When The Price of 'Fake It Until You Make It' Is Too High

Madoff, Theranos, FTX—Each is a study in highly-sophisticated investors and outrageously-visible red flags. 

Michele Simon, public health attorney, writes in a recent Forbes article, that while “making grandiose claims may be de rigueur in Silicon Valley” it doesn’t make it right. The "fake it until you make it ethos," she says, “has gotten way out of control by any measure.”

FTX: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
John J. Ray III, CEO FTX

Theranos: During the Elizabeth Holmes criminal fraud trial, Assistant U.S. Attorney Jeffrey Schenk told the jury that Holmes "made the decision to defraud her investors, and then to defraud patients.”  She “chose fraud over business failure,” said Schenk.  CNBC

Madoff: “It didn't replicate anything to do with Wall Street or the U.S. Stock Market.  In fact, it only looked like the stock market 6%
of the time. …This is my first SEC submission, dated March 1st, 2000: In 25 minutes or less, I will prove one of three scenarios regarding Madoff's Hedge Fund Operation; One: they are incredibly talented and/or lucky, and I'm an idiot for wasting your time. Two: the returns are real, but they're coming from some process other than the one being advertised, in which case an investigation is in order. Three: the entire fund is nothing more than a Ponzi scheme." Harry Markopolos, Madoff: The Monster of Wall Street

Trust but verify.

Due diligence is not about “checking the box” (at least not at Mintz Group).  Proper diligence addresses the real risks our clients face as they consider investing their capital and reputation.