytics tools or session replay tools like fullstory. They’re going to look at the accounts and users and do outreach to emails asking for meetings. Aren’t they going to notice all of those people are fake? - support/client success is going to have insanely high customer to support person ratios. Where are all the support tickets for that many customers? - Managing cash flow would be very hard. Finance is going to see all this revenue coming in and want to scale. The VCs are going to want to see money being spent on marketing activities etc. to further the growth. If there’s no corresponding revenue being spent to acquire customers but tons of revenue coming in that’s a giant red flag
- WrtCdEvrydy 6y agoBecause the larger startups are driven by people who know financial engineering... this guy got caught because the money stopped (due to layoffs). Noone gives a shit when they're getting paid.
- rococode 6y agoHave VCs started skimping on DD because problems come up so rarely? Lightspeed (who led the last round for these guys) isn't a no-name firm, they invested in Snap, GrubHub, Telegram, etc. Surely they have the experience to find out gigantic major problems like this? This feels like something that should've come up in diligence before they sent them 120 million bucks... There are so many places it could've shown up or at least been hidden in a way that should've raised some flags.
- teej 6y agoI’ve heard this as a rumor, yes.
- WrtCdEvrydy 6y agoThis is because who pays for Due Diligence... if you are paying you can influence it. I'd love for there to be a firm that did a 50/50 escrow for DD.
- billyhoffman 6y agoThe VC firm pays for their own DD. Certainly if they are leading the round. Initial meeting-> NDA -> some due diligence -> letter of intent/term sheet (depending on the transaction) -> 30-45 days of very deep due diligence.
- elliekelly 6y agoWhat’s absolutely stunning to me is the (former) CEO quote in the article says the company was under SEC investigation for fraud as early as November of last year. And given that the DOJ complaint alleges the fraud occurred between January 2019-February 2020 I would be inclined to believe it. (Fraud doesn’t tend to just stop of it’s own accord.) So was the investigation disclosed to Lightspeed and they decided to invest anyway? Who on earth would invest with someone currently under investigation for a scheme to defraud investors? And if it wasn’t disclosed, why not? Did that not come up at all during due diligence?
- yesbabyyes 6y ago
- legerdemain 6y agoInteresting. They reached out to me on TripleByte last year: remote position, rather high cash comp for a startup, and no coding or whiteboarding as part of the onsite!
- drchickensalad 6y agoYeah I saw them super active on triplebyte and angel.co a-list. I got pretty far into the interview; lucky I dodged a huge bullet!
- whycombagator 6y agoThey were on SO (Stack Overflow) jobs too, one of the postings was for up to $250k remote IIRC. It was for a principal engineer position with experience in java & k8s. Their lower engineering titles on SO jobs were decent salaries too (mid-late 100s I think).
- jedberg 6y ago> It seems ironic that the co-founder of a company designed to prevent online fraud would engage in fraudulent activity himself I don't find that ironic at all. Having worked in the security space for a long time, it seems like the best people in the business are the ones who would be great at committing the crimes if not for their own morality. Someone with a weak sense of morals could easily turn to evil.
- qaq 6y ago"Having worked in the security space for a long time, it seems like the best people in the business are the ones who would be great at committing the crimes if not for their own morality." Well and truth be told none would know so maybe they are doing it ?
- alchemism 6y agoOne of Terry Pratchett's Discworld novels features a thief being deliberately put in charge of the Royal Mint. https://en.wikipedia.org/wiki/Making_Money https://en.wikipedia.org/wiki/Making_Money
- yesbabyyes 6y agoA few years ago, it was discovered that the head of the Royal Coin Cabinet of Sweden, a museum with one of the world's largest coin collections worth almost $3 billion USD, had been stealing and selling historical coins worth a fortune. Kind of the opposite, really. There's a three part documentary series here (Swedish): https://www.svtplay.se/guldfeber-stolderna-pa-kungliga-myntkabinettet https://www.svtplay.se/guldfeber-stolderna-pa-kungliga-myntk...
- sloshnmosh 6y agoAgreed. It reminds me of all those bogus security/antivirus apps on the Google Play store that harvest more user data than any virus ever could.
- heartbeats 6y agoWell, it is a cyber fraud startup. They didn't lie about that.
- tehwebguy 6y agoNow do WeWork
- garysahota93 6y agoThis irony is what exactly what I needed on a Friday.
- neallindsay 6y agoAh–it was supposed to be an anti-fraud startup, not a fraud startup.
- redisman 6y agoCommon mistake
- dyeje 6y agoHuh, I interviewed with these folks a few years ago. The interview process was quite odd, guess I dodged a bullet.
- bredren 6y agoHow was it odd?
- dyeje 6y agoPhone screen was super short, like 5 minutes. Followed by a vague exercise to create a tracking service without a database (wat?). Then there was like 2 weeks of back and forth emails for scheduling for a review until they said they needed someone with "stronger programming skills".
- dboreham 6y agoHmm. The bank statements seen by the finance dept. came from the CEO??? How do the "finance dept" not know that's an indication of fraud??
- Andrew_nenakhov 6y agoTo catch a criminal, one must think like a criminal.
- tdons 6y agoAn auditor was fooled while he was in the room watching while the ceo downloaded bank account statements (pages 10/11 of https://www.justice.gov/usao-sdny/press-release/file/1317641/download https://www.justice.gov/usao-sdny/press-release/file/1317641...): d. As part of its due diligence process, the Audit Firm had an employee (the “Auditor”) conduct a physical site visit at NS8’s offices in Las Vegas, Nevada. The Auditor was directed by a more senior Audit Firm employee to have someone from NS8 log in to the online portal for each NS8 bank account, display the current account balance, and download monthly bank statements for fiscal year 2019. e. Based on my interview with a member of the NS8 finance department (“Finance Employee-1”), I have learned, among other things, that on or about March 11, 2020, Finance Employee-1 and ROGAS met with the Auditor in ROGAS’s office. The purpose of that meeting was for ROGAS and Finance Employee-1 each to log into the online portals for the bank accounts to which they had access (for ROGAS, the Revenue Bank Account) and download monthly account statements for the Auditor. During that meeting, Finance Employee-1 logged into the online portal for the Expense Bank Account -- to which Finance Employee-1 had access -- and downloaded monthly account statements. Finance Employee-1 understood that ROGAS was doing the same for the Revenue Bank Account during the meeting. f. Late in the evening on or about March 11, 2020, the Auditor emailed another employee as follows: “Attached please find the bank statements and screenshots that I observed [Finance Employee-1] and Adam [ROGAS] download this afternoon.” Attached to that email, among other things, were the Fraudulent Bank Statements for the Revenue Bank Account for the period from January 2019 through February 2020.
- pge 6y agoThanks for the link - interesting reading. It looks like he modified the PDFs from the bank which is pretty sneaky, since most people assume PDFs are inviolable (this topic has come up on HN before). In my experience, auto-generated PDFs from reporting systems are fairly easy to manipulate (for the record, I have only done so for automated data extraction, not to change the document!).
- PeterisP 6y agoThe whole concept of "have someone from NS8 log in to the online portal for each NS8 bank account, display the current account balance, and download monthly bank statements for fiscal year 2019." seems kind of weird and even ridiculous. In the audits I've seen, the standard procedure to get the same information would require the company to authorise the auditors so that they could get a written confirmation of the funds directly from the bank or whoever holds the assets or debt. You would not trust the account statements that the company gives you, you would get the same (hopefully) account statements yourself. Accepting that watching a company employee log in some site is equivalent to getting an official confirmation from that outside third party is .... interesting. The whole point of an audit is to verify if everything that the company shows you is actually true instead of looking at what they show you and believing it.
- codegeek 6y agoInnocent before proven Guilty but I have to say seeing all these CEOs being charged with Fraud is why there has been so much noise against Capitalism as a whole and CEOs get a bad rep by default. There are so many of us (working our butts off in the background without public stunts/investors etc) and then these idiots spoil it. Being a small bootstrapped CEO myself, I am always concerned about being as honest as possible with our customers and then you have guys that are doing crazy shit. Funny thing is they mostly get away with it too. Sad world.
- dannyw 6y agoThe number of CEOs charged for fraud seems pretty small to me.
- fuzzfactor 6y agoThe smaller number could be a stronger indicator that many more are getting away with it.
- throwawayYeah 6y agoTNot surprising. he co-lead on this deal was the company I work for (insurance). This doesn t surprised me as our VC arm sometime is ego driven. Being a strategic VC they have to follow the gut feeling of board member with limited due diligence. We often worry with teamates about the VC arm investment (Serie B into Iot backed in blockchain jewelery kind of deal). The team also like to take famous SV investor content and republish it internally as own. this bit us a few time when a C suit tweet a congratulating message on great content from our firm like 'software is eating the world'. The irony here is that we are an insurance company, we should know how to prevent fraud...
- rmason 6y agoIf you're a VC firm shouldn't the amount of due diligence you do increase with the amount of money you're investing? Or was their investigating capacity so poor that it's a miracle they weren't cheated before? Or are there other startups they've invested in that just haven't been found out yet? If I was one of their LP's I'd be asking some hard questions.
- heartbeats 6y agoNo, it should decrease. If you're a gazillion dollars deep, your best incentive is to cover up the fraud and try to dump it on someone else.
- donor20 6y agoThis is a bit of an interesting and somewhat unusual situation. In most cases, your finance team (internally) will be the one to pick up on the fact that stuff doesn't make sense. They won't be able to tie the invoices to subsequent payment to get an accounts receivable schedule to show who still owes what. They won't be able to get the stripe reports / merchant clearing disbursement reports to agree to the GL clearing accounts. It's also rare for the CEO to have the only access to bank statements. Fraud risks are often higher in finance team, as they are the ones who catch problems elsewhere, but can be hard to catch problems with them. This make me wonder how experienced the startups accounting team was.
- cyberbuilder 6y agoHow though?
- bfuclusion 6y agoIf anybody wonders what 'irony' means, this is it.
- alphachloride 6y agoIf you can't beat 'em, ...
- sbpayne 6y agoInstead of fitting the product to the market, he tried fitting the market to the product
- historyremade 6y ago99% SV startups are scam. 99% VCs are Ponzi Schemes. So getting fucked by this CEO is nothing. LPs are lured by VCs to invest on scams. Ahahah God Bless America!
- peter_d_sherman 6y agoCursorily examining this company's web page: https://www.ns8.com/en-us https://www.ns8.com/en-us It seems to me like this company's base value proposition, that is, for any company's monetary transactions with customers, give that transaction a risk assessment score based on whatever data about the customer is available. That, in its simplest, most elemenatary, most basic form, is a good value proposition. Companies would find value in software which could deliver that proposition (a related idea that comes to mind is if PayPal decoupled their fraud prevention software, and sold that software to businesses separately, then that software would deliver an equivalent value). So the base value proposition of this company (assuming their software actually works) -- is a valid one. What seems to have done this company in, however, (if the article is to be believed) is accounting fraud, which may have been preceeded by lack of customers, lack of revenue or expected revenue. It's always an interesting question to me (correlation vs. causation-wise) if lack of sales triggers accounting fraud, or if accounting fraud just sort of happens on its own... You know, here's an idea for the FBI or other related investigative agencies -- you could, based on previous cases, create a list of "risk factors", each of which would count towards an overall "risk score" -- of something being seriously wrong at a company. Such factors would include, but not be limited to: How much debt a company has to investors, how much revenue is it making relative to that debt, what is its growth rate, what is the age of the CEO, what industry is it in, etc., etc. Grab all of that data, from all companies, run it through a machine learning algorithm, get a "risk score" for each and every company, then if you have nothing better to do (free time between other investigations), start investigating the companies with the highest "risk scores". <g> You know, you might call it "Cyber Fraud Detection Software" -- for large companies... <g> Then if that works well in the U.S. -- give the software (for free!) to all other countries! Also, the same set of ideas and Machine Learning -- could be used to track wasteful government spending (foreign and domestic), or wasteful spending of so-called charitable organizations... The possibilities are truly endless!
- fluffernutter 6y agoI had an FBI agent tell me they were at capacity for investigating new fraud and that, unless someone was going to die, they couldn't take on new cases. This was 2 years ago.