Speaker 1: Welcome to Tech Stuff, a production from my 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 how the tech are you well, y'all. I had
Speaker 1: intended to do a totally new episode today. I was
Speaker 1: working on one. I've actually got a couple of different
Speaker 1: ones that are in the process of development, but some
Speaker 1: extenuating circumstances that I could not sidestep have have come
Speaker 1: in and it's going to delay me and I didn't
Speaker 1: want to go without an episode, so instead we're gonna
Speaker 1: bring you this episode that originally published in two thousand
Speaker 1: twenty one. I almost said last year, but that's not
Speaker 1: true anymore, is it. I kinda remember it now. Yeah,
Speaker 1: let's let's published January two thousand twenty one, and it's
Speaker 1: called Startups and shut Downs because just like me, I
Speaker 1: started up and then I had to shut down. But
Speaker 1: you know, such as the way of things. But we'll
Speaker 1: be back with new episodes for the rest of the week.
Speaker 1: Looks up for Friday, which is classic, and I apologize.
Speaker 1: Hope you're all doing well. Hope your new year is
Speaker 1: off to a great start. Mind's a little rocky, but
Speaker 1: we're gonna make it work, right. We're all in this together.
Speaker 1: I believe in you, I hope you believe in me,
Speaker 1: and I'll chat with you at the end. In a
Speaker 1: recent episode, I talked about funzy schemes and how you
Speaker 1: know that's an old scam that gets refreshed by enterprising
Speaker 1: con artists every so often, with recent examples centering on cryptocurrency,
Speaker 1: and that actually got me to thinking about startup culture
Speaker 1: and how some startups appear to be sincere, but maybe
Speaker 1: they're too ambitious to really work in the real world,
Speaker 1: and some seem like maybe they were just smoking mirrors
Speaker 1: the entire time. So today I thought we'd go through
Speaker 1: some of those types of startups and talk about the
Speaker 1: world of startups in technology and why it can be
Speaker 1: so risky to invest in them. Now. There are a
Speaker 1: lot of common elements among startups in general, not just
Speaker 1: in tech, and a lot of what we see frustrates
Speaker 1: me because you would think that by now people would
Speaker 1: learn their lesson when it comes to hype machines. Right,
Speaker 1: we should all be pretty familiar with the hype cycle,
Speaker 1: and you would think with familiarity we would be more
Speaker 1: resistant to it, and yet we're not, and I include myself,
Speaker 1: and that I get caught up in hype too, even
Speaker 1: as I recognize that there's a pattern here that just
Speaker 1: doesn't hold up. But I guess we have enough long
Speaker 1: shots that do pay off that keep people figuratively and
Speaker 1: literally invested. I mean, what if the next opportunity pays
Speaker 1: off and you didn't get in on the ground floor,
Speaker 1: you just missed a huge payout. So I guess I
Speaker 1: can understand the tendency, but it also enforces the general
Speaker 1: truth that humans as a rule are really bad at
Speaker 1: stuff like risk assessment and understanding the odds, which, hey,
Speaker 1: you really you just have to look at the fact
Speaker 1: that you know, lotteries are a thing to know that
Speaker 1: that is true. There's a general philosophy among startups that
Speaker 1: goes something like move quickly and break things, that taking
Speaker 1: big chances is encouraged because you know, while you're more
Speaker 1: likely going to fail, you'll learn a lot in the process,
Speaker 1: and that means you'll actually have a better chance at
Speaker 1: success next time. We learn a lot through failure, or
Speaker 1: you might find that quote unquote breaking what was previously
Speaker 1: considered to be a best practice leads to you finding
Speaker 1: an even better way to do things, but it can
Speaker 1: also create the perfect climate for someone to engage in
Speaker 1: a little snake oil peddling, because in a world where
Speaker 1: seemingly anything is possible, there's no such thing as impossible,
Speaker 1: and that means you can get money for stuff that
Speaker 1: just plane don't work. The current reigning champion of that
Speaker 1: model is Theopos, which I have covered extensively in the past,
Speaker 1: but for a quick overview, Elizabeth Holmes, Stanford dropout and
Speaker 1: a big fan of Silicon Valley leaders like Steve Jobs,
Speaker 1: set out to create a company centered on a new
Speaker 1: kind of blood analysis device, and the idea is alluring.
Speaker 1: Imagine a machine about the size of a desktop printer
Speaker 1: that could analyze the tiniest drop of blood and run
Speaker 1: more than a hundred fifty tests on that sample. The
Speaker 1: machine presents a comprehensive but easy to understand report on
Speaker 1: that sample and thus gives the administrator insight into the
Speaker 1: patient's current state of health and also pointing out any
Speaker 1: indicators that you know might suggest the patient should be
Speaker 1: on the lookout for future complications. It could help patients
Speaker 1: be more proactive and choose new lifestyle routines to live
Speaker 1: their healthiest lives. Heck, once the cost of making the
Speaker 1: divi ice is declined enough, it could potentially be something
Speaker 1: the average consumer purchases for their own home, and thus
Speaker 1: informing the average person about their own health before they
Speaker 1: go to say their annual check up, people would make
Speaker 1: more informed decisions about their health. They would be able
Speaker 1: to have better conversations with healthcare providers. It would really
Speaker 1: democratize healthcare. And that is a heck of a sales pitch,
Speaker 1: and from the business side, it's easy to see how
Speaker 1: it could be a freaking gold mine because the health
Speaker 1: care industry is already a multi trillion dollar market. Holmes
Speaker 1: was confident and she was convincing. And over the past
Speaker 1: two decades, we've seen technology do stuff that, you know,
Speaker 1: three decades ago would seem impossible. The Internet alone was
Speaker 1: a huge revelation, and now we can carry a device
Speaker 1: in our pockets that less access at wherever we are.
Speaker 1: So it's mundane today, it's it's commonplace, But thirty years
Speaker 1: ago it would have seemed bonkers. And so it's not
Speaker 1: really surprised zing that investors rushed in to get in
Speaker 1: on the ground floor of Holmes's enterprise, the return on
Speaker 1: investment would be unbelievable. It could be as if you
Speaker 1: were able to travel back to the mid nineties when
Speaker 1: Apple Stock was trading below five dollars a share, and
Speaker 1: you bought up a ton of it because you know
Speaker 1: how much it's going to grow in the future when
Speaker 1: Steve Jobs comes back. It helped that most investors had little,
Speaker 1: if any understanding about the technology involved in blood analysis.
Speaker 1: That's something that you'll remember is a red flag when
Speaker 1: it comes to stuff like Ponzi schemes. In this case,
Speaker 1: Fariness wasn't so much a Ponzi scheme as it was
Speaker 1: a company centered around an idea that was just not
Speaker 1: really realistic. More knowledgeable experts in the area of blood
Speaker 1: analysis had warned that Holmes's goal was unattainable, that the
Speaker 1: technology just, you know, it's not there to do something
Speaker 1: as comprehensive as what Holmes had in mind. But the
Speaker 1: investments just kept pouring in, and if it had just failed,
Speaker 1: the company had just ultimately had to say, you know what,
Speaker 1: we tried, it didn't work, We're sorry. Our story would
Speaker 1: really just be about how a lot of people got
Speaker 1: excited about an idea but the idea just didn't pan out.
Speaker 1: But of course it gets worse, and that's because over
Speaker 1: at Therapness there were a lot of shady things going on.
Speaker 1: There were teams legitimately trying to get the technology to work,
Speaker 1: but in the meantime, the company was playing a kind
Speaker 1: of a shell game with investors and v i p s. So,
Speaker 1: according to reports, when such a person came in for
Speaker 1: a tour of the facility, they would get their finger
Speaker 1: pricked and submit a tiny blood sample in this little
Speaker 1: bitty capsule and that would be fed into a THEONOS machine.
Speaker 1: But the analysis would take a couple of hours. So
Speaker 1: instead of just you know, waiting around, the v i
Speaker 1: p would go on a tour, maybe they'd grab lunch
Speaker 1: with THEORONESS executives or something. Meanwhile, other staff would rush
Speaker 1: in retrieve the blood sample from the THEONOS device diluted,
Speaker 1: and then submit that diluted sample to a traditional blood
Speaker 1: analysis machine that had been bought from an established company.
Speaker 1: In other words, they were relying on devices that were
Speaker 1: not built by Saronis to do the actual analysis. Then
Speaker 1: they would rush the completed analysis back to the meeting room,
Speaker 1: and then the team would behave as if the Tharonis
Speaker 1: device had done all the work the entire time. It
Speaker 1: was a particularly flashy version of the old Turk automaton
Speaker 1: chess player. You know, the thing you're looking at is
Speaker 1: not the actual thing that's doing the work. Sarais eventually
Speaker 1: crumbled after insiders began leaking what was going on to
Speaker 1: others and journalists began publishing expose s about the company.
Speaker 1: Holmes is one of the executives who happens to be
Speaker 1: waiting trial for multiple charges of fraud, and the name
Speaker 1: Sarah nos 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: it 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 other stash of cash. In a transaction,
Speaker 1: the mobile device interacts with the 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 found of Mozito was a guy named Michael Liberty,
Speaker 1: whose name is pretty fitting as we're gonna see. He
Speaker 1: first 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: moz Do because the numbers didn't seem to add up,
Speaker 1: and the investigation indicated that Mr Liberty had taken the
Speaker 1: liberty of moving some of that cash around so that
Speaker 1: would ultimately fill his own pockets rather than go to
Speaker 1: funding the company. With most of the shenanigans taking place
Speaker 1: between and there were signs of the shell companies all
Speaker 1: designed to obvius skate where the money was going. There
Speaker 1: was a practice of money laundering, which is when you
Speaker 1: mix illegally obtained cash with cash from legitimate businesses in
Speaker 1: an effort to hide the fact that you've got filthy
Speaker 1: lucre on your hands. Ultimately, Liberty was charged with fraud,
Speaker 1: with prosecutors saying he had stolen more than fifty million
Speaker 1: dollars to fund his own millionaire lifestyle, complete with mansions
Speaker 1: and private jets. He also served a prison sentence for
Speaker 1: a different infraction. He pled guilty to charges that he
Speaker 1: had violated campaign finance law in two thousand and eleven
Speaker 1: and was sentenced to four months in prison and a
Speaker 1: fine for one thousand dollars in and there were other
Speaker 1: SEC investigations into his activities beyond the ones I just described. Now,
Speaker 1: the company Mozito wasn't included in these charges. It appeared
Speaker 1: as though everything at the company was pretty legit, but
Speaker 1: there was a lot of turnover in the executive suite
Speaker 1: 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 Mozito'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 suss. So that probably
Speaker 1: didn't look too good from the outside, and that might
Speaker 1: explain why the leaders of Mozito decided to reincorporate and
Speaker 1: change the name of the company to 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 nineteen 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 theories, 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 listened 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 Americans 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 a Brick was just desperately trying to get some
Speaker 1: momentum 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 startup ideas
Speaker 1: is Elon Musk. One of the numerous ideas Musku has
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 resistance. In addition, the trains would
Speaker 1: not travel with wheels on a track. Instead, they would
Speaker 1: travel atop air bearings. Essentially, a cushion of air would
Speaker 1: keep the trains afloat above the inner surface of the tunnel.
Speaker 1: Electro Magnets would provide the propulsion to accelerate and decelerate
Speaker 1: the trains, which, with such reduced friction, would be able
Speaker 1: to travel at incredible speeds like essentially the speeds that
Speaker 1: you would see aircraft travel. One startup that formed after
Speaker 1: Musk's proposal was Hyperloop Technologies, founded by Shervin Pishavar and
Speaker 1: former SpaceX engineer Brogan Bam Brogan. The story of that
Speaker 1: company is way too long for this episode, and it
Speaker 1: involves tons of scandals and also mergers and name changes
Speaker 1: and some seriously ugly in fighting, and Pischavar would step
Speaker 1: down in the wake of sexual harassment charges, which he
Speaker 1: maintains was all a smear campaign. The company is still
Speaker 1: around today. In fact, it's the one that conducted a
Speaker 1: successful test with people aboard a hyperloop capsule back in
Speaker 1: November of twenty but the company would change its name
Speaker 1: from Hyperloop Technologies to Hyperloop One, to Virgin hyper Loop one,
Speaker 1: and now it's just Virgin Hyperloop. Anyway, the company I
Speaker 1: wanted to cover is the one that Brogan bam Brogan
Speaker 1: would found after leaving Hyperloop one. So bam Brogan and
Speaker 1: a couple of other executives all left hyper Loop one
Speaker 1: at the same time and filed a lawsuit against their
Speaker 1: former employer. They alleged that the company had violated numerous
Speaker 1: agreements and abandoned its fiduciary responsibilities, and worse, they alleged
Speaker 1: abuse and threats, and the company would file a countersuit
Speaker 1: against those former executives, alleging that they had attempted to
Speaker 1: rest control of the company away from the leadership team
Speaker 1: and the board of directors, essentially that they were planning
Speaker 1: a coup. Both parties would settle their lawsuits out of
Speaker 1: court in sixteen, and bam Brogan then founded a competing
Speaker 1: hyper loop company called Arrival. He and a couple of
Speaker 1: other colleagues formed Arrival in two thousand seventeen. One co
Speaker 1: founder Andrew Leeu had previously worked with a construction company
Speaker 1: called a Calm a e c o M. Another co
Speaker 1: founder was Jaden Smith, who, like Bam Brogan, had previously
Speaker 1: worked with SpaceX. He had also previously worked with the CIA. Now,
Speaker 1: the hyper loop design is an interesting and innovative one,
Speaker 1: but it also will require a ton of money to
Speaker 1: make it a reality. Musk was first talking about the
Speaker 1: idea way back in and we're still in the experimental
Speaker 1: and testing stages in one and that's just get to
Speaker 1: a point where we're confident that the technology is a
Speaker 1: viable one for the purposes of transporting people and cargo
Speaker 1: quickly and safely. After that, you've got the daunting to
Speaker 1: ask of actually securing the legal rights to build out
Speaker 1: routes between different destinations. That includes everything from securing permission
Speaker 1: from various local governments and environmental agencies, to the actual
Speaker 1: construction and more. It's time consuming and really expensive. Perhaps
Speaker 1: for that reason, Arrival dumped the idea of going the
Speaker 1: hyperloop throughout entirely, so instead it would go with a
Speaker 1: more established technology, that of magnetic levitation. Maglev trains have
Speaker 1: 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 Bambrogan's behavior may also
Speaker 1: have played a part in any case, this is an
Speaker 1: example of a startup that didn't really get a chance
Speaker 1: to start up at all. And like I said, I'll
Speaker 1: have to do a full treatment on the story of
Speaker 1: Virgin Hyperloop at some point, because y'all that could be
Speaker 1: a soap opera. Another startup that had a more spectacular
Speaker 1: collapse was one for dot one. That is the numeral
Speaker 1: one fo 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
Speaker 1: jobs that kind of thing, at least that's what it
Speaker 1: was supposed to be. Isaac Choi positioned himself as a
Speaker 1: graduate 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 and 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 pay stop. Now, apparently,
Speaker 1: leading up to her being signed on as the marketing director,
Speaker 1: a DP was handling payroll, and that was an important
Speaker 1: step because one of the things a DP would do
Speaker 1: would be to file paperwork that showed those in the
Speaker 1: country who were on work visas were actually employed, so
Speaker 1: the government could say, all right, you're on a work visa.
Speaker 1: We received the notification from a DP that you were
Speaker 1: paid for that period. Everything's cool. Well, without a DP there,
Speaker 1: that was not happening and that meant that the visas
Speaker 1: might not be considered valid, and that would mean that
Speaker 1: people would be in danger of having those visas revoked
Speaker 1: and they would be sent back home. Worse, Kim noted
Speaker 1: that while she received a paycheck, most people didn't, and
Speaker 1: this indicated that there had to be a big cash
Speaker 1: flow problem at the company. Kim also related how an
Speaker 1: employee in business development revealed that he had lent fifty
Speaker 1: thousand dollars of his own money in savings, his life savings,
Speaker 1: to the CEO of the company, something that was absolutely
Speaker 1: a red flag. Heck, that's that's not even a red flag.
Speaker 1: That's like an active, actual emergency. Later, still, after more
Speaker 1: missed payments, Choice and out a message claiming that payroll
Speaker 1: would be met because he included a screenshot of a
Speaker 1: supposed Wells Fargo money transfer into the corporate accounts. Only
Speaker 1: 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 far ago transfer. Because Kim did that, 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 Troy
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 and 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 in eighteen to the charges and he
Speaker 1: was sentenced to time served, meaning he didn't go to prison,
Speaker 1: and a fine of less than one thousand dollars. The
Speaker 1: company was no more, and I do feel awful for
Speaker 1: all those employees who were working in good faith for
Speaker 1: a company that was no more than a facade, particularly
Speaker 1: 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 Rothenburg 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
Speaker 1: charismatic he was an effective salesman, and he was able
Speaker 1: to get this venture capital company off the ground. This
Speaker 1: was particularly impressive because Rothenberg himself didn't come from money,
Speaker 1: so this isn't the story of a rich person calling
Speaker 1: up all his rich friends so that they can all
Speaker 1: become more rich. Rothenberg raised around five million dollars for
Speaker 1: his VC firm, which was meant to provide seed money
Speaker 1: for new startups. Just two years after launching the venture
Speaker 1: capital company, it spun off a starter accelerator called River,
Speaker 1: which focused on companies related to virtual reality. Rothenberg Ventures
Speaker 1: and River both invested early in a lot of startups,
Speaker 1: including a few that would see some pretty big subsequent
Speaker 1: investment rounds. So things were going pretty well. But Rothenberg
Speaker 1: was also getting into the habit of spending lavishly, sometimes
Speaker 1: in an effort to attract more investors and limited partners.
Speaker 1: He famously hired professional race car driver Collect Davis to
Speaker 1: appear at various events complete with a race car, which
Speaker 1: cost a lot of money both for her and for
Speaker 1: shipping the car around. He secured a suite at the
Speaker 1: Super Bowl to wine and dine pactive partners. He spent
Speaker 1: a lot in himself too. He hired personal drivers, he
Speaker 1: hired a lot of personal assistance, he flew on a
Speaker 1: private airline of subscription airline company, and generally, he spent
Speaker 1: way more than what seemed appropriate or heck, even possible
Speaker 1: for a VC company of such modest size as Rothenberg Ventures.
Speaker 1: In other words, people started to say, how is this
Speaker 1: company making enough money for him to be spending this much?
Speaker 1: So in twenty 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 for odd The company
Speaker 1: subsequently fired that employee, who then sued the company. The
Speaker 1: SEC and the U. S. Department of Justice conducted investigations
Speaker 1: and found that Mike Rothenberg had been siphoning money from
Speaker 1: investors and putting it directly into his own pockets. The
Speaker 1: SEC brought a civil lawsuit against Rothenburg, but the d
Speaker 1: o J brought to criminal wire fraud charges, two charges
Speaker 1: alleging he had made false bank statements, and money laundering
Speaker 1: charges against him. Rothenberg lost the sec case and was
Speaker 1: ordered to pay thirty one million dollars, and then he
Speaker 1: also 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 five. The money laundering charges could
Speaker 1: result in another sentence of up to ten years and
Speaker 1: to find 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 position in the company as a
Speaker 1: group of hedge funds that would invest in various startups
Speaker 1: and give out huge dividends as a result, who convinced
Speaker 1: a small group of investors to put about five million
Speaker 1: dollars into the company, and two thousand five who said
Speaker 1: that due to some weird tax and privacy reasons, he
Speaker 1: needed to relocate his company to Singapore, which is not
Speaker 1: a great sign. An investigation into who revealed that the
Speaker 1: money wasn't going into hedge funds like he had claimed,
Speaker 1: but that who had been misappropriating fund assets rather than
Speaker 1: investing the money as promised. That's a direct quote from
Speaker 1: an SEC filing. Now, essentially, he was claiming that investors
Speaker 1: were going to see these high returns and instead he
Speaker 1: was pocketing the money. And it kind of sounds like
Speaker 1: he was about to pursue a ponzi scheme, only he
Speaker 1: didn't follow up with subsequent rounds of investments. He just
Speaker 1: kept all the money. Investors of eventually started asking for
Speaker 1: their money back, and Who made himself increasingly scarce, refusing
Speaker 1: to answer demands. He was essentially in hiding in Hong
Speaker 1: Kong when he was arrested and then extradited to stand
Speaker 1: trial in the United States. Who was indicted and tried
Speaker 1: on seven charges of wire fraud, and he was found
Speaker 1: guilty on all seven charges. Who received a sentence of
Speaker 1: twelve years in prison on June twentieve. He would serve
Speaker 1: several years in a minimum security prison. He was, however,
Speaker 1: released in ten However, in the meantime between when he
Speaker 1: was sent to prison in twenty twelve and when he
Speaker 1: got out in twenty nineteen, something really strange happened in
Speaker 1: twenty sixteen asinqua ventures returned. Who was not mentioned at all,
Speaker 1: which really isn't surprising and he certainly couldn't have been
Speaker 1: directly involved. He was in prison and he didn't have
Speaker 1: any access to the Internet. He could send emails to
Speaker 1: a previously approved list of recipients and they had to
Speaker 1: agree to accept email from someone who was in prison,
Speaker 1: but that was the extent of it. He couldn't do
Speaker 1: any other Internet activities. However, The company claimed to be
Speaker 1: a venture capital firm all the same with a Northern
Speaker 1: California office address. The new Assinqua Ventures included two businesses,
Speaker 1: one that would supposedly invest money into quote middle market
Speaker 1: opportunities end Quote, and another financial advisor service that could
Speaker 1: help facilitate really big corporate moves, like stuff like mergers
Speaker 1: and acquisitions. The old as Sinqua Ventures u r l.
Speaker 1: Came back into use, though with a very different website
Speaker 1: from the original incarnation of a sinqua The new Assinqua
Speaker 1: Ventures published a few press releases and sent them down
Speaker 1: the pipeline so that they went to pr Newswire, which
Speaker 1: carried the releases, which then got picked up by various
Speaker 1: media outlets. By the way, this is also something that
Speaker 1: we should all be aware of that press releases don't
Speaker 1: necessarily reflect the truth. That's why reporting just on press
Speaker 1: releases is a terrible idea without doing any further investigation,
Speaker 1: because there are instances of people releasing false documents as
Speaker 1: a press release and having that get picked up by
Speaker 1: the press wire and thus distributed by various media outlets,
Speaker 1: So if you do a search for the name A
Speaker 1: sinqua Ventures, you might see a few press releases from
Speaker 1: and Some of the press releases mentioned members of the
Speaker 1: senior management team, like Steven Adler, who apparently wasn't the
Speaker 1: Steven Adler who was drummer for Guns and Roses, though
Speaker 1: that joke is kind of a stretch anyway. The Adler
Speaker 1: listed in the releases spells Stephen with a pH, whereas
Speaker 1: the drummer at Guns and Roses spells it with a V.
Speaker 1: But I still had to stick a joke in there.
Speaker 1: Adler also had a LinkedIn page which sent out connection
Speaker 1: requests to a pretty wide net of different business leaders.
Speaker 1: One of those requests went to an executive recruiter named
Speaker 1: Marty McMahon who thought something was hinky about that profile,
Speaker 1: so he performed a reverse image search on the profile photo,
Speaker 1: which brought up a hit for a headshot for a
Speaker 1: totally different person, a real estate agent in San Diego
Speaker 1: named Dan Becker, same picture, different guy. So when contacted
Speaker 1: by McMahon, Becker was astonished to find his photo had
Speaker 1: been used for a bogus LinkedIn profile. He had no
Speaker 1: connection to it. Obviously, strange things were afoot at the
Speaker 1: circle K. This was reinforced when McMahon repeated the process
Speaker 1: on a LinkedIn profile of a different supposed a Sinqua
Speaker 1: executive named Michael Reid, not the baseball player. I get
Speaker 1: the feeling that the Sinqua scammers were just copy and
Speaker 1: pasting content from all over the web to fill out
Speaker 1: there supposed in corporate website. Anyway, that reverse search of
Speaker 1: that head shot pulled up another head shot of another
Speaker 1: San Diego based real estate agent, a guy named Will Fagan,
Speaker 1: who actually sometimes works with Dan Becker, the guy whose
Speaker 1: face was being used for Steven Adler. Fortune magazine investigated
Speaker 1: the new Assinqua and published a great piece about it
Speaker 1: titled the Venture capital Firm that Wasn't There. The magazine
Speaker 1: pointed out that the press releases were filled with information
Speaker 1: that was unverifiable. Dan Primac, who is the writer of
Speaker 1: that piece, wrote about contacting the SEC to find out
Speaker 1: if this Assinqua Ventures firm was registered with the SEC,
Speaker 1: and it wasn't. If it were a legitimate business, it
Speaker 1: certainly should have been registered. One press release claimed that
Speaker 1: the company had held an investment series fundraising round and
Speaker 1: raised a hundred twenty five million dollars. But a company
Speaker 1: of that eyes would absolutely be required to register with
Speaker 1: the SEC. But nope, there was nothing there. Furthermore, several
Speaker 1: of the executive bios listed in the management team page
Speaker 1: of the company's website were clearly plagiarized. One such bio
Speaker 1: for managing director Peter Arnold turned out to be lifted
Speaker 1: from the late venture capitalist and reality TV star Russell
Speaker 1: Armstrong's bio. Not exactly subtle. Prime X piece pretty much
Speaker 1: gutted a Sinqua. He detailed how he got into email
Speaker 1: contact with the supposed employee of the company and how
Speaker 1: he received misinformation in return. He hypothesized that the venture
Speaker 1: might be run by one of Hugh's associates in an
Speaker 1: attempt to get another scam going. The piece published in September.
Speaker 1: Shortly afterward, the Assinqua website was offline and emails sent
Speaker 1: to Asinqua addresses bounced back as undeliverable. So it's quite
Speaker 1: possible that the journalistic investigation helped shut down this particular
Speaker 1: instance of this particular scam, possibly before they could actually
Speaker 1: scam anyone out of any money. That million dollar investment
Speaker 1: round might be just pure fiction. So I think the
Speaker 1: moral of this story is that investors need to be careful,
Speaker 1: as do prospective employees, not just in the startups that
Speaker 1: interest them, but also in the very venture capital firms
Speaker 1: that aggregate investments. Investments are inherently risky to some degree.
Speaker 1: You don't know if the startup is going to succeed,
Speaker 1: and that success depends on a lot of different factors
Speaker 1: to really fall in place, from having the right leadership
Speaker 1: to having a solid business plan, to offering a product
Speaker 1: that people actually want or need, and more. Some of
Speaker 1: the startups will become big, though sometimes that's due to
Speaker 1: multiple investment rounds rather than the company is actually becoming profitable.
Speaker 1: But the various big stories tend to fee into that
Speaker 1: fear of missing out the old fomo and the money
Speaker 1: will often follow as a result. It's just important to
Speaker 1: ask tough questions and to be extra cautious when you're
Speaker 1: dealing with something that is unfamiliar to you. That gap
Speaker 1: in your knowledge might be just the thing that causes
Speaker 1: you to make a mistake. Next thing, you know, the
Speaker 1: person you trusted with your money is facing fraud charges
Speaker 1: in court. Not a great experience, okay, hope you enjoyed
Speaker 1: that episode. I know it was a rerun, and again
Speaker 1: I apologize, but some things are just beyond my control. Uh.
Speaker 1: In fact, very little appears to be within my control,
Speaker 1: but I'm gonna I'm gonna work on that. Right that
Speaker 1: this is I'm really determined to make this all a
Speaker 1: great year. So y'all, I hope you're doing well. We'll
Speaker 1: have new episodes the rest of the week, and I
Speaker 1: will chat with you again really soon. Text Stuff is
Speaker 1: an I Heart Radio production. For more podcasts from I
Speaker 1: Heart Radio, visit the I heart Radio app, Apple Podcasts,
Speaker 1: or wherever you listen to your favorite shows.