Speaker 1: Welcome to Tech Stuff, a production from I Heart Radio.
Speaker 1: Hey there, and welcome to tech Stuff. I'm your host,
Speaker 1: Jonathan Strickland. I'm an executive producer with I Heart Radio
Speaker 1: and I love all things tech. And in a recent episode,
Speaker 1: I talked about funzy schemes and how you know that's
Speaker 1: an old scam that gets refreshed by enterprising con artists
Speaker 1: every so often, with recent examples centering on cryptocurrency, and
Speaker 1: that actually got me to thinking about startup culture and
Speaker 1: how some startups appear to be sincere, but maybe they're
Speaker 1: too ambitious to really work in the real world, and
Speaker 1: some seem like maybe they were just smoking mirrors the
Speaker 1: entire time. So today I thought we'd go through some
Speaker 1: of those types of startups and talk about the world
Speaker 1: of startups in technology and why it can be so
Speaker 1: risky to invest in them. Now. There are a lot
Speaker 1: of common elements among startups in general, not just in tech,
Speaker 1: and a lot of what we see frustrates me because
Speaker 1: you would think that by now people would learn their
Speaker 1: lesson when it comes to hype machines. Right, we should
Speaker 1: all be pretty familiar with the hype cycle, and you
Speaker 1: would think with familiarity we would be more resistant to it,
Speaker 1: and yet we're not. And I include myself, and that
Speaker 1: I get caught up in hype too, even as I
Speaker 1: recognize that there's a pattern here that just doesn't hold up.
Speaker 1: But I guess we have enough long shots that do
Speaker 1: payoff that keep people figuratively and literally invested. I mean,
Speaker 1: what if the next opportunity pays off and you didn't
Speaker 1: get in on the ground floor, you just missed a
Speaker 1: huge payout. So I guess I can understand the tendency,
Speaker 1: but it also reinforces the general truth that humans as
Speaker 1: a rule are really bad at stuff like risk assessment
Speaker 1: and understanding the odds, which, hey, you really you just
Speaker 1: have to look at the fact that you know lotteries
Speaker 1: are a thing to know that that is true. There's
Speaker 1: a general philosophy amongst startups that goes something like move
Speaker 1: quickly and break things. That taking big chances is encouraged
Speaker 1: because you know, while you're more likely going to fail,
Speaker 1: you'll learn a lot in the process, and that means
Speaker 1: you'll actually have a better chance at success next time.
Speaker 1: We learn a lot through failure, or you might find
Speaker 1: that quote unquote breaking what was previously considered to be
Speaker 1: a best practice leads to you finding an even better
Speaker 1: way to do things, but it can also create the
Speaker 1: perfect climate for someone to engage in a little snake
Speaker 1: oil peddling, because in a world where seemingly anything is possible,
Speaker 1: there's no such thing as impossible, and that means you
Speaker 1: can get money for stuff that just plane don't work.
Speaker 1: The current reigning champion of that model is Theopos, which
Speaker 1: I have covered extensively in the past, but for a
Speaker 1: quick overview, Elizabeth Holmes, Stanford dropout and a big fan
Speaker 1: of Silicon Valley leaders like Steve Jobs, set out to
Speaker 1: create a company centered on a new kind of blood
Speaker 1: analysis device, and the idea is alluring. Imagine a machine
Speaker 1: about the size of a desktop printer that could analyze
Speaker 1: the tiniest drop of blood and run more than a
Speaker 1: hundred fifty tests on that sample. The machine presents a
Speaker 1: comprehensive but easy to understand report on that sample and
Speaker 1: thus gives the administrator insight into the patient's current state
Speaker 1: of health and also pointing out any indicators that you
Speaker 1: know might suggest the patients should be on the lookout
Speaker 1: for future complications. It could help patients be more proactive
Speaker 1: and choose new lifestyle routines to live their healthiest lives. Heck,
Speaker 1: once the cost of making the devices declined enough, it
Speaker 1: could potentially be something the average can shumer purchases for
Speaker 1: their own home, and thus informing the average person about
Speaker 1: their own health before they go to say their annual
Speaker 1: check up, people would make more informed decisions about their health.
Speaker 1: They would be able to have better conversations with healthcare providers.
Speaker 1: It would really democratize healthcare. And that is a heck
Speaker 1: of a sales pitch, and from the business side, it's
Speaker 1: easy to see how it could be a freaking gold
Speaker 1: mine because the healthcare industry is already a multi trillion
Speaker 1: dollar market. Holmes was confident and she was convincing. And
Speaker 1: over the past two decades, we've seen technology do stuff
Speaker 1: that you know, three decades ago would seem impossible. The
Speaker 1: Internet alone was a huge revelation, and now we can
Speaker 1: carry de vice in our pockets that less access at
Speaker 1: wherever we are. So it's mundane today, it's it's commonplace.
Speaker 1: But thirty years ago it would have seemed bonkers. And
Speaker 1: so it's not really surprising that investors rushed in to
Speaker 1: get in on the ground floor. Of homes this enterprise,
Speaker 1: the return on investment would be unbelievable. It could be
Speaker 1: as if you were able to travel back to the
Speaker 1: mid nineties when Apple Stock was trading below five dollars
Speaker 1: a share, and you bought up a ton of it
Speaker 1: because you know how much it's going to grow in
Speaker 1: the future when Steve Jobs comes back. It helped that
Speaker 1: most investors had little, if any understanding about the technology
Speaker 1: involved in blood analysis. That's something that you'll remember is
Speaker 1: a red flag when it comes to stuff like Ponzi schemes.
Speaker 1: In this case, Farness wasn't so much a Ponzi scheme
Speaker 1: as it was a company centered around an idea that
Speaker 1: was just not really realistic. More knowledgeable experts in the
Speaker 1: area of blood analysis had warned that Holmes's goal was unattainable,
Speaker 1: that the technology just, you know, it's not there to
Speaker 1: do something as comprehensive as what Holmes had in mind.
Speaker 1: But the investments just kept pouring in, and if it
Speaker 1: had just failed, the company had just ultimately had to say,
Speaker 1: you know what, we tried, it didn't work, We're sorry.
Speaker 1: Our story would really just be about how a lot
Speaker 1: of people got excited about an idea, but the idea
Speaker 1: just didn't pan out. But of course it gets worse,
Speaker 1: and that's because over at Therapness there were a lot
Speaker 1: of shady things going on. There were teams legitimately trying
Speaker 1: to get the technology to work, but in the meantime,
Speaker 1: the company was playing a kind of a shell game
Speaker 1: with investors and v i p s. So, according to reports,
Speaker 1: when such a person came in for a tour of
Speaker 1: the facility, they would get their finger pricked and submit
Speaker 1: a tiny blood sample in this little bitty capsule and
Speaker 1: that would be fed into a Theonos machine. But the
Speaker 1: analysis would take a couple of hours. So instead of
Speaker 1: just you know, waiting around, the v i p would
Speaker 1: go on a tour, maybe they'd grab lunch with Theoroness
Speaker 1: executives or something. Meanwhile, other staff would rush in retrieve
Speaker 1: the blood sample from the Theonis device diluted and then
Speaker 1: submit that diluted sample to a traditional blood analysis machine
Speaker 1: that had been bought from an established company. In other words,
Speaker 1: they were relying on devices that were not built by
Speaker 1: Saronis to do the actual analysis. Then they would rush
Speaker 1: the completed analysis back to the meeting room, and then
Speaker 1: the team would behave as if the Tharonis device had
Speaker 1: done all the work the entire time. It was a
Speaker 1: particularly flashy version of the old Turk automaton chess player.
Speaker 1: You know, the thing you're looking at is not the
Speaker 1: actual thing that's doing the work. Sarais eventually crumbled after
Speaker 1: insiders began leaking what was going on to others and
Speaker 1: journalists began publishing expose s about the company. Holmes is
Speaker 1: one of the executives who happens to be waiting trial
Speaker 1: for multiple charges of fraud, and the name Sarah Knows
Speaker 1: is forever associated with words like hoax and scam. Now,
Speaker 1: just to be clear, I don't know if it was
Speaker 1: a scam from the beginning. I suspect that, you know,
Speaker 1: in the very earliest days, Holmes was sincere in her
Speaker 1: belief that she can make this work, and her engineers
Speaker 1: certainly tried to get the technology to measure up to
Speaker 1: the vision. But somewhere along the way people started to
Speaker 1: fudge results or rely on alternative methods to make it
Speaker 1: seem like things were working way better than they really were,
Speaker 1: and once they went down that path, they were committed. Now,
Speaker 1: other companies are legit, but the people running them might
Speaker 1: not be and that also is a big problem. So
Speaker 1: that seemed to be the case with a company that
Speaker 1: once upon a time was called Mozito, but for some
Speaker 1: reasons that will soon become a parent now calls itself definitive.
Speaker 1: So let's talk about what this company's purpose is beyond
Speaker 1: making its founder a whole lot of money. The original
Speaker 1: focus of Mozito was to do something pretty great. I
Speaker 1: think so many of us have used mobile devices to
Speaker 1: pay for stuff. You have some sort of digital wallet
Speaker 1: that's tied to either a credit card or a bank
Speaker 1: account or some mothers stash of cash. In a transaction,
Speaker 1: the mobile device interacts with a merchant's point of sale
Speaker 1: and the data zings back and forth, and soon the
Speaker 1: appropriate amount of money goes from your stash to the
Speaker 1: merchant stash, which is, you know, pretty simple idea. But
Speaker 1: there's an enormous population of people who don't have bank accounts.
Speaker 1: Mozito estimated that two and a half billion people have
Speaker 1: access to cellular technology, but they do not have an
Speaker 1: account with a bank or a credit union. So mobile payments,
Speaker 1: while incredibly useful, are not within the grasp of everyone.
Speaker 1: And so the company saw a space that it could
Speaker 1: potentially fill creating a technology that would allow people who
Speaker 1: are unbanked or underbanked to use mobile payments, which is
Speaker 1: a pretty noble goal giving people a lot more options
Speaker 1: when it comes to making transactions, and that attracted a
Speaker 1: lot of investors. And that brings us to the company's founder.
Speaker 1: So the founder of Mozito was a guy named Michael Liberty,
Speaker 1: whose name is pretty fitting we're gonna see. He first
Speaker 1: established the company in two thousand seven in Dallas, Texas.
Speaker 1: The fact that Mozito traces its history to two thousand
Speaker 1: seven is already pretty impressive because that's the same year
Speaker 1: that Apple launched the iPhone, So it was a pretty
Speaker 1: visionary move. Liberty was able to get a lot of
Speaker 1: investors for his company, raising money in multiple rounds of
Speaker 1: investment funding. The company relocated from Dallas to Austin, Texas
Speaker 1: in two thousand twelve, and by two thousand seventeen, Liberty
Speaker 1: himself would step down from the company and relocate to Florida. Essentially,
Speaker 1: he had grown the business. He was not leading it.
Speaker 1: He was he had founded it, but he had other
Speaker 1: executives in charge of running the thing, and he kind
Speaker 1: of said all right, my work year is done, and
Speaker 1: stepped away and went to Florida. However, investigators with the
Speaker 1: Securities and Exchange Commission or SEC were interested in some
Speaker 1: of those investments that were supposed to be going to
Speaker 1: Mozito because the numbers didn't seem to add up, and
Speaker 1: the investigation indicated that Mr Liberty had taken the liberty
Speaker 1: of moving some of that cash around so that would
Speaker 1: ultimately fill his own pockets rather than go to funding
Speaker 1: the company. With most of the shenanigans taking place between
Speaker 1: and there were signs of the shell companies all designed
Speaker 1: to obfus skate where the money was going. There was
Speaker 1: a practice of money laundering, which is when you mix
Speaker 1: illegally obtained cash with cash from legitimate businesses in an
Speaker 1: effort to hide the fact that you've got filthy lucre
Speaker 1: on your hands. Ultimately, Liberty was charged with fraud, with
Speaker 1: prosecutors saying he had stolen more than fifty million dollars
Speaker 1: to fund his own millionaire lifestyle, complete with mansions and
Speaker 1: private jets. He also served a prison sentence for a
Speaker 1: different infraction. He pled guilty to charges that he had
Speaker 1: violated campaign finance law in two thousand eleven and was
Speaker 1: sentenced to four months in prison and a fine for
Speaker 1: one hundred thousand dollars in seventeen. And there were other
Speaker 1: SEC investigations into activities beyond the ones I just described.
Speaker 1: Now the company Mozito wasn't included in these charges. It
Speaker 1: appeared as though everything at the company was pretty legit,
Speaker 1: but there was a lot of turnover in the executive
Speaker 1: suite of leadership, which probably didn't look too good to investors.
Speaker 1: In Scott Sandlin stepped down as the CEO, and for
Speaker 1: more than a year, Mike Love served as interim CEO, So,
Speaker 1: in other words, this company went for more than a
Speaker 1: year without a permanent CEO. In fact, it was thirteen
Speaker 1: months before the company had a new official CEO with
Speaker 1: Todd Bradley, but then Bradley quit in seventeen along with
Speaker 1: chief financial officer Scott Ellison. The Forbes reported that Mosito's
Speaker 1: website kept both of those men listed on their executive
Speaker 1: leadership websit page, you know, for a few months afterward,
Speaker 1: which seems more than a bit sus So that probably
Speaker 1: didn't look too good from the outside, and that might
Speaker 1: explain and why the leaders of Mozito decided to reincorporate
Speaker 1: and change the name of the company definitive. You don't
Speaker 1: want to be another therapist after all. While the company
Speaker 1: may not be a scam, that doesn't mean it's a
Speaker 1: viable business either. There have been numerous articles written about
Speaker 1: how the company, throughout its history had found itself scrabbling
Speaker 1: to keep things going, mostly through additional rounds of investment. Now, personally,
Speaker 1: I hope that the company is able to get its
Speaker 1: feet on the ground because I think the service is
Speaker 1: valuable for all those populations who don't have access to
Speaker 1: bank accounts. It's just unfortunate that this appears to be
Speaker 1: a very difficult service that can be done profitably. When
Speaker 1: you think about it, it kind of makes sense. Most
Speaker 1: of the transactions you would imagine would be pretty small,
Speaker 1: and so any transaction fee you would take would be
Speaker 1: pennies on the dollar, So you would need a lot
Speaker 1: of them in order to make a profit. You would
Speaker 1: have to really be operating at our huge scale, and
Speaker 1: getting that huge scale is tough. As for Liberty, he
Speaker 1: was awaiting trial for those charges I mentioned when on
Speaker 1: January nine one, we learned that he was one of
Speaker 1: those lucky individuals to receive a presidential pardon from outgoing
Speaker 1: President Donald Trump. Interestingly, reporters have sometimes referred to Liberty
Speaker 1: as Trump but with a main accent. That's main as
Speaker 1: in the state in the northeastern United States. Now, it's
Speaker 1: possible we could put Mozito infinitive in the same general
Speaker 1: category as thereins, in the sense that it may be
Speaker 1: that the actual central idea for the business could be untenable.
Speaker 1: Now I don't know if that's true. I'm no financial expert.
Speaker 1: Perhaps if you could get the operations up to scale,
Speaker 1: maybe it would all work fine. I don't know. I mean, granted, pennies,
Speaker 1: if you've got enough of them, do amount to dollars.
Speaker 1: So there is that. Well, we're gonna take a quick break,
Speaker 1: and when we come back, we'll talk about some more
Speaker 1: startups that have had big problems. But first let's take
Speaker 1: that break. Similar in some ways to the Mozito story
Speaker 1: we listen to just before the break is that of
Speaker 1: bow tie, which is actually spelled b O u X
Speaker 1: t I E. And just to be clear, this is
Speaker 1: not the current bow tie by that spelling, which based
Speaker 1: on what I'm looking at at my screen right now,
Speaker 1: that's some sort of company that sells TikTok views and
Speaker 1: video shares in order to artificially boost the performance of
Speaker 1: TikTok videos, which is just plain lame. It's straight up
Speaker 1: there with companies that used to sell Twitter Twitter followers, right, Like,
Speaker 1: that's something that's fallen out of favor over at Twitter
Speaker 1: because Twitter has done multiple cullings of bought accounts, so
Speaker 1: those have largely been white clear of the platform. But
Speaker 1: we're seeing that same sort of practice spread to platforms
Speaker 1: like TikTok. If you're an influencer and you're trying to
Speaker 1: sell your you know, big following to various sponsors, maybe
Speaker 1: you're engaging in some of these uh, unethical activities in
Speaker 1: order to convince those sponsors. Hey, a lot of people
Speaker 1: watch my stuff. But no, no, no, I'm talking about
Speaker 1: a different bow Tie It was a company founded by
Speaker 1: an entrepreneur named Renato Libric. The idea was to create
Speaker 1: a digital platform for gift cards and loyalty cards. Librics
Speaker 1: bow Tie company offered users the ability to purchase digital
Speaker 1: gift cards to all sorts of major merchants and then
Speaker 1: customize them with graphics and messages before sending them off
Speaker 1: to family and friends. So it was a neat way
Speaker 1: to create a sort of personalized experience, which I think
Speaker 1: helps take some of the stigma out of, you know,
Speaker 1: the whole gift card thing. And being digital, it should
Speaker 1: be relatively easy to redeem those gift cards with online accounts,
Speaker 1: making it less likely that they would go unused. I mean,
Speaker 1: just a year ago, c NBC reported that American possessed
Speaker 1: more than twenty one billion with a b dollars worth
Speaker 1: of unused gift cards in store credit. By the way,
Speaker 1: that's kind of why merchants love gift cards. There's a
Speaker 1: good chance they'll never have to redeem them, and the
Speaker 1: profit margin is ridiculous. Now, with bow Tie, it doesn't
Speaker 1: sound like Librick was trying to funnel cash to himself,
Speaker 1: which sets him apart from folks like Michael Liberty. But
Speaker 1: he did forge signatures and produce false documents to make
Speaker 1: it seem as though bow Tie was worth far more
Speaker 1: than its true value in an effort to convince more
Speaker 1: investors to pour money into the venture. So in that respect,
Speaker 1: I guess that bow Tie is kind of similar to
Speaker 1: the bow tie of today. So the bow tie of
Speaker 1: today is all about inflating TikTok numbers, and Libric was
Speaker 1: all about inflating the apparent value of bow tie. So
Speaker 1: there's more going on there than I originally thought. Well,
Speaker 1: perhaps Libric was just desperately trying to get some momentum
Speaker 1: going with the hope that once things were really moving,
Speaker 1: he'd be able to stick to the straight and narrow.
Speaker 1: But he was caught out. Towards the end of ten
Speaker 1: Librick was found guilty of wire fraud and sentenced to
Speaker 1: thirty six months in prison in order to pay out
Speaker 1: more than one and a half million dollars in restitution.
Speaker 1: Based on what I've read, I would say that this
Speaker 1: is another case where someone had an idea that sounded
Speaker 1: pretty good, proved to be harder to pull off profitably
Speaker 1: than was first anticipated, found it difficult to get enough
Speaker 1: investments to stay afloat, and then resorted to illegal means
Speaker 1: to cover the bills. Now, one person whose name has
Speaker 1: to come up when you're talking about grandiose start up
Speaker 1: ideas is Elon Musk. One of the numerous ideas Musquez
Speaker 1: championed is that of the hyper loop. So, in short,
Speaker 1: a hyper loop system, at least on the original design
Speaker 1: would involve trains traveling inside tubes, and inside those tubes
Speaker 1: you would pump out most of the air to be
Speaker 1: very low air pressure, almost a vacuum, and that cuts
Speaker 1: way down on wind resist sense. In addition, the trains
Speaker 1: would not travel with wheels on a track. Instead, they
Speaker 1: would travel atop air bearings. Essentially, a cushion of air
Speaker 1: would keep the trains afloat above the inner surface of
Speaker 1: the tunnel. Electro Magnets would provide the propulsion to accelerate
Speaker 1: and decelerate the trains, which, with such reduced friction, would
Speaker 1: be able to travel at incredible speeds like essentially the
Speaker 1: speeds that you would see aircraft travel. One startup that
Speaker 1: formed after Musk's proposal was Hyperloop Technologies, founded by Shervin
Speaker 1: Pishavar and former SpaceX engineer Brogan Bam Brogan. The story
Speaker 1: of that company is way too long for this episode,
Speaker 1: and it involves tons of scandals and also mergers and
Speaker 1: name changes and some seriously ugly in fighting, and Pischavar
Speaker 1: would step down in the wake of sexual harassment charges,
Speaker 1: which he maintains was all a smear campaign. The company
Speaker 1: is still around today. In fact, it's the one that
Speaker 1: conducted a successful test with people aboard a hyperloop capsule
Speaker 1: back in November of twenty but the company would change
Speaker 1: its name from Hyperlop Technologies to Hyperloop One to Virgin
Speaker 1: hyper Loop one, and now it's just Virgin Hyperloop. Anyway,
Speaker 1: the company I wanted to cover is the one that
Speaker 1: Brogan bam Brogan would found after leaving Hyperloop one. So
Speaker 1: bam Brogan and a couple of other executives all left
Speaker 1: hyper Loop one at the same time and filed a
Speaker 1: lawsuit against their former employer. They alleged that the company
Speaker 1: had violated numerous agreements and abandon its fiduciary responsibilities, and worse,
Speaker 1: they alleged abuse and threats, and the company would file
Speaker 1: a countersuit against those former executives, alleging that they had
Speaker 1: attempted to rest control of the company away from the
Speaker 1: leadership team and the board of directors, essentially that they
Speaker 1: were planning a coup. Both parties would settle their lawsuits
Speaker 1: out of court in sixteen, and Bam Brogan then founded
Speaker 1: a competing hyper loop company called Arrivo. He and a
Speaker 1: couple of other colleagues formed Arrival in two thousand seventeen one.
Speaker 1: Co founder Andrew Leeu had previously worked with a construction
Speaker 1: company called a Calm a e c o M. Another
Speaker 1: co founder was Jaden Smith, who, like dam Brogan, had
Speaker 1: previously worked with SpaceX. He had also previously worked with
Speaker 1: the CIA. Now, the hyper loop design is an interesting
Speaker 1: and innovative one, but it also will require a ton
Speaker 1: of money to make it a reality. Musk was first
Speaker 1: talking about the idea way back in and we're still
Speaker 1: in the experimental and testing stages in one and that's
Speaker 1: just get to a point where we're confident that the
Speaker 1: technology is a viable one for the purposes of transporting
Speaker 1: people and cargo quickly and safely. After that, you've got
Speaker 1: the daunting task of actually securing the legal rights to
Speaker 1: build out routes between different destinations. That includes everything from
Speaker 1: securing permission from various local governments and environmental agencies, to
Speaker 1: the actual construction and more. It's time consuming and really expensive.
Speaker 1: Perhaps for that reason, Arrival dumped the idea of going
Speaker 1: the hyperloop throughout entirely, so instead it would go with
Speaker 1: a more established technology, that of magnetic levitation. Maglev trains
Speaker 1: have been around for a while. The technology is well understood,
Speaker 1: it's proven to work, we use it today. And essentially
Speaker 1: you've got magnets of similar polarity in the tracks and
Speaker 1: under the trains, and since similar polarities repel one another,
Speaker 1: like when you try to push the north pole of
Speaker 1: two different permanent magnets together, the train will hover over
Speaker 1: the track. You no longer have to deal with the
Speaker 1: friction of wheels against rails or anything like that. The magnets,
Speaker 1: by the way, can be permanent, they can be electro magnets,
Speaker 1: or they can be a combination of the two. On
Speaker 1: top of that, Arrival wasn't planning on and closing its
Speaker 1: tracks and tunnels, so there would be no low pressure
Speaker 1: track system with Arrivo, which again would significantly cut down
Speaker 1: on construction and operation costs, though it would also mean
Speaker 1: that the trains would have encounter some air resistance when
Speaker 1: traveling down the tracks, so these would not be able
Speaker 1: to go at the wicked fast speeds of the proposed
Speaker 1: hyper loop trains. The company had planned to build a
Speaker 1: test track out in Colorado, but Arrival was having a
Speaker 1: lot of trouble getting investors on board, perhaps the fact
Speaker 1: that they were no longer pursuing the more ambitious and
Speaker 1: inarguably more risky hyper loop design. Or maybe it was
Speaker 1: because of the very messy and very public breakup between
Speaker 1: the Arrival founders and hyper Loop One, maybe that had
Speaker 1: left kind of a stain on things within the company.
Speaker 1: Things seem to be kind of off as well. An
Speaker 1: anonymous employee posted a review on glass door. That's the
Speaker 1: website that allows employees to review their workplaces. The review
Speaker 1: claimed that the Arrival offices were operating with little or
Speaker 1: no direction from leadership, and the report also indicated that
Speaker 1: a leader later implied to be Vam Brogan himself brought
Speaker 1: an axe to the office and then used it to
Speaker 1: hack chunks out of the walls and frustration, which, yeah,
Speaker 1: I mean if my boss showed up to my office
Speaker 1: with a tool that could be used as a lethal
Speaker 1: weapon and then he went around hitting the walls with it,
Speaker 1: I too would describe my office environment as quote unquote unstable.
Speaker 1: Arrival failed to secure Series A investment funding. Jaden Smith
Speaker 1: and Andrew Leeu quietly parted ways with Arrival in Not
Speaker 1: long after that, the company furloughed employees and then laid
Speaker 1: off about half of them. Then it shut down the
Speaker 1: startup just failed to get any momentum, which, as I
Speaker 1: understand it, is a bad thing if you're trying to
Speaker 1: move people from one place to another. It's very possible
Speaker 1: that the fallout from Hyperloop one doomed arrival from the start,
Speaker 1: though the descriptions I've seen of Bam Brogan's behavior may
Speaker 1: also have played a part in any case, this is
Speaker 1: an example of a startup that didn't really get a
Speaker 1: chance to start up at all. And like I said,
Speaker 1: I'll have to do a full treatment on the story
Speaker 1: of Virgin Hyperloop at some point, because y'all that could
Speaker 1: be a soap opera. Another startup that had a more
Speaker 1: spectacular collapse was one for dot one. That is the
Speaker 1: numeral one f O R dot oh n E not great, right?
Speaker 1: Actually I should say I really mean job Sonic. Wait no, no, no,
Speaker 1: I'm sorry, I should mean work Riot, except it's work right,
Speaker 1: it's w R k R I O T. Yeah. This
Speaker 1: was a company that changed names three times very quickly
Speaker 1: in a matter of weeks. Actually, a man named Isaac
Speaker 1: Choi founded the company, which was a job recruiting platform,
Speaker 1: essentially a place where companies and job seekers could find
Speaker 1: a good match you could post jobs, you could seek jobs.
Speaker 1: That kind of thing, At least that's what it was
Speaker 1: supposed to be. Isaac Choi positioned himself as a graduate
Speaker 1: of the Stern School of Business at New York University,
Speaker 1: and that prior to founding work Riot, he was an
Speaker 1: analyst at JP Morgan for four years. Both of those
Speaker 1: claims would be disputed by the respective organizations later on,
Speaker 1: indicating that Mr Choi was fabricating his resume in an
Speaker 1: attempt to manufacture credibility. Choi claimed to have raised investment
Speaker 1: funds for work Riot through private investors, rather than seeking
Speaker 1: out a formal series of funding or a venture capital
Speaker 1: firm for support. The company began hiring on employees, many
Speaker 1: of them Chinese citizens in America on work visas, which
Speaker 1: will later make this story particularly upsetting. One employee, Penny Kim,
Speaker 1: was hired on to be the head of marketing. Kim
Speaker 1: would later write a piece about her experiences on medium,
Speaker 1: though at the time she changed the names of the
Speaker 1: people and the company in an effort to quote protect
Speaker 1: the innocent and the guilty end quote. Later she would
Speaker 1: confirm that the company she was writing about was in
Speaker 1: fact work Riot. So what the heck happened. In this case,
Speaker 1: the business leader was defrauding his employees. Kim was told
Speaker 1: that she would have a budget of four million dollars
Speaker 1: to make a marketing plan, so she began to put
Speaker 1: one together, which included the push for the new name
Speaker 1: for the company, because the previous one was quote not
Speaker 1: s e O friendly end quote. So this was when
Speaker 1: it was still one four dot one and the name
Speaker 1: would change to job Sonic, which Kim said was not
Speaker 1: her choice, but one of the other business leaders pushed it.
Speaker 1: She wrote that she would find out later that her
Speaker 1: four million dollar plan was meaningless because it was dependent
Speaker 1: upon that budget of four million dollars, and it turned
Speaker 1: out there was no four million dollar budget to be
Speaker 1: found for the whole company, let alone for the marketing department.
Speaker 1: Kim wrote that the CEO that being Choi was hiring
Speaker 1: on people who had questionable applicable experience for the job
Speaker 1: at hand, especially in the leadership team, and she said
Speaker 1: that even the job at hand itself was poorly defined.
Speaker 1: She also wrote about going along on investor meetings, something
Speaker 1: she was curious about because she wanted to know what
Speaker 1: was going on with having to get investors that the
Speaker 1: claim was that the company was already funded, so why
Speaker 1: would you need to go talk to investors so early.
Speaker 1: At those meetings, Kim witnessed Choi talking more about himself
Speaker 1: than the company. He was really selling his own qualifications
Speaker 1: in an effort to try and get people to buy
Speaker 1: into him rather than to buy into an idea for
Speaker 1: a business. He also consistently failed to provide answers to
Speaker 1: important questions, you know, questions like how much are you
Speaker 1: bringing in versus how much are you spending. Turns out
Speaker 1: investors are very curious about the answers to questions like that.
Speaker 1: Kim also mentioned that her first paycheck was not a
Speaker 1: normal one. It was a cashier's check with no PA
Speaker 1: st up. Now, apparently, leading up to her being signed
Speaker 1: on as the marketing director, a DP was handling payroll,
Speaker 1: and that was an important step because one of the
Speaker 1: things a DP would do would be to file paperwork
Speaker 1: that showed those in the country who were on work
Speaker 1: visas were actually employed, so the government could say, all right,
Speaker 1: you're on a work visa. We received the notification from
Speaker 1: a DP that you were paid for that period. Everything's cool. Well,
Speaker 1: without a DP there, that was not happening, and that
Speaker 1: meant that the visas might not be considered valid, and
Speaker 1: that would mean that people would be in danger of
Speaker 1: having those visas revoked and they would be sent back home. Worse,
Speaker 1: Kim noted that while she received a paycheck, most people didn't,
Speaker 1: and this indicated that there had to be a big
Speaker 1: cash flow problem at the company. Kim also related how
Speaker 1: an employee in business development revealed that he had lent
Speaker 1: fifty thousand dollars of his own money in savings, his
Speaker 1: life savings, to the CEO of the company, something that
Speaker 1: was absolutely a red flag. Heck, that's that's not even
Speaker 1: a red flag. That's like an active, actual emergency. Later, still,
Speaker 1: after more missed payments, Choice and out a message claiming
Speaker 1: that payroll would be met because he included a screenshot
Speaker 1: of a supposed Wells Fargo money transfer into the corporate accounts.
Speaker 1: Only it wasn't legit. It was an altered image. In fact,
Speaker 1: it was an altered image of one that you can
Speaker 1: find just by doing a Google image search for a
Speaker 1: Wells Fargo transfer. Because Kim did that it, she did
Speaker 1: that Google image search and found the exact one that
Speaker 1: Choi had taken and done a little tiny bit of
Speaker 1: photo shopping to change, but he wasn't even that careful.
Speaker 1: There were entire sections of that image that indicated that
Speaker 1: it was much, you know, much older than what Roi
Speaker 1: was saying. When there's a copyright notice that ends in
Speaker 1: around two thousand fourteen and it's many years after two fourteen,
Speaker 1: not a good sign. Kim would go on to file
Speaker 1: a wage dispute claim and then Troy fired her. So
Speaker 1: that wasn't the smartest thing because obviously, as an employee,
Speaker 1: you could then pursue legal action against your employer. So
Speaker 1: she wrote the piece in medium and that prompted an
Speaker 1: investigation by the FBI, and by then job Sonic had
Speaker 1: become work Riot, but the Shenanigans were still the same.
Speaker 1: Choi would be indicted in two thousand seventeen for defrauding employees.
Speaker 1: He pled guilty and twenty eight to the charges, and
Speaker 1: he was sentenced to time served, meaning he didn't go
Speaker 1: to prison, and a fine of less than one dollars.
Speaker 1: The company was no more, and I do feel awful
Speaker 1: for all those employees who were working in good faith
Speaker 1: for a company that was no more than a facade,
Speaker 1: particularly those employees who were in the country on work visas.
Speaker 1: They were all true victims of this scam. It's one
Speaker 1: of those cases where you know, you point to the
Speaker 1: target of the scam and it tends to be the
Speaker 1: employees more than the potential customers or even the investors.
Speaker 1: That's that's not cool. All right, Well, we're gonna take
Speaker 1: another quick break, and when we come back, I'll talk
Speaker 1: about the money behind the money and how that can
Speaker 1: be hinky as well. But first let's take this quick break.
Speaker 1: I'll wrap up with a couple of companies that weren't
Speaker 1: so much startups as they were a venture capital investment company. Now,
Speaker 1: these were supposed to be all about funding startups, and
Speaker 1: the first one I want to talk about was called
Speaker 1: the Rothenberg Ventures, and it's a story that would likely
Speaker 1: make a movie akin to something like Wolf of Wall Street.
Speaker 1: So at the heart of this story is the founder
Speaker 1: of the company, Mike Rothenberg. He's a young guy. He's
Speaker 1: in his mid thirties and back in twelve he founded
Speaker 1: the VC company by raising up cash from his friends,
Speaker 1: his family, and some colleagues. He had business degrees from
Speaker 1: Stanford and Harvard under his belt legit ones he was charismatic,
Speaker 1: he was an effective salesman, and he was able to
Speaker 1: get this venture capital company off the ground. This was
Speaker 1: particularly impressive because Rothenberg himself didn't come from money, so
Speaker 1: this isn't the story of a rich person calling up
Speaker 1: all his rich friends so that they can all become
Speaker 1: more rich. Rothenberg raised around five million dollars for his
Speaker 1: VC firm, which was meant to provide seed money for
Speaker 1: new startups. Just two years after launching the venture capital company,
Speaker 1: it spun off a starter accelerator called River, which focused
Speaker 1: on companies related to virtual reality. Rothenberg Ventures and River
Speaker 1: both invested early in a lot of startups, including a
Speaker 1: few that would see some pretty big subsequent investment rounds.
Speaker 1: So things were going pretty well. But Rothenberg was also
Speaker 1: getting into the habit of spending lavishly, sometimes in an
Speaker 1: effort to attract more investors and limited partners. He famously
Speaker 1: hired professional race car driver Collect Davis to appear at
Speaker 1: various events complete with a race car, which cost a
Speaker 1: lot of money both for her and for shipping the
Speaker 1: car around. He secured a suite at the Super Bowl
Speaker 1: to wine and dine prospective partners. He spent a lot
Speaker 1: in himself too. He hired personal drivers, he hired a
Speaker 1: lot of personal assistance, he flew on a private airline
Speaker 1: of subscription airline company, and generally he spent way more
Speaker 1: than what seemed appropriate or heck, even possible for a
Speaker 1: VC company of such modest size as Rothenberg Ventures. In
Speaker 1: other words, people started to say, how is this company
Speaker 1: making enough money for him to be spending this much?
Speaker 1: So in twentus sixteen, the cracks began to show. A
Speaker 1: ton of the leadership team at Rothenberg Ventures jumped ship
Speaker 1: in a matter of months. They included the director of finance,
Speaker 1: the manager of the San Francisco office, the chief revenue officer,
Speaker 1: the chief financial officer, the general manager, and more. And
Speaker 1: the precipitating event that very likely led to that mass
Speaker 1: exodus of leadership was that an employee had blown the
Speaker 1: whistle on what appeared to be fraud. The company subsequently
Speaker 1: fired that employee, who then sued the company. The SEC
Speaker 1: and the U. S. Department of Justice conducted investigations and
Speaker 1: found that Mike Rothenberg had been siphoning money from investors
Speaker 1: and putting it directly into his own pockets. The SEC
Speaker 1: brought a civil lawsuit against Rothenburg, but the d o
Speaker 1: J brought to criminal wire fraud charges, two charges alleging
Speaker 1: he had made false bank statements, and money laundering charges
Speaker 1: against him. Rothenberg lost the sec case and was ordered
Speaker 1: to pay thirty one million dollars, and then he also
Speaker 1: agreed to a ban from working in the securities industry,
Speaker 1: with the possibility of appealing that ban after five years.
Speaker 1: The d o j's wire fraud and false statement charges
Speaker 1: brought with them a maximum sentence of thirty years in
Speaker 1: prison each and remember there were four of those charges,
Speaker 1: plus a million dollar fine. The money laundering charges could
Speaker 1: result in another sentence of up to ten years and
Speaker 1: a fine twice the amount of money laundered if he
Speaker 1: were convicted. Now, the latest I've seen about Rothenburg dates
Speaker 1: to the summer of twenty twenty. The trial had not
Speaker 1: yet taken place. Then I suspect the trial has still
Speaker 1: not taken place. I didn't dig deep enough down into
Speaker 1: the court system to find out when the prospective trial
Speaker 1: is going to take place. And our final entry is
Speaker 1: a fake venture capital firm that has been used to
Speaker 1: steal money from investors twice. So let's talk about the
Speaker 1: first time around, and m I T graduate named Albert K.
Speaker 1: Hugh founded a group of four management companies which the SEC.
Speaker 1: So you know, the story is not gonna go well
Speaker 1: if the SEC is involved. The SEC collectively refers to
Speaker 1: as the Assinqua Managers. The general name I see used
Speaker 1: most of the time to refer to whose scam is
Speaker 1: as Sinqua Ventures, who positioned the company as a group
Speaker 1: of hedge funds that would invest in various startups and
Speaker 1: give out huge dividends as a result, who convinced a
Speaker 1: small group of investors to put about five million dollars
Speaker 1: into the company, and two thousand five who said that
Speaker 1: due to some weird tax and privacy reasons, he needed
Speaker 1: to relocate his company to Singapore, which is not a
Speaker 1: great sign. An investigation into who revealed that the money
Speaker 1: wasn't going into hedge funds like he had claimed, but
Speaker 1: that who had been misappropriating fund assets rather than investing
Speaker 1: the money as promised. That's a direct quote from an
Speaker 1: SEC filing. Now, essentially, he was claiming that investors were
Speaker 1: going to see these high returns and instead he was
Speaker 1: pocketing the money, and it kind of sounds like he
Speaker 1: was about to pursue a Ponzi scheme, only he didn't
Speaker 1: follow up with subsequent rounds of investments. He just kept
Speaker 1: all the money. Investors eventually started asking for their money back,
Speaker 1: and Who made himself increasingly scarce, refusing to answer demands.
Speaker 1: He was essentially in hiding in Hong Kong when he
Speaker 1: was arrested and then extradited to stand trial in the
Speaker 1: United States. Who was indicted and tried on seven charges
Speaker 1: of wire fraud, and he was found guilty on all
Speaker 1: seven charges. Who received a sentence of twelve years in
Speaker 1: prison on June twentieve. He would serve several years in
Speaker 1: a minimum security prison. He was, however, released in ten However,
Speaker 1: in the meantime between when he was sent to prison
Speaker 1: in twenty twelve and when he got out in twenty nineteen,
Speaker 1: something really strange happened in twenties sixteen asinqua ventures returned.
Speaker 1: Who was not mentioned at all, which really isn't surprising
Speaker 1: and he certainly couldn't have been directly involved. He was
Speaker 1: in prison and he didn't have any access to the internet.
Speaker 1: He could send emails to a previously approved list of
Speaker 1: recipients and they had to agree to accept email from
Speaker 1: someone who was in prison, but that was the extent
Speaker 1: of it. He couldn't do any other Internet activities. However,
Speaker 1: The company claimed to be a venture capital firm all
Speaker 1: the same with a Northern California office address. The new
Speaker 1: Assinqua Ventures included two businesses, one that would supposedly invest
Speaker 1: money into quote middle market opportunities end Quote, and another
Speaker 1: financial advisor service that could help facilitate really big corporate moves,
Speaker 1: like stuff like mergers and acquisitions. The old as Sinqua
Speaker 1: Ventures u r L came back into use, though with
Speaker 1: a very different website from the original incarnation of a
Speaker 1: sinqua The new Assinqua Ventures published a few press releases
Speaker 1: and sent them down the pipeline so that they went
Speaker 1: to pr Newswire, which carried the releases, which then got
Speaker 1: picked up by various media outlets. By the way, this
Speaker 1: is also something that we should all be aware of
Speaker 1: that press releases don't necessarily reflect the true That's why
Speaker 1: reporting just on press releases is a terrible idea without
Speaker 1: doing any further investigation, because there are instances of people
Speaker 1: releasing false documents as a press release and having that
Speaker 1: get picked up by the press. Wire and thus distributed
Speaker 1: by various media outlets. So if you do a search
Speaker 1: for the name A sinqua Ventures, you might see a
Speaker 1: few press releases from six and Some of the press
Speaker 1: releases mentioned members of the senior management team, like Steven Adler,
Speaker 1: who apparently wasn't the Steven Adler who was drummer for
Speaker 1: Guns and Roses, though that joke is kind of a
Speaker 1: stretch anyway. The Adler listed in the releases spells Stephen
Speaker 1: with a pH, whereas the drummer at Guns and Roses
Speaker 1: spells it with a V. But I still had to
Speaker 1: stick a joke in there. Adler also had a LinkedIn
Speaker 1: page which sent out connection requests to a pretty wide
Speaker 1: net of different business leaders. One of those requests went
Speaker 1: to an executive recruiter named Marty McMahon who thought something
Speaker 1: was hinky about that profile, so he performed a reverse
Speaker 1: image search on the profile photo, which brought up a
Speaker 1: hit for a head shot for a totally different person,
Speaker 1: a real estate agent in San Diego named Dan Becker,
Speaker 1: same picture, different guy. So when contacted by McMahon, Becker
Speaker 1: was astonished to find his photo had been used for
Speaker 1: a bogus LinkedIn profile. He had no connection to it. Obviously,
Speaker 1: strange things were afoot at the circle K. This was
Speaker 1: reinforced when McMahon repeated the process on a LinkedIn profile
Speaker 1: of a different supposed a Sinqua executive named Michael Reid,
Speaker 1: not the baseball player. I get the feeling that the
Speaker 1: as Sinqua scammers were just copy and pasting content from
Speaker 1: all over the web to fill out their supposed corporate website. Anyway,
Speaker 1: that reverse search of that head shot pulled up a
Speaker 1: another had shot of another San Diego based real estate agent,
Speaker 1: a guy named Will Fagan, who actually sometimes works with
Speaker 1: Dan Becker, the guy whose face was being used for
Speaker 1: Steven Adler. Fortune magazine investigated the new Assinqua and published
Speaker 1: a great piece about it titled the Venture capital Firm
Speaker 1: that Wasn't There. The magazine pointed out that the press
Speaker 1: releases were filled with information that was unverifiable. Dan Primac,
Speaker 1: who is the writer of that piece, wrote about contacting
Speaker 1: the SEC to find out if this Assinqua Ventures firm
Speaker 1: was registered with the SEC, and it wasn't. If it
Speaker 1: were a legitimate business, it certainly should have been registered.
Speaker 1: One press release claimed that the company had held an
Speaker 1: Investment Series fundraising round and raised a hundred twenty five
Speaker 1: million dollars. But a company of that size would absolutely
Speaker 1: be required to register with the SEC. But nope, there
Speaker 1: was nothing there. Furthermore, several of the executive bios listed
Speaker 1: in the management team page of the company's website were
Speaker 1: clearly plagiarized. One such bio for managing director Peter Arnold
Speaker 1: turned out to be lifted from the late venture capitalist
Speaker 1: and reality TV star Russell Armstrong's bio. Not exactly subtle
Speaker 1: Prime X piece pretty much gutted a Sinqua. He detailed
Speaker 1: how he got into email contact with the supposed employee
Speaker 1: of the company and how he received misinformation in return.
Speaker 1: He hypothesized that the venture might be run by one
Speaker 1: of Hugh's associates in an attempt to get another scam going.
Speaker 1: The piece published in September. Shortly afterward, the Assinqua website
Speaker 1: was offline and emails sent to Asinqua addresses bounced back
Speaker 1: as undeliverable. So it's quite possible that the journalistic investigation
Speaker 1: helped shut down this particular instance of this particular scam,
Speaker 1: possibly before they could actually scam anyone out of any money.
Speaker 1: That million dollar investment round might be just pure fiction.
Speaker 1: So I think the moral of this story is that
Speaker 1: investors need to be careful, as do prospective employees, not
Speaker 1: just in the startups that interest them, but also in
Speaker 1: the very venture capital firms that aggregate investments. Investments are
Speaker 1: inherently risky to some degree. You don't know if the
Speaker 1: startup is going to succeed, and that success depends on
Speaker 1: a lot of different factors to really fall in place,
Speaker 1: from having the right leadership to having a solid business plan,
Speaker 1: to offering a product that people actually want or need,
Speaker 1: and more. Some of the startups will become big, though
Speaker 1: sometimes that's due to multiple investment rounds rather than the
Speaker 1: company is actually becoming profitable. But the various big stories
Speaker 1: tend to feed into that fear of missing out the
Speaker 1: old fomo and the money will often follow as or
Speaker 1: realt It's just important to ask tough questions and to
Speaker 1: be extra cautious when you're dealing with something that is
Speaker 1: unfamiliar to you. That gap in your knowledge might be
Speaker 1: just the thing that causes you to make a mistake.
Speaker 1: Next thing, you know, the person you trusted with your
Speaker 1: money is facing fraud charges in court, not a great experience,
Speaker 1: But you know what is a great experience letting me
Speaker 1: know what it is you would like me to cover next.
Speaker 1: I've gotten some messages recently so planned to hear some
Speaker 1: episodes coming up in the near future about things like discord.
Speaker 1: But if you have suggestions for topics that you would
Speaker 1: like me to cover on a future episode of tech Stuff,
Speaker 1: you should reach out and let me know. The best
Speaker 1: way to do that is over on Twitter. The handle
Speaker 1: for the show is text Stuff hs W, and I'll
Speaker 1: talk to you again really soon. Text Stuff is an
Speaker 1: I Heart Radio production. For more podcasts from my Heart Radio,
Speaker 1: visit the i Heart Radio app, Apple Podcasts, or wherever
Speaker 1: you listen to your favorite shows. H