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I have always thought the most troubling aspect of these frauds(Theranos/Madoff/Enron/Wirecard) is the fact that they are not sophisticated, are complete and to

by jvans 4y ago

I have always thought the most troubling aspect of these frauds(Theranos/Madoff/Enron/Wirecard) is the fact that they are not sophisticated, are complete and total frauds, and yet they persist for years or decades. It makes me wonder how much companies get away with when they only do a little bit of fraud.

magnuspaaske 4y ago
One thing that seems to connect some of these are how they play to being outsiders and for people who otherwise can't get in. The best place to set up a fintech company in Europe is obviously London and if you wanna start up in Munich there's a lot of car industry around to service. But for (fintech) fraud Munich is pretty good, partially because there's less employee overlap with legitimate business for you and the regulators are not really set up to catch you (the way they would be in London). The investors in Theranos were also largely people on the sidelines of VC and the Madoff investors were people who would have a hard time getting into legitimate hedge funds
- willyt 4y ago
  London is a pretty notorious money laundering hotspot. One of the tensions between the EU and the UK was that the EU wanted better scrutiny and regulation of British tax havens which the dirty money sector in London is not keen on.
- jvans 4y ago
  Really good point. I remember from Carreyrou's book how big name biotech VCs were notably absent from the list of Theranos investors. People who were capable of making good decisions did just that
foobarian 4y ago
It struck me that both in this case and Theranos, they exploited the weakness in "sampling audits" where external parties are shown only a sample of the product on the faith that the rest of the inventory is the same. Like showing a few machines and switching around the serial numbers here, or in Theranos case showing one blood test machine but not the off-the-shelf tester actually performing the assays. It's actually pretty difficult for an auditor to do an exhaustive search - what would they do, ask to visit 3000 machines?
- lmm 4y ago
  Ask for a spreadsheet of the 3000 machines, pick one at random, and go visit it wherever it is (without warning them ahead of time). But auditors get lazy like everyone else.
grrdotcloud 4y ago
Fraud is very common. That's the legal part. Then there's the questionable. I quit a company when I learned the higher up staff was billing government contracts at full time (40 hours) while working about ten. Happy customers, so all is fine, right? I also discovered they would each take on 2-4 contracts billing a full 40 hours on each. $75/hr X 4 is an easy half million. By the time they were discovered, six to 18 months later, they left the company.

by jvans 4y ago

magnuspaaske 4y ago

One thing that seems to connect some of these are how they play to being outsiders and for people who otherwise can't get in. The best place to set up a fintech company in Europe is obviously London and if you wanna start up in Munich there's a lot of car industry around to service. But for (fintech) fraud Munich is pretty good, partially because there's less employee overlap with legitimate business for you and the regulators are not really set up to catch you (the way they would be in London). The investors in Theranos were also largely people on the sidelines of VC and the Madoff investors were people who would have a hard time getting into legitimate hedge funds

willyt 4y ago
London is a pretty notorious money laundering hotspot. One of the tensions between the EU and the UK was that the EU wanted better scrutiny and regulation of British tax havens which the dirty money sector in London is not keen on.
jvans 4y ago
Really good point. I remember from Carreyrou's book how big name biotech VCs were notably absent from the list of Theranos investors. People who were capable of making good decisions did just that

foobarian 4y ago

It struck me that both in this case and Theranos, they exploited the weakness in "sampling audits" where external parties are shown only a sample of the product on the faith that the rest of the inventory is the same. Like showing a few machines and switching around the serial numbers here, or in Theranos case showing one blood test machine but not the off-the-shelf tester actually performing the assays. It's actually pretty difficult for an auditor to do an exhaustive search - what would they do, ask to visit 3000 machines?

lmm 4y ago
Ask for a spreadsheet of the 3000 machines, pick one at random, and go visit it wherever it is (without warning them ahead of time). But auditors get lazy like everyone else.

grrdotcloud 4y ago

Fraud is very common. That's the legal part. Then there's the questionable. I quit a company when I learned the higher up staff was billing government contracts at full time (40 hours) while working about ten. Happy customers, so all is fine, right? I also discovered they would each take on 2-4 contracts billing a full 40 hours on each. $75/hr X 4 is an easy half million. By the time they were discovered, six to 18 months later, they left the company.