Quintillion CEO’s Promise to Wire the Arctic Was $1B Scam | Hacker News Reader

Quintillion CEO’s Promise to Wire the Arctic Was $1B Scam

bloomberg.com

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> Much of Pierce’s behavior, though, wasn’t so different from that of other tech founders and CEOs promising financiers vast rewards right over the horizon.

It seems pretty clear that her behavior was very different than any tech founder who declined to forge signatures on contracts.

I also don't see much of a connection between hyped up "unicorns" and overtly defrauding multiple companies and investors through forged contracts.

That's far worse than even the few non-software tech companies (Uber, Airbnb, maybe WeWork?) who skirted some grey areas disrupting entrenched markets. Even in biotech with Theranos that's extremely rare.

Its just trendy to broadly attack SV these days.

Yea, it looks like this was an extremely clear, open-and-shut fraud case when it came to trial, and it was discovered fairly easily once any pressure was applied.

I think he's saying that a casual visit to the office wouldn't have displayed anything incriminating, and the business plan was typical beyond the huge capital requirements. And startups are overly rosy about future revenue all the time. So there weren't a lot of "red flags" in the beginning, although he goes on to describe a lot of discrepancies later.

Clearly most companies don't engage in fraud though, or at least they're better at not getting caught.

You wouldn't see anything like that at, say, Theranos, or (to a lesser degree) at WeWork, which was about to be a superhot IPO a few weeks ago and is now struggling to survive.

Defrauding investors in an IPO is still defrauding investors.

It sounds like a bunch of investors lost their money, but the undersea cable was built and some parts of Alaska got better Internet. As frauds go, this seems to have more to show for it than most?

Had the same reaction. Pierce was more outright in her fraud than other CEOs, but the company was less fraudulent in terms of actually doing the thing they claimed to be doing.

Because it is illegal to forge signatures but is not illegal to make ludicrously optimistic promises about what you can accomplish.

Yes. That is correct. One is outright lying about facts critical to those making decisions to invest. The other, even if ludicrously optimistic, is not and relies on the listener to evaluate the facts backing said promises.

Should I be amazed at the lack of due diligence from investing firms, not just in this case, but generally? Or, maybe I shouldn’t be surprised, after all, this isn’t their money. If it sounds good it probably is. They only need to be right 10% of the time...

At a startup I worked for, the founder once told me how surprisingly little due diligence was done for their series A. They showed the investors the product, explained the industry and their goals, signed some papers, and a week after the ink dried there was a wire for a few mil.

I'm sure VC firms price in the risk of a few of their investments being incompetent/fraudulent (they can probably be written off as losses, too), but it's still one of those 'huh' moments.

That being said, the scale of Quintillion, Theranos, etc should have had some more proper due diligence. Circular contracts should be a well understood red flag after Enron, etc.

The only time I've been directly involved in that kind of scenario (as a co-founder during the first .com bubble) - there was some due diligence for the first round - but looking back it was almost comically superficial. Afterwards at subsequent rounds the amount of money grew stupendously but the due diligence disappeared completely - presumably because each of the myriad of investors assumed that somebody else was checking things.

Due diligence is like work. If these VCs are only putting a million bucks into something it probably doesn't even make sense to do more than a cursory look over of the company. Their time is too valuable to waste on that. Most of these investments are already assumed to be a total loss, they only do them because when they do land on a hit the returns can be astronomical.

If only there was some method of exchanging money for the time of professionals capable of vetting a technical product and giving a summarized report.

VCs don't even have the time to source and coordinate professionals for vetting. They're weighing what they view as a million-to-one chance (because a VC principal thinks highly of their ability to detect a shady person) of a million-dollar loss due to fraud, and the >3 hours of time required to find a professional, get them under NDA, schedule them with the portfolio company... is worth far less to them.

I disagree, here [1] is a small clip from a really powerful documentary on the subject of Venture Capital and finance.

[1]: https://www.youtube.com/watch?v=xbBD7VIJ4cc

I work for a VC, and it's sort-of like this. Not so much because we think so highly of our ability to detect shady people, as because the checks we do are fine most of the time, and constantly being refined. But they do need to be cheap - it's not easy to place money and manage that portfolio for 5-10 years cheap enough to actually make a good return when factoring in investments that fail for reasons that are far harder to identify ahead of time than outright fraud.

The outright frauds are rare enough that checking for them needs to be very cheap for it not to be more cost-effective to spend that money improving other deal-flow filtering. That's not to say that VCs aren't trying to improve on it. It's just that fraud is just one of many risks, and managing risk is about taking a dispassionate view of which measures improve your returns the most.

I think we should consider whether there might be a social responsibility to not fund scammers. Rather than considering the matter purely from the perspective of the investor's bank account, we should consider the broader impact of allowing scammers to find investors. It degrades the reputation of the industry every time it happens, and frankly I think it degrades society. Every time a scammer is enriched, society as a whole is harmed.

Their time is not that valuable. If they don't vett they are just gamblers and that works as long as the estimated value of random choises is over 1.

Diligence is needed for bad investments, not good ones.

I would also assume that the ideal investment would be zero due diligence in a unicorn. Any serious due diligence will affect the unicorn negatively, lowering end price.

I would expect a good unicorn to have strong antibodies against wasting time providing due diligence data. Maybe leading to an over-diligent VC missing out on the one investment they actually needed.

Plus, I imagine the number of good investments that would have been excluded as being bad or fraudulent is high, and might include some unicorns. Either because it's hard to correctly vet, or enough things are fake it until you make it and actually randomly make it, or both.

I'm sure the only thing separating Theranos from some other major companies that made it in the end is that they just couldn't get the product working, even after all the time and money they threw at it. If they finally had something that worked before everything came to a head, they probably could have parlayed that something. Holmes might have still had to account for something, and it would have been rocky, but really success is all that seems to matter, especially when a lot of people have a lost of money riding on it and don't want to take it as a loss yet.

Just look at the history of Uber. So many times they screwed up majorly, but they just coasted on through. Money invested provides a momentum all of its own to a company.

> presumably because each of the myriad of investors assumed that somebody else was checking things

Would that be something akin to the "bystander effect"?

I'm becoming increasingly convinced that because of the "spray and pray" approach of the VC model in which a small % of their investments make up the bulk of their returns, the most successful VC firms are largely the ones with the most money to spray, not due to some visionary abilities they have.

This would explain why they hunger for explosive growth, to make up for the majority of their investments.

It's exactly where the hunger comes from.

Wouldn't this suggest Softbank as the most successful VC?

I wonder whether fraudulent startups would actually fail due-diligence checks reliably. If it is well known that investors look for certain things, Elizabeth Holmes would probably find a way to pass those checks, but well-intentioned founders might not put as much effort into compliance. From what I've seen of "compliance" paperwork in other industries, it sometimes just adds a ton of paperwork without actually preventing much fraud.

I assume there are legal implications here, but I'm surprised that Quintillion hasn't tried to make the woman who "invested" $40,000 whole. $40K isn't a huge sum to pay for the positive PR. If the issue is that returning that money could set a precedent for other investors to try to pull their money out, could they issue her $40K in shares? Even at the highest price she could have been subject to, it would at least expose her to upside.

Quintillion is owned by a NYC private equity firm. When has private equity ever cared about PR?

But I'm surprised the woman hasn't sued Quintillion to get the equity. I don't see how the company could argue the CEO wasn't acting on behalf of the company when the CEO took the money and said it was for 225 shares. It's not like this was some dodgy third party stock broker, it was the CEO.

What's amazing is that this is both more obviously fraudulent behavior by the CEO of a (seemingly) less fraudulent company than Theranos. While Quintillion might not work, what they're doing is at least technically possible!

There seem to have been quite a few high-profile outright tech frauds the last couple of years

Quintillion

Theranos

UBeam etc

I'm going to make a bet that the next one on the list will be infiBond. Israeli A.I. startup valued at something like 1.25B[1] but doesn't seem to have ever done anything.

[1] https://sifted.eu/articles/infibond-investigation-israeli-st...

This wasn't a tech fraud like Theranos or Ubeam though. Quintillion did build a working fiber network. The CEO faked numbers to their investors, but they had a real working product, and the company is still in business providing internet access.

I spent a year teaching school in Kalaskage, AK. Our internet speed was that of 1994. Supper slow maybe 1mbps up and down. Imagine that being your norm and then going to fiber speed?

The completion of this project has undoubtedly made a positive impact on the lives of the villagers in Barrow, AK.

You have a very rosy view of 1994 internets. ;)

By 94 work maybe had 128k, though I think it was still 64k.

In 1992, work was very, very proud of having one of very few permanent hooks to the internet. 64k leased line that they paid around £1,000 a month for. I think that was on top of the Pipex peering connection. Can't remember how much Pipex charged. I remember being shown the box and blinkenlights at interview, which is why I remember early 90s internet speeds at all. They really were proud of this. :)

At home I was probably on 9k6 or 14k4 dial up with £500 of US Robotics HST. 1994 was around the year, give or take, that 28k8 finally arrived, after a wait that had seemed like forever. Now you needed to shop for a new modem. :)

T1 cost ~$10K in 1995 in NYC (@cafe had one).

http://archive.is/CNKUY

I propose a new law: any sufficiently outrageous scam is indistinguishable from a unicorn

This, Theranos

An account created just to post that comment? Do you mean for it to be called the "Investinme" Law?

No one told me "The Hummingbird Project" 2019 was a documentary.

Nobody wants to drop me a breadcrumb like "also known as Barrow" or "previously known as Barrow" up in here?

I've never heard of Quintillion but its name alone would make me suspicious.

It is worrying that her actions might lead to blow back for female founders. A lot of the unicorn scams that have been discovered since 2015 were headed by women; Theranos, uBeam, and now Quintillion. WeWork is changing this, but these examples are objectively talked about more in the general ecosystem than all the other scams that have broken since 2015.

- Hampton Creek was buying their merchandise to boost numbers and get better shelf space in stores.

- Mozido raised $314M and the founder was indicted for fraud.

- Not a startup, but Mark Rothenberg spent his LPs money on parties and sex instead of investments.

- Bouxtie engaged in fraud to continue to get funding by fudging numbers.

- Crescent Ridge Capital Partners was a ponzi scheme

- WrkRiot forged wire transfers

This list is long and illustrious, and only to grow. But will people just remember the few female founders who were scammers at the time? Will people forget the dozens of counter-examples?

Even more importantly, what's going on in the minds of the traditional venture capitalists? Venture capital is more herd-like than anyone wants to admit. Will they remember these schemes and overfit their model? Will female founders find it harder to get funding in the future?

---

There are already a few heavily downvoted comments on this thread harping on this "theme" https://news.ycombinator.com/item?id=21223462

It may be due to some of the media coverage for those companies led by women are "Wow! Billion dollar startup is led by a woman! Can you believe it!" so it's much easier to attack that point. It may not be their fault, but more the media looking for superheroines. There are already plenty of successful female business leaders. Look at IBM, PagerDuty, AMD. They probably don't get the coverage they deserve because they're not a supposed unicorn with some miracle elixir.

I read a couple of articles on the case, and it doesn't seem like Pierce was the founder of Quintillion. She previously had a role as FCC advisor.

She's a crook sure, but to think that this will have blowback on female founders is a bit of a stretch. They certainly face institutional barriers and negative stereotypes, but "more likely to commit fraud" isn't what VCs are usually thinking when they turn down female founders.

"but these examples are objectively talked about more in the general ecosystem"

I don't think those three should be grouped together, as I heard a lot about Theranos but nothing about the other two. And there's a reason other than Elizabeth Holmes being a woman for Theranos to occupy a large space in peoples' minds - their fraud involved the operational side of a medical business, which is a violation of trust that anyone can relate to as a consumer.

you never heard about uBeam scam? get a load of this: https://youtu.be/t1R9IQF0Y9s?t=28m5s

Dont forget LuLaRoe.

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