The Fine Line Between A Venture Capitalist And A Con Man?

from the ah,-silicon-valley dept

Wed, Sep 3rd 2008 7:46pm — Mike Masnick

One of the things you learn about Silicon Valley after you've been here for just a little while is that there are some folks around here who are really, really into the technology and innovation aspect of things -- and then there are those who are only around for the money. Sometimes it's not as easy to tell the two apart as you would think, and that's opened up tremendous opportunities for con men. I recently read the novel Con Ed by Matthew Klein, which shows what a fine line there is, at times, between a startup and a confidence scam in Silicon Valley. While it's a bit extreme, if you've worked at a startup in the Valley you'll probably recognize many of the characters in the book. Klein certainly knows about his stuff on the Silicon Valley startup side -- a decade ago he ran his own Silicon Valley startup that employed me, among other folks. While I can highly recommend Con Ed to anyone who enjoys a good con book, you don't even have to dip into the fiction pages to keep up on the latest cons of Silicon Valley.

The latest true story appears to be about a "venture capitalist," Moses Joseph, who convinced a bunch of big institutional investors to give him money for his fund... and then used it for a bunch of personal stuff, while lying and forging documents to explain to the investors what he had done with the money. This isn't the first time we've seen such "fake" venture capitalists either. A few years ago, there were a few stories of "fake VCs" that were incredibly successful in separating money from investors who believed they were investing in the next hot thing.

Of course, the guy is claiming that he wasn't a con man at all, but just a real VC who got in over his head. My favorite rationalization, though, is from his lawyer, who claims that it's not like Joseph "took money from little old ladies. He didn't. It was from big institutional investors." As if that makes it okay?

The problem with these stories, unfortunately, is that they make people skeptical of the real VCs and real entrepreneurs who aren't scamming. It would be nice if these stories were confined to fictional accounts, but it seems like that's not going to happen any time soon.

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Filed Under: con man, silicon valley, venture capital

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DealGuru, 3 Sep 2008 @ 8:18pm

has
I'd be curious if you guys had any data showing if TheFunded had any impact on preventing any of these types of problems.
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Anonymous Coward, 3 Sep 2008 @ 8:53pm

Plucked the Wrong Pigeons
My favorite rationalization, though, is from his lawyer, who claims that it's not like Joseph "took money from little old ladies. He didn't. It was from big institutional investors." As if that makes it okay?
And that's what's going to be his undoing. If he'd just stuck to ripping off little old ladies like some of the US's largest corporations do he'd have probably been alright. That, after all, is just business as usual. But no, he made the mistake of running a con on some of the big boys. He'll pay for that.
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David Jacobson, 3 Sep 2008 @ 9:55pm

How Bout the other side of the apple
When I was a young man working in electronics distribution in the early 1980's I met a man who worked for Tektronix in Oregon. He had an idea to build portable logic analysis equipment,something that was very "leading edge" at the time. He was an extremely honest, hard working individual with ideals and a real purpose to build his own company based on the American dream of capitalism and prosperity. At no time did he ever imagine that he was just a pawn for greedy Vulture Capitalists to seize his dream and wrench it from him. If we are going to bemoan the plight of the poor "Venture Capitalist" let us first make clear what their true intentions are. The Venture Capitalist hidden agenda is to bilk ( and I do mean bilk ) whoever they see as an acceptable "risk versus gain" out of that individual(s) life long American dream of prosperity. Now to be quite honest, a lot of organizations would not exist today if not for venture capitalism. But I do not shed a tear for these VC's after unfortunately witnessing first hand their callous, underhanded and unscrupulous behavior. They truly reap what they sow. Ahhhhhhhhh, the American dream!!!!!!!1
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Anonymous Coward, 3 Sep 2008 @ 9:57pm

Not such a bad defense
"My favorite rationalization, though, is from his lawyer, who claims that it's not like Joseph "took money from little old ladies. He didn't. It was from big institutional investors."
Actually, that does make it somewhat okay. Institutional investors get paid - very well - for their expertise and their ability to perform due diligence. They are supposed to be informed, do their research, and protect their investors.
If these were not what they pretended to be, if they did not do the job they were paid for, if they just turned around and gave the money to the first guy with a good story, they were con men themselves. It may still be illegal to con con men, but this is a good case of "caveat emptor" and I certainly don't see it as immoral.
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- Nasch, 4 Sep 2008 @ 2:56pm
  
  Re: Not such a bad defense
  this is a good case of "caveat emptor" and I certainly don't see it as immoral.
  
  Setting up a "business" in order to take money from investors and use it in your personal life instead of the business, while lying to the investors about it, is not immoral? Wow! Would you consider having sex with some other woman and then lying to your wife about it immoral? I'm just curious where the line is, if there is one.
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chris (profile), 4 Sep 2008 @ 4:37am

there is a line?
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Anonymous Coward, 4 Sep 2008 @ 5:53am

Greed is a con mans fuel
And Silicon Valley is FULL of fuel for Con men.
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Ken, 5 Sep 2008 @ 12:20pm

Perhaps he did steal from little old ladies
Let's say that one of these big institutional investors works for an company that has a personal finance wing. The money being invested could very well have come from a little old lady.
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