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per the article, they were fined 62 million for (years of?) fraud. Their 2021 profit alone was 730 million (on 8 billion revenue).[1] When the fine is less th

per the article, they were fined 62 million for (years of?) fraud. Their 2021 profit alone was 730 million (on 8 billion revenue).[1] When the fine is less than 9 percent of one years profit, will they really stop doing what they're doing? edit: a lot of people are saying the company actually lost money. But, and this is an honest question, is it really 'losing money' when the majority of that loss is "primarily driven by non-cash stock based compensation of $536 million"? Looking at previous compensation tables, it looks like the top four people in the company are earning 100+ million in stocks? Is that what's making the company be considered in the red? [2] [1]https://investor.opendoor.com/news-releases/news-release-details/opendoor-announces-fourth-quarter-and-full-year-2021-financial https://investor.opendoor.com/news-releases/news-release-det... [2] https://investor.opendoor.com/node/8201/html#tEC https://investor.opendoor.com/node/8201/html#tEC

fshbbdssbbgdd 4y ago
It depends on how much money they made on the fraud divided by the probability of getting caught. The company’s entire profit isn’t really relevant. According to your link the company actually lost money. So if the fine should be proportional to the company’s profit, the government should be paying Opendoor?
- grenoire 4y ago
  So what, they should be able to give fraud another go?
  - fshbbdssbbgdd 4y ago
    Is the counter-proposal that if some part of any company commits fraud, the company should be shut down, everyone who works there should become unemployed, and anyone who depends on company’s product should go without? To me it seems more reasonable to set the penalties at a level that’s high enough to deter violations. To make that calculation, the main inputs should be how much money they can make from the violation and how likely they are to get caught. Other profits the company made that weren’t from fraud are irrelevant. (or in this case, losses, since we are discussing an unprofitable company)
    - powerhour 4y ago
      I'm down with fines and jail for the executives. Fines alone are insufficient and nearly pointless.
    - deepdriver 4y ago
      Send those who knowingly committed fraud to prison. Incentive those who might've known, or chose not to know, to be more careful in the future, perhaps through fines or minor jail time. I think even a few weeks in jail would be more of a deterrent for some than a minor tax on their fraud's profitability.
      - salawat 4y ago
        Congratulations. You now have to meet a burden of proof (beyond reasonable doubt) to convict a class of people who practically by definition are trained (either by experience, or by legal counsel/their social strata) to communicate in ways to make things happen which leave little or no paper trail leading back to them. Be the first person in a group of founders to want someone to put something controversial down on paper. I guarantee you. You will get chilled out.
    - tompt 4y ago
      I don't understand why a corporate death penalty is seen as untenable. For some crimes, yes shut the business down and zero-out the folks who sought to profit from the unlawful activity. If some of those people were defrauded into believing the business was lawful, the should seek the same remedies other defrauded people do. You ask if the folks who depend on the company's product should go without. No, they should move their business to a competitor. If there is no competitor, maybe that's evidence that the business plan is not viable while acting lawfully.
- mtgx 4y ago
1123581321 4y ago
They lost $662MM last year. “Gross profit” is before all their operating expenses. It’s a confusing term if you’re not used to reading financial statements.
- alisonkisk 4y ago
hn_throwaway_99 4y ago
"Gross profit" was $730 million. Net loss was actually $662 million. I think a better metric is to look at how many homes Opendoor bought (36908 in 2021), and if possible identify those transactions where some misleading marketing took place (not sure if that's possible), then divide the fine by that much.
xenadu02 4y ago
The FTC has two major enforcement mechanisms available to it: The normal administrative one where the agency initiates an administrative proceeding, makes a judgement, then more or less must restart the process with a court case to enforce that judgement. The second mechanism allows it to go directly to a court. Exactly what the FTC is allowed to ask for is a bit convoluted because the law isn't very clearly written. One reading says they can do the common sense thing by demanding profit from illegal conduct be returned and impose punitive damages - especially on repeat offenders, along with imposing penalties for damage done to the overall market. The other reading says they can only ask for money to reimburse specific consumers for specific damages (so as a consumer your time, aggravation, etc are worth $0; damage to your competitors who were operating fairly don't count). And by the more restrictive reading the direct-to-court route only allows them to seek an injunction, no damages. Unfortunately SCOTUS recently said the FTC is not allowed to seek anything except an injunction via the direct-to-court path and if that case is any indicator it is likely courts will also prohibit punitive damages and profit disgorgement via the administrative route as well. That severely restricts the ability of the FTC to punish companies. For example a recent case involved DreamCloud mattresses that claimed they were made in the USA with 100% USA materials... when in fact some of their mattresses were pure imports and others were made in the USA of imported materials. Under the new court rulings the FTC has to show how this harmed the purchasers of the mattresses and can only seek money to compensate those consumers for those damages. The FTC can no longer impose penalties for the obviously flagrant conduct, for the harm they did to the overall marketplace, for the harm to competitors (both those who do and do not manufacture in the USA), etc. Anything that doesn't have a directly measurable monetary value is irrelevant. And if DreamCloud does the same thing again it hardly matters because the FTC is limited to the same remedies. We need Congress to pass an act cleaning up the FTC's enforcement powers.
- hirundo 4y ago
  > We need Congress to pass an act cleaning up the FTC's enforcement powers. Which is the constitutional design: Article 1. Section 1. All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives. In West Virginia v. EPA SCOTUS delivered a brush-back pitch, constraining the above to "major questions". Where that line is drawn very much sets the limits of the administrative state. Taken with restraint versus expansively it can make the difference between a small government constrained in the detail of its rulemaking by the size of the legislature, and an authoritarian government with a consitutionally unlimited inventory of unelected rule makers.
dragonwriter 4y ago
> will they really stop doing what they're doing? Yes, if they don't want to get an easy reaming by the federal government, because in addition to the cash portion of the settlement, the consent decree includes: (1) a requirement that they stop making the specific claims that were at issue, and (2) a requirement that they stop making any financial claims to consumers without “competent and reliable evidence to support” those claims. That basically means that if they keep doing anything like what was claimed in this case, the FTC gets to treat them like a money piñata without proving a violation of the generally-applicable rules, because they’ve accepted, in a legally-binding way, stricter rules where violations are easier to prove and harder to refute. The cash payment is almost never the most important part of a settlement with a regulatory agency in terms of preventing similar future abuse by the same company.
- AinderS 4y ago
  On the other hand, this is a green light for other companies to pull shady tricks to reach market dominance, knowing they will only get a slap on the wrist if caught, while benefiting massively from the position their fraud afforded them.
rossdavidh 4y ago
Or, it might imply that the size of their infraction was pretty small compared to the size of the business they were doing. It might also imply that the FTC wasn't too certain they could prevail if it went to court, and OpenDoor was willing to settle for a relatively small fine but if the FTC tried to get a large fine they were worried the court might find the disparity between market and what OpenDoor was quoting was within the margin of uncertainty. I mean, there were several companies providing quick online estimates of house value. I don't see how OpenDoor could have been all that far off the market value, without most people noticing.
treis 4y ago
I'm not really sure I'd call this fraud. In that Opendoor delivered the product the customer was promised and paid for. Lying about the quality of that product compared to the alternatives is dishonest for sure but I don't think anyone here was really cheated. It's understood that when companies tout their product compared to competitors it's not a fair comparison.
- SheinhardtWigCo 4y ago
  It's not even clear to me that they lied. If someone claims the "true market value" of an asset is $X, and the owner accepts an offer of $X, then the market value of the asset is indeed $X, no?
  - helsontaveras18 4y ago
    A market cannot just be two people. If I sell you a brand new Rolex for $1, I would say I’m selling it to you at a discount from the market rate, because if I posted it on an open auction like eBay, I’d receive higher bids than $1.
    - lazide 4y ago
      For that to work there would need to be a liquid market with clear valuation for those types of Rolexs. Which sometimes there is, sometimes there isn’t. eBay in particular is full of scam bids, over and under.
- base698 4y ago
  The National Association of Realtors is the second largest lobbying group. Bet they are at least part of the reason. https://www.opensecrets.org/federal-lobbying/top-spenders https://www.opensecrets.org/federal-lobbying/top-spenders
  - cabinguy 4y ago
    opendoor is a licensed brokerage and a member of the National Association of Realtors. They partnered with realtor.com in 2020. https://www.opendoor.com/w/blog/realtor-dot-com-partnership https://www.opendoor.com/w/blog/realtor-dot-com-partnership
1123581321 4y ago
To answer your edit, yes, it’s still considered losing money when it’s due to compensation. Stock is an asset of the company so it’s not free to give away, even though it’s not cash. Second, they still lost money when excluding that compensation. It’s so far from your original idea that they were fined for less than 10% of annual profits. I understand your dismay but starting with good numbers is an important part of financial and trade regulation.

fshbbdssbbgdd 4y ago

It depends on how much money they made on the fraud divided by the probability of getting caught. The company’s entire profit isn’t really relevant. According to your link the company actually lost money. So if the fine should be proportional to the company’s profit, the government should be paying Opendoor?

grenoire 4y ago
So what, they should be able to give fraud another go?
- fshbbdssbbgdd 4y ago
  Is the counter-proposal that if some part of any company commits fraud, the company should be shut down, everyone who works there should become unemployed, and anyone who depends on company’s product should go without? To me it seems more reasonable to set the penalties at a level that’s high enough to deter violations. To make that calculation, the main inputs should be how much money they can make from the violation and how likely they are to get caught. Other profits the company made that weren’t from fraud are irrelevant. (or in this case, losses, since we are discussing an unprofitable company)
  - powerhour 4y ago
    I'm down with fines and jail for the executives. Fines alone are insufficient and nearly pointless.
  - deepdriver 4y ago
    Send those who knowingly committed fraud to prison. Incentive those who might've known, or chose not to know, to be more careful in the future, perhaps through fines or minor jail time. I think even a few weeks in jail would be more of a deterrent for some than a minor tax on their fraud's profitability.
    - salawat 4y ago
      Congratulations. You now have to meet a burden of proof (beyond reasonable doubt) to convict a class of people who practically by definition are trained (either by experience, or by legal counsel/their social strata) to communicate in ways to make things happen which leave little or no paper trail leading back to them. Be the first person in a group of founders to want someone to put something controversial down on paper. I guarantee you. You will get chilled out.
  - tompt 4y ago
    I don't understand why a corporate death penalty is seen as untenable. For some crimes, yes shut the business down and zero-out the folks who sought to profit from the unlawful activity. If some of those people were defrauded into believing the business was lawful, the should seek the same remedies other defrauded people do. You ask if the folks who depend on the company's product should go without. No, they should move their business to a competitor. If there is no competitor, maybe that's evidence that the business plan is not viable while acting lawfully.
mtgx 4y ago

1123581321 4y ago

They lost $662MM last year. “Gross profit” is before all their operating expenses. It’s a confusing term if you’re not used to reading financial statements.

alisonkisk 4y ago

hn_throwaway_99 4y ago

"Gross profit" was $730 million. Net loss was actually $662 million. I think a better metric is to look at how many homes Opendoor bought (36908 in 2021), and if possible identify those transactions where some misleading marketing took place (not sure if that's possible), then divide the fine by that much.

xenadu02 4y ago

The FTC has two major enforcement mechanisms available to it: The normal administrative one where the agency initiates an administrative proceeding, makes a judgement, then more or less must restart the process with a court case to enforce that judgement. The second mechanism allows it to go directly to a court. Exactly what the FTC is allowed to ask for is a bit convoluted because the law isn't very clearly written. One reading says they can do the common sense thing by demanding profit from illegal conduct be returned and impose punitive damages - especially on repeat offenders, along with imposing penalties for damage done to the overall market. The other reading says they can only ask for money to reimburse specific consumers for specific damages (so as a consumer your time, aggravation, etc are worth $0; damage to your competitors who were operating fairly don't count). And by the more restrictive reading the direct-to-court route only allows them to seek an injunction, no damages. Unfortunately SCOTUS recently said the FTC is not allowed to seek anything except an injunction via the direct-to-court path and if that case is any indicator it is likely courts will also prohibit punitive damages and profit disgorgement via the administrative route as well. That severely restricts the ability of the FTC to punish companies. For example a recent case involved DreamCloud mattresses that claimed they were made in the USA with 100% USA materials... when in fact some of their mattresses were pure imports and others were made in the USA of imported materials. Under the new court rulings the FTC has to show how this harmed the purchasers of the mattresses and can only seek money to compensate those consumers for those damages. The FTC can no longer impose penalties for the obviously flagrant conduct, for the harm they did to the overall marketplace, for the harm to competitors (both those who do and do not manufacture in the USA), etc. Anything that doesn't have a directly measurable monetary value is irrelevant. And if DreamCloud does the same thing again it hardly matters because the FTC is limited to the same remedies. We need Congress to pass an act cleaning up the FTC's enforcement powers.

hirundo 4y ago
> We need Congress to pass an act cleaning up the FTC's enforcement powers. Which is the constitutional design: Article 1. Section 1. All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives. In West Virginia v. EPA SCOTUS delivered a brush-back pitch, constraining the above to "major questions". Where that line is drawn very much sets the limits of the administrative state. Taken with restraint versus expansively it can make the difference between a small government constrained in the detail of its rulemaking by the size of the legislature, and an authoritarian government with a consitutionally unlimited inventory of unelected rule makers.

dragonwriter 4y ago

> will they really stop doing what they're doing? Yes, if they don't want to get an easy reaming by the federal government, because in addition to the cash portion of the settlement, the consent decree includes: (1) a requirement that they stop making the specific claims that were at issue, and (2) a requirement that they stop making any financial claims to consumers without “competent and reliable evidence to support” those claims. That basically means that if they keep doing anything like what was claimed in this case, the FTC gets to treat them like a money piñata without proving a violation of the generally-applicable rules, because they’ve accepted, in a legally-binding way, stricter rules where violations are easier to prove and harder to refute. The cash payment is almost never the most important part of a settlement with a regulatory agency in terms of preventing similar future abuse by the same company.

AinderS 4y ago
On the other hand, this is a green light for other companies to pull shady tricks to reach market dominance, knowing they will only get a slap on the wrist if caught, while benefiting massively from the position their fraud afforded them.

rossdavidh 4y ago

Or, it might imply that the size of their infraction was pretty small compared to the size of the business they were doing. It might also imply that the FTC wasn't too certain they could prevail if it went to court, and OpenDoor was willing to settle for a relatively small fine but if the FTC tried to get a large fine they were worried the court might find the disparity between market and what OpenDoor was quoting was within the margin of uncertainty. I mean, there were several companies providing quick online estimates of house value. I don't see how OpenDoor could have been all that far off the market value, without most people noticing.

treis 4y ago

I'm not really sure I'd call this fraud. In that Opendoor delivered the product the customer was promised and paid for. Lying about the quality of that product compared to the alternatives is dishonest for sure but I don't think anyone here was really cheated. It's understood that when companies tout their product compared to competitors it's not a fair comparison.

SheinhardtWigCo 4y ago
It's not even clear to me that they lied. If someone claims the "true market value" of an asset is $X, and the owner accepts an offer of $X, then the market value of the asset is indeed $X, no?
- helsontaveras18 4y ago
  A market cannot just be two people. If I sell you a brand new Rolex for $1, I would say I’m selling it to you at a discount from the market rate, because if I posted it on an open auction like eBay, I’d receive higher bids than $1.
  - lazide 4y ago
    For that to work there would need to be a liquid market with clear valuation for those types of Rolexs. Which sometimes there is, sometimes there isn’t. eBay in particular is full of scam bids, over and under.
base698 4y ago
The National Association of Realtors is the second largest lobbying group. Bet they are at least part of the reason. https://www.opensecrets.org/federal-lobbying/top-spenders https://www.opensecrets.org/federal-lobbying/top-spenders
- cabinguy 4y ago
  opendoor is a licensed brokerage and a member of the National Association of Realtors. They partnered with realtor.com in 2020. https://www.opendoor.com/w/blog/realtor-dot-com-partnership https://www.opendoor.com/w/blog/realtor-dot-com-partnership

1123581321 4y ago

To answer your edit, yes, it’s still considered losing money when it’s due to compensation. Stock is an asset of the company so it’s not free to give away, even though it’s not cash. Second, they still lost money when excluding that compensation. It’s so far from your original idea that they were fined for less than 10% of annual profits. I understand your dismay but starting with good numbers is an important part of financial and trade regulation.