4 ms·

How is that even possible? Aren’t the books and statement audited?

nickff 5y ago
>"How is that even possible? Aren’t the books and statement audited?" From the article: >"The company’s unaudited financial statements were reviewed by an auditing firm in May 2020. According to the complaint, the review concluded that Headspin’s cumulative revenues from inception through the first half of 2020 totaled only approximately $26.3 million, instead of the $95.3 million originally reported by the company. The review also calculated the cumulative net loss from Headspin’s inception through the first half of 2020, totaling approximately $15.9 million, instead of the $3.7 million net income originally reported by the company." The first audit found the fraud (which probably means it just wasn't well covered-up).
- jbverschoor 5y ago
  Yeah but after how long.. 5 years and 10s of millions
- gip 5y ago
  I know nothing about finance but I'd love to understand how such a scheme can fool inverstors. At the end of the day cashInBank==investment+sales-costs. How can close to $80 millions be missing on the balance sheet without anyone noticing!? Genuinely curious.
  - jldugger 5y ago
    You can put down whatever number you want for all of the variables in your formula. It's the auditor's job to make sure that a) they add up and b) they are correct.
  - irjustin 5y ago
    Balance sheets can be cooked. You need to compare against bank statements that you received from the bank and not the companyWhich again could be cooked.
  - theptip 5y ago
    I think the general idea is that outright fraud like this is highly likely to get caught eventually, and leads to jail time, meaning it’s quite uncommon for otherwise smart people to make such idiotic moves. In other words it’s just not a big source of losses in the VC industry and so you don’t need to spend much effort guarding against it. (Especially considering that VCs expect most of their investments to fail for some reason or other.)
irjustin 5y ago
Yea I'm surprised the later rounds didn't require an audit. Too much follow on money that said oh I'm sure the previous guy did it. I wonder what triggered the audit though. If he knew he was cooking the books then why allow it?
- bobthepanda 5y ago
  According to TechCrunch it was initiated by the board: https://techcrunch.com/2021/08/25/the-sec-and-the-doj-just-charged-this-startup-ceo-with-fraud-saying-he-lied-to-tiger-and-others/ https://techcrunch.com/2021/08/25/the-sec-and-the-doj-just-c...
  - irjustin 5y ago
    ah thanks

>"How is that even possible? Aren’t the books and statement audited?" From the article: >"The company’s unaudited financial statements were reviewed by an auditing firm in May 2020. According to the complaint, the review concluded that Headspin’s cumulative revenues from inception through the first half of 2020 totaled only approximately $26.3 million, instead of the $95.3 million originally reported by the company. The review also calculated the cumulative net loss from Headspin’s inception through the first half of 2020, totaling approximately $15.9 million, instead of the $3.7 million net income originally reported by the company." The first audit found the fraud (which probably means it just wasn't well covered-up).

jbverschoor 5y ago
Yeah but after how long.. 5 years and 10s of millions
gip 5y ago
I know nothing about finance but I'd love to understand how such a scheme can fool inverstors. At the end of the day cashInBank==investment+sales-costs. How can close to $80 millions be missing on the balance sheet without anyone noticing!? Genuinely curious.
- jldugger 5y ago
  You can put down whatever number you want for all of the variables in your formula. It's the auditor's job to make sure that a) they add up and b) they are correct.
- irjustin 5y ago
  Balance sheets can be cooked. You need to compare against bank statements that you received from the bank and not the companyWhich again could be cooked.
- theptip 5y ago
  I think the general idea is that outright fraud like this is highly likely to get caught eventually, and leads to jail time, meaning it’s quite uncommon for otherwise smart people to make such idiotic moves. In other words it’s just not a big source of losses in the VC industry and so you don’t need to spend much effort guarding against it. (Especially considering that VCs expect most of their investments to fail for some reason or other.)

irjustin 5y ago

Yea I'm surprised the later rounds didn't require an audit. Too much follow on money that said oh I'm sure the previous guy did it. I wonder what triggered the audit though. If he knew he was cooking the books then why allow it?

bobthepanda 5y ago
According to TechCrunch it was initiated by the board: https://techcrunch.com/2021/08/25/the-sec-and-the-doj-just-charged-this-startup-ceo-with-fraud-saying-he-lied-to-tiger-and-others/ https://techcrunch.com/2021/08/25/the-sec-and-the-doj-just-c...
- irjustin 5y ago
  ah thanks