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Jan 7, 2022

There Is A Line

By:Josh Fabian

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Investing in Fraudsters 

There’s a line. A line between right and wrong. Between truth and fiction. Between hope and results. Admittedly, sometimes that line is difficult to see until you’re right up on it or maybe even stepped just past. But we know the line exists and when you intentionally cross it to deceive others, you should be called to answer for your actions.

In the world of finance, there are startup investors. These are people willing to invest in a vision because they believe in a person (or people) and an idea. It’s a leap of faith. Investments in startups fail more often than they succeed. On the other hand, if one out of every fifty or a hundred works out, you tend to make a lot of money. So a visionary has to be passionate about their idea. They have to be articulate. They have to be persuasive. Those are a lot of obstacles to overcome on their own. They don’t need fraudsters who lie and deceive investors adding another layer of scrutiny.

When Elizabeth Holmes Crossed the Line 

Elizabeth Holmes and Bernie Madoff are cut from the same cloth. There’s no reason to think they didn’t believe in themselves or their respective products. In all likelihood, they started with a legitimate vision. However, when they both realized what they set out to do wasn’t going to happen, they lied to keep the charade going. And it worked. Until it didn’t.

At some point, reality catches up with bullshit. It always does. Over time, truth is undefeated. The sad part is, the longer it takes for the truth to emerge, the more collateral damage is done. Lying, or let’s not even call it lying, let’s call it exaggerating, to one investor might seem innocent enough. But before you know it, your exaggerations become lies and you’re telling them to a lot of people, creating this sort of upside down house of cards on a foundation of inevitably melting ice. Not only do the investors lose, but so too do the future entrepreneurs.

Future Entrepreneur Impact

When one entrepreneur lies in such a spectacular fashion, it makes capital raises for others more difficult. Good, legitimate projects that might change the world get passed on because of the shellshock from being defrauded. Extrapolate that out a bit and consider all the people who may have been employed by this company that never was. The entrepreneurs who may have parlayed their success into backing other startups. All of it, gone.

Maybe Elizabeth Holmes actually was on the right path, but she just couldn’t quite get there. Maybe there is someone else who actually could create what she aimed to achieve. But as soon as a potential investor says, “Isn’t this similar to what Theranos tried,” that grand slam vision will turn into a “Holmes! Run!”

Written by Dylan Ratigan and Josh Fabian

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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