Rerun: Start Ups and Shut Downs

working on one. I've actually got a couple of different ones that are in the process of development, but some extenuating circumstances that I could not sidestep have have come in and it's going to delay me and I didn't want to go without an episode, so instead we're gonna bring you this episode that originally published in two thousand twenty one. I almost said last year, but that's not

true anymore, is it. I kinda remember it now. Yeah, let's let's published January two thousand twenty one, and it's called Startups and shut Downs because just like me, I started up and then I had to shut down. But you know, such as the way of things. But we'll be back with new episodes for the rest of the week. Looks up for Friday, which is classic, and I apologize. Hope you're all doing well. Hope your new year is off to a great start. Mind's a little rocky, but

we're gonna make it work, right. We're all in this together. I believe in you, I hope you believe in me,

and I'll chat with you at the end. In a recent episode, I talked about funzy schemes and how you know that's an old scam that gets refreshed by enterprising con artists every so often, with recent examples centering on cryptocurrency, and that actually got me to thinking about startup culture and how some startups appear to be sincere, but maybe they're too ambitious to really work in the real world, and some seem like maybe they were just smoking mirrors

the entire time. So today I thought we'd go through some of those types of startups and talk about the world of startups in technology and why it can be so risky to invest in them. Now. There are a lot of common elements among startups in general, not just in tech, and a lot of what we see frustrates me because you would think that by now people would

learn their lesson when it comes to hype machines. Right, we should all be pretty familiar with the hype cycle, and you would think with familiarity we would be more resistant to it, and yet we're not, and I include myself, and that I get caught up in hype too, even as I recognize that there's a pattern here that just doesn't hold up. But I guess we have enough long shots that do pay off that keep people figuratively and

literally invested. I mean, what if the next opportunity pays off and you didn't get in on the ground floor, you just missed a huge payout. So I guess I can understand the tendency, but it also enforces the general truth that humans as a rule are really bad at stuff like risk assessment and understanding the odds, which, hey, you really you just have to look at the fact that you know, lotteries are a thing to know that

that is true. There's a general philosophy among startups that goes something like move quickly and break things, that taking big chances is encouraged because you know, while you're more likely going to fail, you'll learn a lot in the process, and that means you'll actually have a better chance at

success next time. We learn a lot through failure, or you might find that quote unquote breaking what was previously considered to be a best practice leads to you finding an even better way to do things, but it can also create the perfect climate for someone to engage in a little snake oil peddling, because in a world where seemingly anything is possible, there's no such thing as impossible, and that means you can get money for stuff that

just plane don't work. The current reigning champion of that model is Theopos, which I have covered extensively in the past, but for a quick overview, Elizabeth Holmes, Stanford dropout and a big fan of Silicon Valley leaders like Steve Jobs, set out to create a company centered on a new kind of blood analysis device, and the idea is alluring. Imagine a machine about the size of a desktop printer that could analyze the tiniest drop of blood and run

more than a hundred fifty tests on that sample. The machine presents a comprehensive but easy to understand report on that sample and thus gives the administrator insight into the patient's current state of health and also pointing out any indicators that you know might suggest the patient should be on the lookout for future complications. It could help patients be more proactive and choose new lifestyle routines to live

their healthiest lives. Heck, once the cost of making the divi ice is declined enough, it could potentially be something the average consumer purchases for their own home, and thus informing the average person about their own health before they go to say their annual check up, people would make more informed decisions about their health. They would be able to have better conversations with healthcare providers. It would really

democratize healthcare. And that is a heck of a sales pitch, and from the business side, it's easy to see how it could be a freaking gold mine because the health care industry is already a multi trillion dollar market. Holmes was confident and she was convincing. And over the past two decades, we've seen technology do stuff that, you know,

three decades ago would seem impossible. The Internet alone was a huge revelation, and now we can carry a device in our pockets that less access at wherever we are. So it's mundane today, it's it's commonplace, But thirty years ago it would have seemed bonkers. And so it's not really surprised zing that investors rushed in to get in on the ground floor of Holmes's enterprise, the return on

investment would be unbelievable. It could be as if you were able to travel back to the mid nineties when Apple Stock was trading below five dollars a share, and you bought up a ton of it because you know how much it's going to grow in the future when Steve Jobs comes back. It helped that most investors had little, if any understanding about the technology involved in blood analysis. That's something that you'll remember is a red flag when

it comes to stuff like Ponzi schemes. In this case, Fariness wasn't so much a Ponzi scheme as it was a company centered around an idea that was just not really realistic. More knowledgeable experts in the area of blood analysis had warned that Holmes's goal was unattainable, that the technology just, you know, it's not there to do something

as comprehensive as what Holmes had in mind. But the investments just kept pouring in, and if it had just failed, the company had just ultimately had to say, you know what, we tried, it didn't work, We're sorry. Our story would really just be about how a lot of people got excited about an idea but the idea just didn't pan out. But of course it gets worse, and that's because over at Therapness there were a lot of shady things going on.

There were teams legitimately trying to get the technology to work, but in the meantime, the company was playing a kind of a shell game with investors and v i p s. So, according to reports, when such a person came in for a tour of the facility, they would get their finger pricked and submit a tiny blood sample in this little bitty capsule and that would be fed into a THEONOS machine.

But the analysis would take a couple of hours. So instead of just you know, waiting around, the v i p would go on a tour, maybe they'd grab lunch with THEORONESS executives or something. Meanwhile, other staff would rush in retrieve the blood sample from the THEONOS device diluted, and then submit that diluted sample to a traditional blood analysis machine that had been bought from an established company. In other words, they were relying on devices that were

not built by Saronis to do the actual analysis. Then they would rush the completed analysis back to the meeting room, and then the team would behave as if the Tharonis device had done all the work the entire time. It was a particularly flashy version of the old Turk automaton chess player. You know, the thing you're looking at is

not the actual thing that's doing the work. Sarais eventually crumbled after insiders began leaking what was going on to others and journalists began publishing expose s about the company. Holmes is one of the executives who happens to be waiting trial for multiple charges of fraud, and the name Sarah nos is forever associated with words like hoax and scam. Now, just to be clear, I don't know if it was

a scam from the beginning. I suspect that. You know, in the very earliest days, Holmes was sincere in her belief that she can make this work, and her engineers certainly tried to get the technology to measure up to the vision. But somewhere along the way people started to fudge results or rely on alternative methods to make it seem like things were working way better than they really were,

and once they went down that path, they were committed. Now, other companies are legit, but the people running them might not be, and that also is a big problem. So it seemed to be the case with a company that once upon a time was called Mozito, but for some reasons that will soon become a parent now calls itself definitive. So let's talk about what this company's purpose is beyond making its founder a whole lot of money. The original

focus of Mozito was to do something pretty great. I think so many of us have used mobile devices to pay for stuff. You have some sort of digital wallet that's tied to either a credit card or a bank account or some other stash of cash. In a transaction, the mobile device interacts with the merchant's point of sale and the data zings back and forth, and soon the appropriate amount of money goes from your stash to the

merchant stash, which is, you know, pretty simple idea. But there's an enormous population of people who don't have bank accounts. Mozito estimated that two and a half billion people have access to cellular technology, but they do not have an account with a bank or a credit union. So mobile payments, while incredibly useful, are not within the grasp of everyone.

And so the company saw a space that it could potentially fill creating a technology that would allow people who are unbanked or underbanked to use mobile payments, which is a pretty noble goal giving people a lot more options when it comes to making transactions, and that attracted a lot of investors, and that brings us to the company's founder. So the found of Mozito was a guy named Michael Liberty,

whose name is pretty fitting as we're gonna see. He first established the company in two thousand seven in Dallas, Texas. The fact that Mozito traces its history to two thousand seven is already pretty impressive because that's the same year that Apple launched the iPhone, So it was a pretty visionary move. Liberty was able to get a lot of investors for his company, raising money in multiple rounds of

investment funding. The company relocated from Dallas to Austin, Texas in two thousand twelve, and by two thousand seventeen, Liberty himself would step down from the company and relocate to Florida. Essentially, he had grown the business. He was not leading it. He was he had founded it, but he had other executives in charge of running the thing, and he kind of said, all right, my work year is done, and

stepped away and went to Florida. However, investigators with the Securities and Exchange Commission or SEC were interested in some of those investments that were supposed to be going to moz Do because the numbers didn't seem to add up, and the investigation indicated that Mr Liberty had taken the liberty of moving some of that cash around so that would ultimately fill his own pockets rather than go to

funding the company. With most of the shenanigans taking place between and there were signs of the shell companies all designed to obvius skate where the money was going. There was a practice of money laundering, which is when you mix illegally obtained cash with cash from legitimate businesses in an effort to hide the fact that you've got filthy

lucre on your hands. Ultimately, Liberty was charged with fraud, with prosecutors saying he had stolen more than fifty million dollars to fund his own millionaire lifestyle, complete with mansions and private jets. He also served a prison sentence for a different infraction. He pled guilty to charges that he had violated campaign finance law in two thousand and eleven and was sentenced to four months in prison and a fine for one thousand dollars in and there were other

SEC investigations into his activities beyond the ones I just described. Now, the company Mozito wasn't included in these charges. It appeared as though everything at the company was pretty legit, but there was a lot of turnover in the executive suite of leadership, which probably didn't look too good to investors. In Scott Sandlin stepped down as the CEO, and for more than a year, Mike Love served as interim CEO, So, in other words, this company went for more than a

year without a permanent CEO. In fact, it was thirteen months before the company had a new official CEO with Todd Bradley, but then Bradley quit in seventeen along with chief financial officer Scott Ellison. The Forbes reported that Mozito's website kept both of those men listed on their executive leadership websit page, you know, for a few months afterward,

which seems more than a bit suss. So that probably didn't look too good from the outside, and that might explain why the leaders of Mozito decided to reincorporate and change the name of the company to definitive. You don't want to be another therapist after all. While the company may not be a scam, that doesn't mean it's a viable business either. There have been numerous articles written about how the company, throughout its history had found itself scrabbling

to keep things going, mostly through additional rounds of investment. Now, personally, I hope that the company is able to get its feet on the ground because I think the service is valuable for all those populations who don't have access to bank accounts. It's just unfortunate that this appears to be a very difficult service that can be done profitably. When

you think about it, it kind of makes sense. Most of the transactions you would imagine would be pretty small, and so any transaction fee you would take would be pennies on the dollar, so you would need a lot of them in order to make a profit. You would have to really be operating at our huge scale, and

getting that huge scale is tough. As for Liberty, he was awaiting trial for those charges I mentioned when on January nineteen one, we learned that he was one of those lucky individuals to receive a presidential pardon from outgoing President Donald Trump. Interestingly, reporters have sometimes referred to Liberty as Trump but with a main accent. That's main as

in the state in the northeastern United States. Now, it's possible we could put Mozito infinitive in the same general category as theories, in the sense that it may be that the actual central idea for the business could be untenable. Now I don't know if that's true. I'm no financial expert. Perhaps if you could get the operations up to scale, maybe it would all work fine. I don't know. I mean, granted, pennies, if you've got enough of them, do amount to dollars.

So there is that. Well, we're gonna take a quick break, and when we come back, we'll talk about some more startups that have had big problems. But first let's take

that break. Similar in some ways to the Mozito story we listened to just before the break is that of bow tie, which is actually spelled b O u x t i E. And just to be clear, this is not the current bow tie by that spelling, which based on what I'm looking at at my screen right now, that's some sort of company that sells TikTok views and video shares in order to artificially boost the performance of

TikTok videos, which is just plain lame. It's straight up there with companies that used to sell Twitter Twitter followers, right, Like, that's something that's fallen out of favor over at Twitter because Twitter has done multiple cullings of bought accounts, so those have largely been white clear of the platform. But we're seeing that same sort of practice spread to platforms

like TikTok. If you're an influencer and you're trying to sell your you know, big following to various sponsors, maybe you're engaging in some of these uh, unethical activities in order to convince those sponsors. Hey, a lot of people watch my stuff. But no, no, no, I'm talking about a different bow Tie It was a company founded by an entrepreneur named Renato Libric. The idea was to create

a digital platform for gift cards and loyalty cards. Librics bow Tie company offered users the ability to purchase digital gift cards to all sorts of major merchants and then customize them with graphics and messages before sending them off to family and friends, So it was a neat way to create a sort of personalized experience, which I think helps take some of the stigma out of, you know,

the whole gift card thing. And being digital, it should be relatively easy to redeem those gift cards with online accounts, making it less likely that they would go unused. I mean, just a year ago, c NBC reported that Americans possessed more than twenty one billion with a b dollars worth of unused gift cards in store credit. By the way, that's kind of why merchants love gift cards. There's a good chance they'll never have to redeem them, and the

profit margin is ridiculous. Now, with bow Tie, it doesn't sound like Librick was trying to funnel cash to himself, which sets him apart from folks like Michael Liberty. But he did forge signatures and produce false documents to make it seem as though bow Tie was worth far more than its true value in an effort to convince more investors to pour money into the venture. So in that respect, I guess that bow Tie is kind of similar to

the bow tie of today. So the bow tie of today is all about inflating TikTok numbers, and libric was all about inflating the apparent value of bow tie. So there's more going on there than I originally thought. Well, perhaps a Brick was just desperately trying to get some momentum going with the hope that once things were really moving, he'd be able to stick to the straight and narrow.

But he was caught out. Towards the end of ten Librick was found guilty of wire fraud and sentenced to thirty six months in prison in order to pay out more than one and a half million dollars in restitution. Based on what I've read, I would say that this is another case where someone had an idea that sounded pretty good, proved to be harder to pull off profitably than was first anticipated, found it difficult to get enough investments to stay afloat, and then resorted to illegal means

to cover the bills. Now, one person whose name has to come up when you're talking about grandiose startup ideas is Elon Musk. One of the numerous ideas Musku has championed is that of the hyper loop. So, in short, a hyper loop system, at least on the original design, would involve trains traveling inside tubes, and inside those tubes you would pump out most of the air to be very low air pressure, almost a vacuum, and that cuts way down on wind resistance. In addition, the trains would

not travel with wheels on a track. Instead, they would travel atop air bearings. Essentially, a cushion of air would keep the trains afloat above the inner surface of the tunnel. Electro Magnets would provide the propulsion to accelerate and decelerate the trains, which, with such reduced friction, would be able to travel at incredible speeds like essentially the speeds that

you would see aircraft travel. One startup that formed after Musk's proposal was Hyperloop Technologies, founded by Shervin Pishavar and former SpaceX engineer Brogan Bam Brogan. The story of that company is way too long for this episode, and it involves tons of scandals and also mergers and name changes and some seriously ugly in fighting, and Pischavar would step down in the wake of sexual harassment charges, which he maintains was all a smear campaign. The company is still

around today. In fact, it's the one that conducted a successful test with people aboard a hyperloop capsule back in November of twenty but the company would change its name from Hyperloop Technologies to Hyperloop One, to Virgin hyper Loop one, and now it's just Virgin Hyperloop. Anyway, the company I wanted to cover is the one that Brogan bam Brogan

would found after leaving Hyperloop one. So bam Brogan and a couple of other executives all left hyper Loop one at the same time and filed a lawsuit against their

former employer. They alleged that the company had violated numerous agreements and abandoned its fiduciary responsibilities, and worse, they alleged abuse and threats, and the company would file a countersuit against those former executives, alleging that they had attempted to rest control of the company away from the leadership team and the board of directors, essentially that they were planning

a coup. Both parties would settle their lawsuits out of court in sixteen, and bam Brogan then founded a competing hyper loop company called Arrival. He and a couple of other colleagues formed Arrival in two thousand seventeen. One co founder Andrew Leeu had previously worked with a construction company called a Calm a e c o M. Another co founder was Jaden Smith, who, like Bam Brogan, had previously

worked with SpaceX. He had also previously worked with the CIA. Now, the hyper loop design is an interesting and innovative one, but it also will require a ton of money to make it a reality. Musk was first talking about the idea way back in and we're still in the experimental and testing stages in one and that's just get to a point where we're confident that the technology is a viable one for the purposes of transporting people and cargo

quickly and safely. After that, you've got the daunting to ask of actually securing the legal rights to build out routes between different destinations. That includes everything from securing permission from various local governments and environmental agencies, to the actual construction and more. It's time consuming and really expensive. Perhaps for that reason, Arrival dumped the idea of going the hyperloop throughout entirely, so instead it would go with a

more established technology, that of magnetic levitation. Maglev trains have been around for a while. The technology is well understood, it's proven to work. We use it today. And essentially you've got magnets of similar polarity in the tracks and under the trains, and since similar polarities repel one another, like when you try to push the north pole of two different permanent magnets together, the train will hover over the track. You no longer have to deal with the

friction of wheels against rails or anything like that. The magnets, by the way, can be permanent, they can be electro magnets,

or they can be a combination of the two. On top of that, Arrival wasn't planning on and closing its tracks and tunnels, so there would be no low pressure track system with Arrivo, which again would significantly cut down on construction and operation costs, though it would also mean that the trains would have encounter some air resistance when traveling down the tracks, so these would not be able to go at the wicked fast speeds of the proposed

hyper loop trains. The company had planned to build a test track out in Colorado, but Arrival was having a lot of trouble getting investors on board, perhaps the fact that they were no longer pursuing the more ambitious and inarguably more risky hyper loop design. Or maybe it was because of the very messy and very public breakup between the Arrival founders and hyper Loop One, maybe that had left kind of a stain on things within the company. Things seem to be kind of off as well. An

anonymous employee posted a review on glass door. That's the

website that allows employees to review their workplaces. The review claimed that the Arrival offices were operating with little or no direction from leadership, and the report also indicated that a leader later implied to be Vam Brogan himself brought an axe to the office and then used it to hack chunks out of the walls and frustration, which, yeah, I mean if my boss showed up to my office with a tool that could be used as a lethal weapon and then he went around hitting the walls with it,

I too would describe my office environment as quote unquote unstable. Arrival failed to secure Series A investment funding, Jaden Smith and Andrew Leeu quietly parted ways with Arrival in Not long after that, the company furloughed employees and then laid off about half of them. Then it shut down the startup just failed to get any momentum, which, as I understand it, is a bad thing if you're trying to

move people from one place to another. It's very possible that the fallout from Hyperloop one doomed arrival from the start, though the descriptions I've seen of Bambrogan's behavior may also have played a part in any case, this is an example of a startup that didn't really get a chance to start up at all. And like I said, I'll have to do a full treatment on the story of Virgin Hyperloop at some point, because y'all that could be a soap opera. Another startup that had a more spectacular

collapse was one for dot one. That is the numeral one fo R dot oh n E not great? Right? Actually I should say I really mean job Sonic. Wait no, no, no, I'm sorry, I should mean work Riot, except it's work right, it's w R k R I O T. Yeah. This was a company that changed names three times very quickly in a matter of weeks. Actually, a man named Isaac Choi founded the company, which was a job recruiting platform, essentially a place where companies and job seekers could find

a good match. You could post jobs you could seek jobs that kind of thing, at least that's what it was supposed to be. Isaac Choi positioned himself as a graduate of the Stern School of Business at New York University, and that prior to founding work Riot, he was an analyst at JP Morgan for four years. Both of those claims would be disputed by the respective organizations later on, indicating that Mr Choi was fabricating his resume in an

attempt to manufacture credibility. Choi claimed to have raised investment funds for work Riot through private investors, rather than seeking out a formal series of funding or a venture capital firm for support. The company began hiring on employees, many of them Chinese citizens in America on work visas, which will later make this story particularly upsetting. One employee, Penny Kim,

was hired on to be the head of marketing. Kim would later write a piece about her experiences on medium, though at the time she changed the names of the people and the company in an effort to quote protect the innocent and the guilty end quote. Later she would confirm that the company she was writing about was in fact work Riot. So what the heck happened. In this case,

the business leader was defrauding his employees. Kim was told that she would have a budget of four million dollars to make a marketing plan, so she began to put one together, which included the push for the new name for the company, because the previous one was quote not s e O friendly end quote. So this was when it was still one four dot one and the name would change to job Sonic, which Kim said was not her choice, but one of the other business leaders pushed it.

She wrote that she would find out later that her four million dollar and was meaningless because it was dependent upon that budget of four million dollars, and it turned out there was no four million dollar budget to be found for the whole company, let alone for the marketing department.

Kim wrote that the CEO that being Choi was hiring on people who had questionable applicable experience for the job at hand, especially in the leadership team, and she said that even the job at hand itself was poorly defined. She also wrote about going along on investor meetings, something she was curious about because she wanted to know what was going on with having to get investors that the claim was that the company was already funded, so why would you need to go talk to investors so early.

At those meetings, Kim witnessed Choi talking more about himself than the company. He was really selling his own qualifications in an effort to try and get people to buy into him rather than to buy into an idea for a business. He also consistently failed to provide answers to important questions, you know, questions like how much are you bringing in versus how much are you spending. Turns out investors are very curious about the answers to questions like that.

Kim also mentioned that her first paycheck was not a normal one. It was a cashier's check with no pay stop. Now, apparently, leading up to her being signed on as the marketing director, a DP was handling payroll, and that was an important step because one of the things a DP would do would be to file paperwork that showed those in the country who were on work visas were actually employed, so the government could say, all right, you're on a work visa.

We received the notification from a DP that you were paid for that period. Everything's cool. Well, without a DP there, that was not happening and that meant that the visas might not be considered valid, and that would mean that people would be in danger of having those visas revoked and they would be sent back home. Worse, Kim noted that while she received a paycheck, most people didn't, and this indicated that there had to be a big cash

flow problem at the company. Kim also related how an employee in business development revealed that he had lent fifty thousand dollars of his own money in savings, his life savings, to the CEO of the company, something that was absolutely a red flag. Heck, that's that's not even a red flag. That's like an active, actual emergency. Later, still, after more missed payments, Choice and out a message claiming that payroll would be met because he included a screenshot of a

supposed Wells Fargo money transfer into the corporate accounts. Only it wasn't legit. It was an altered image. In fact, it was an altered image of one that you can find just by doing a Google image search for a Wells far ago transfer. Because Kim did that, she did that Google image search and found the exact one that Choi had taken and done a little tiny bit of photo shopping to change. But he wasn't even that careful.

There were entire sections of that image that indicated that it was much, you know, much older than what Troy was saying. When there's a copyright notice that ends in around two thousand fourteen and it's many years after two fourteen, not a good sign. Kim would go on to file a wage dispute claim and then Troy fired her. So that wasn't the smartest thing because obviously, as an employee,

you could then pursue legal action against your employer. So she wrote the piece and medium, and that prompted an investigation by the FBI, and by then job Sonic had become work Riot, but the Shenanigans were still the same. Choi would be indicted in two thousand seventeen for defrauding employees. He pled guilty in eighteen to the charges and he was sentenced to time served, meaning he didn't go to prison,

and a fine of less than one thousand dollars. The company was no more, and I do feel awful for all those employees who were working in good faith for a company that was no more than a facade, particularly those employees who were in the country on work visas. They were all true victims of this scam. It's one of those cases where you know, you point to the target of the scam and it tends to be the employees more than the potential customers or even the investors.

That's that's not cool. All right, Well, we're gonna take another quick break, and when we come back, I'll talk about the money behind the money and how that can be hinky as well. But first let's take this quick break. I'll wrap up with a couple of companies that weren't

so much startups as they were a venture capital investment company. Now, these were supposed to be all about funding startups, and the first one I want to talk about was called the Rothenburg Ventures, and it's a story that would likely make a movie akin to something like Wolf of Wall Street. So at the heart of this story is the founder of the company, Mike Rothenberg. He's a young guy. He's in his mid thirties and back in twelve he founded the VC company by raising up cash from his friends,

his family, and some colleagues. He had business degrees from Stanford and Harvard under his belt. Legit ones. He was charismatic he was an effective salesman, and he was able to get this venture capital company off the ground. This was particularly impressive because Rothenberg himself didn't come from money, so this isn't the story of a rich person calling up all his rich friends so that they can all

become more rich. Rothenberg raised around five million dollars for his VC firm, which was meant to provide seed money for new startups. Just two years after launching the venture capital company, it spun off a starter accelerator called River, which focused on companies related to virtual reality. Rothenberg Ventures and River both invested early in a lot of startups, including a few that would see some pretty big subsequent

investment rounds. So things were going pretty well. But Rothenberg was also getting into the habit of spending lavishly, sometimes in an effort to attract more investors and limited partners. He famously hired professional race car driver Collect Davis to appear at various events complete with a race car, which cost a lot of money both for her and for shipping the car around. He secured a suite at the Super Bowl to wine and dine pactive partners. He spent

a lot in himself too. He hired personal drivers, he hired a lot of personal assistance, he flew on a private airline of subscription airline company, and generally, he spent way more than what seemed appropriate or heck, even possible for a VC company of such modest size as Rothenberg Ventures. In other words, people started to say, how is this company making enough money for him to be spending this much?

So in twenty sixteen, the cracks began to show. A ton of the leadership team at Rothenberg Ventures jumped ship in a matter of months. They included the director of finance, the manager of the San Francisco office, the chief revenue officer, the chief financial officer, the general manager, and more. And the precipitating event that very likely led to that mass exodus of leadership was that an employee had blown the whistle on what appeared to be for odd The company

subsequently fired that employee, who then sued the company. The SEC and the U. S. Department of Justice conducted investigations and found that Mike Rothenberg had been siphoning money from investors and putting it directly into his own pockets. The SEC brought a civil lawsuit against Rothenburg, but the d o J brought to criminal wire fraud charges, two charges alleging he had made false bank statements, and money laundering

charges against him. Rothenberg lost the sec case and was ordered to pay thirty one million dollars, and then he also agreed to a ban from working in the securities industry, with the possibility of appealing that ban after five years. The d o j's wire fraud and false statement charges brought with them a maximum sentence of thirty years in prison each and remember there were four of those charges

plus a million dollar five. The money laundering charges could result in another sentence of up to ten years and to find twice the amount of money laundered if he were convicted. Now, the latest I've seen about Rothenburg dates to the summer of twenty twenty. The trial had not yet taken place. Then I suspect the trial has still not taken place. I didn't dig deep enough down into the court system to find out when the prospective trial

is going to take place. And our final entry is a fake venture capital firm that has been used to steal money from investors twice. So let's talk about the first time around and m I T graduate named Albert K. Hugh founded a group of four management companies which the SEC. So you know, the story is not gonna go well if the SEC is involved. The SEC collectively refers to

as the Assinqua Managers. The general name I see used most of the time to refer to whose scam is as Sinqua Ventures, who position in the company as a group of hedge funds that would invest in various startups and give out huge dividends as a result, who convinced a small group of investors to put about five million dollars into the company, and two thousand five who said that due to some weird tax and privacy reasons, he needed to relocate his company to Singapore, which is not

a great sign. An investigation into who revealed that the money wasn't going into hedge funds like he had claimed, but that who had been misappropriating fund assets rather than investing the money as promised. That's a direct quote from an SEC filing. Now, essentially, he was claiming that investors were going to see these high returns and instead he was pocketing the money. And it kind of sounds like he was about to pursue a ponzi scheme, only he

didn't follow up with subsequent rounds of investments. He just kept all the money. Investors of eventually started asking for their money back, and Who made himself increasingly scarce, refusing to answer demands. He was essentially in hiding in Hong Kong when he was arrested and then extradited to stand trial in the United States. Who was indicted and tried on seven charges of wire fraud, and he was found guilty on all seven charges. Who received a sentence of

twelve years in prison on June twentieve. He would serve several years in a minimum security prison. He was, however, released in ten However, in the meantime between when he was sent to prison in twenty twelve and when he got out in twenty nineteen, something really strange happened in twenty sixteen asinqua ventures returned. Who was not mentioned at all, which really isn't surprising and he certainly couldn't have been directly involved. He was in prison and he didn't have

any access to the Internet. He could send emails to a previously approved list of recipients and they had to agree to accept email from someone who was in prison, but that was the extent of it. He couldn't do any other Internet activities. However, The company claimed to be a venture capital firm all the same with a Northern

California office address. The new Assinqua Ventures included two businesses, one that would supposedly invest money into quote middle market opportunities end Quote, and another financial advisor service that could help facilitate really big corporate moves, like stuff like mergers

and acquisitions. The old as Sinqua Ventures u r l. Came back into use, though with a very different website from the original incarnation of a sinqua The new Assinqua Ventures published a few press releases and sent them down the pipeline so that they went to pr Newswire, which carried the releases, which then got picked up by various media outlets. By the way, this is also something that we should all be aware of that press releases don't

necessarily reflect the truth. That's why reporting just on press releases is a terrible idea without doing any further investigation, because there are instances of people releasing false documents as a press release and having that get picked up by the press wire and thus distributed by various media outlets, So if you do a search for the name A sinqua Ventures, you might see a few press releases from and Some of the press releases mentioned members of the

senior management team, like Steven Adler, who apparently wasn't the Steven Adler who was drummer for Guns and Roses, though that joke is kind of a stretch anyway. The Adler listed in the releases spells Stephen with a pH, whereas the drummer at Guns and Roses spells it with a V. But I still had to stick a joke in there. Adler also had a LinkedIn page which sent out connection requests to a pretty wide net of different business leaders.

One of those requests went to an executive recruiter named Marty McMahon who thought something was hinky about that profile, so he performed a reverse image search on the profile photo, which brought up a hit for a headshot for a totally different person, a real estate agent in San Diego named Dan Becker, same picture, different guy. So when contacted by McMahon, Becker was astonished to find his photo had been used for a bogus LinkedIn profile. He had no

connection to it. Obviously, strange things were afoot at the circle K. This was reinforced when McMahon repeated the process on a LinkedIn profile of a different supposed a Sinqua executive named Michael Reid, not the baseball player. I get the feeling that the Sinqua scammers were just copy and pasting content from all over the web to fill out

there supposed in corporate website. Anyway, that reverse search of that head shot pulled up another head shot of another San Diego based real estate agent, a guy named Will Fagan, who actually sometimes works with Dan Becker, the guy whose face was being used for Steven Adler. Fortune magazine investigated the new Assinqua and published a great piece about it titled the Venture capital Firm that Wasn't There. The magazine pointed out that the press releases were filled with information

that was unverifiable. Dan Primac, who is the writer of that piece, wrote about contacting the SEC to find out if this Assinqua Ventures firm was registered with the SEC, and it wasn't. If it were a legitimate business, it certainly should have been registered. One press release claimed that the company had held an investment series fundraising round and raised a hundred twenty five million dollars. But a company of that eyes would absolutely be required to register with

the SEC. But nope, there was nothing there. Furthermore, several of the executive bios listed in the management team page of the company's website were clearly plagiarized. One such bio for managing director Peter Arnold turned out to be lifted from the late venture capitalist and reality TV star Russell Armstrong's bio. Not exactly subtle. Prime X piece pretty much gutted a Sinqua. He detailed how he got into email contact with the supposed employee of the company and how

he received misinformation in return. He hypothesized that the venture might be run by one of Hugh's associates in an attempt to get another scam going. The piece published in September. Shortly afterward, the Assinqua website was offline and emails sent to Asinqua addresses bounced back as undeliverable. So it's quite possible that the journalistic investigation helped shut down this particular instance of this particular scam, possibly before they could actually

scam anyone out of any money. That million dollar investment round might be just pure fiction. So I think the moral of this story is that investors need to be careful, as do prospective employees, not just in the startups that interest them, but also in the very venture capital firms that aggregate investments. Investments are inherently risky to some degree.

You don't know if the startup is going to succeed, and that success depends on a lot of different factors to really fall in place, from having the right leadership to having a solid business plan, to offering a product that people actually want or need, and more. Some of the startups will become big, though sometimes that's due to multiple investment rounds rather than the company is actually becoming profitable.

But the various big stories tend to fee into that fear of missing out the old fomo and the money will often follow as a result. It's just important to ask tough questions and to be extra cautious when you're dealing with something that is unfamiliar to you. That gap in your knowledge might be just the thing that causes you to make a mistake. Next thing, you know, the person you trusted with your money is facing fraud charges in court. Not a great experience, okay, hope you enjoyed

that episode. I know it was a rerun, and again I apologize, but some things are just beyond my control. Uh. In fact, very little appears to be within my control, but I'm gonna I'm gonna work on that. Right that this is I'm really determined to make this all a great year. So y'all, I hope you're doing well. We'll have new episodes the rest of the week, and I will chat with you again really soon. Text Stuff is

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