4 ms·

I'm fairly certain you're describing fraud.

jongjong 8mo ago
I'm fairly certain he's describing the economy. There are so many companies like this which are just moving money around rapidly in and out with little to no actual profit. Finance sector is easily gamed. For example, anyone can become a billionaire; just start a company, issue 1 billion shares at slightly above $1 each, keep most of them for yourself; release just 10K shares to the market and then let traders trade those same shares back and forth among themselves at high frequency... With just over $10k each, they can keep moving 10k shares back and forth 10k times per day... They call it "High frequency trading." There you have it; now you have a billion dollar company with a healthy trade volume of $100 million per day... Your stock is in-demand! And you just needed to find two traders with just $10k in the bank and a trading platform with low fees... Becoming a billionaire is not that difficult. You can apply the same principle to revenue... Just increase the velocity of money in and out of your company and you can hit any financial target you want. Doesn't mean it's a solid scheme but everyone likes the numbers they're seeing. Nobody is paying attention to actual buying power.
- philipallstar 8mo ago
  While I agree that "billionaire" is a stupid word that 99% of the population don't understand, but can be manipulated with, it is not true that investors only look at market cap. Lots of analysis goes into IPOs.
wbl 8mo ago
That's what all these accounting rules exist to stop. No, you can't pretend that equipment breaking doesn't happen. No, you need to account for fixing the roof etc.
ang_cire 8mo ago
It's not actually fraud if there is some ostensible service they're performing. Business units within businesses 'pay' each other for 'services' all the time. Ditto for subsidiaries. Whether something is fraud might come down to intent alone. The line between legal and illegal business transactions can be murky as hell.
- fc417fc802 8mo ago
  For it to not be fraud you'd have to actually exchange services proportional to the line items. That isn't what was described. Falsifying line items to juice your numbers is fraud plain and simple.
  - kakacik 8mo ago
    Yet we see it happening all the time with various AI deals.
    - fc417fc802 8mo ago
      I thought in that case nvidia was (approximately) purchasing stock in exchange for hardware? Which AFAIK is the entire point of stock - selling it to raise needed capital.
      - vannevar 8mo ago
        And if they actually constructed the deal that way, it would be fine. But by essentially creating a sham sale where they return the cash back to the customer in return for equity, Nvidia can book revenue and claim non-existent cash flow. The key is that the sale would not have happened without the corresponding equity deal. Nvidia had no discretion to use that cash any other way, so the "cash flow" in that case is illusory.
        fc417fc802 8mo ago
        I don't see the issue. Goods valued at that amount changed hands. Why shouldn't bartering be booked as cash flow? The regulator is going to require you to value it for them regardless.
        vannevar 8mo ago
        Wall Street places a value on sales, on the assumption that the sale means a customer had the money and the desire to buy the company's goods. In this case, OpenAI had the desire but not the money---Nvidia basically gave them the money to buy the product. So that "sale" should be devalued in the market. What if Nvidia paid more for the stock than the chips were worth? Now they're essentially paying people to buy their product and hiding the bribe in an equity deal by overvaluing the customer. The market sees the big growing sales number and buys Nvidia stock on the assumption that the growth is organic. It also sees Nvidia putting a big valuation on OpenAI, driving up that company's value at well. At some point, OpenAI ends up with more chips than it needs and Nvidia ends up holding a bunch of overvalued OpenAI stock instead of cash. And both stocks eventually crash as a result. Does that clarify the situation?
baq 8mo ago
it's only fraud if somebody finds out
- dessimus 8mo ago
  It's only fraud if one doesn't keep enough cash on hand to b̵u̵y̵ ̵a̵ ̵p̵a̵r̵d̵o̵n̵ make a campaign contribution.
datsci_est_2015 8mo ago
The difference between fraud and not fraud is if you can reach an agreement with auditors that it’s not fraud.

I'm fairly certain he's describing the economy. There are so many companies like this which are just moving money around rapidly in and out with little to no actual profit. Finance sector is easily gamed. For example, anyone can become a billionaire; just start a company, issue 1 billion shares at slightly above $1 each, keep most of them for yourself; release just 10K shares to the market and then let traders trade those same shares back and forth among themselves at high frequency... With just over $10k each, they can keep moving 10k shares back and forth 10k times per day... They call it "High frequency trading." There you have it; now you have a billion dollar company with a healthy trade volume of $100 million per day... Your stock is in-demand! And you just needed to find two traders with just $10k in the bank and a trading platform with low fees... Becoming a billionaire is not that difficult. You can apply the same principle to revenue... Just increase the velocity of money in and out of your company and you can hit any financial target you want. Doesn't mean it's a solid scheme but everyone likes the numbers they're seeing. Nobody is paying attention to actual buying power.

philipallstar 8mo ago
While I agree that "billionaire" is a stupid word that 99% of the population don't understand, but can be manipulated with, it is not true that investors only look at market cap. Lots of analysis goes into IPOs.

wbl 8mo ago

That's what all these accounting rules exist to stop. No, you can't pretend that equipment breaking doesn't happen. No, you need to account for fixing the roof etc.

ang_cire 8mo ago

It's not actually fraud if there is some ostensible service they're performing. Business units within businesses 'pay' each other for 'services' all the time. Ditto for subsidiaries. Whether something is fraud might come down to intent alone. The line between legal and illegal business transactions can be murky as hell.

fc417fc802 8mo ago
For it to not be fraud you'd have to actually exchange services proportional to the line items. That isn't what was described. Falsifying line items to juice your numbers is fraud plain and simple.
- kakacik 8mo ago
  Yet we see it happening all the time with various AI deals.
  - fc417fc802 8mo ago
    I thought in that case nvidia was (approximately) purchasing stock in exchange for hardware? Which AFAIK is the entire point of stock - selling it to raise needed capital.
    - vannevar 8mo ago
      And if they actually constructed the deal that way, it would be fine. But by essentially creating a sham sale where they return the cash back to the customer in return for equity, Nvidia can book revenue and claim non-existent cash flow. The key is that the sale would not have happened without the corresponding equity deal. Nvidia had no discretion to use that cash any other way, so the "cash flow" in that case is illusory.
      - fc417fc802 8mo ago
        I don't see the issue. Goods valued at that amount changed hands. Why shouldn't bartering be booked as cash flow? The regulator is going to require you to value it for them regardless.
        vannevar 8mo ago
        Wall Street places a value on sales, on the assumption that the sale means a customer had the money and the desire to buy the company's goods. In this case, OpenAI had the desire but not the money---Nvidia basically gave them the money to buy the product. So that "sale" should be devalued in the market. What if Nvidia paid more for the stock than the chips were worth? Now they're essentially paying people to buy their product and hiding the bribe in an equity deal by overvaluing the customer. The market sees the big growing sales number and buys Nvidia stock on the assumption that the growth is organic. It also sees Nvidia putting a big valuation on OpenAI, driving up that company's value at well. At some point, OpenAI ends up with more chips than it needs and Nvidia ends up holding a bunch of overvalued OpenAI stock instead of cash. And both stocks eventually crash as a result. Does that clarify the situation?

baq 8mo ago

it's only fraud if somebody finds out

dessimus 8mo ago
It's only fraud if one doesn't keep enough cash on hand to b̵u̵y̵ ̵a̵ ̵p̵a̵r̵d̵o̵n̵ make a campaign contribution.

datsci_est_2015 8mo ago

The difference between fraud and not fraud is if you can reach an agreement with auditors that it’s not fraud.