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The largest startup frauds of the twenty-first century, including Theranos, startled the globe

Global startup culture has grown significantly in the twenty-first century. The modern company environment is being shaped by terms like venture capitalists, angel investors, equity structure, and fundraising. Nevertheless, the business world is still hurting from countless cases involving the biggest startup frauds despite numerous success stories of how ambitious entrepreneurs collect money to create their businesses.

Every company founder, driven by ground-breaking ideas, wants to succeed large and build an unheard-of unicorn. They obtain funds for this through a variety of sources, including grants, angel investors, and television programs like Shark Tank. However, certain shocking fraudulent incidents have had such a negative impact on the startup community that business owners and investors must take extra precautions to avoid falling victim to such well-known frauds. The entrepreneur community has been damaged by events of such terrible size, whether they were caused by the rapid expansion of shell businesses, mounting debt, or a weak management structure.

One of the biggest cryptocurrency exchange businesses in the world, FTX, was discovered to be a significant startup fraud in November 2022. It entered the financial industry as a well-known crypto exchange with the goal of offering simple solutions for safeguarding, trading, and regulating digital assets, which make up a sizably uncontrolled portion of the market.

Sam Bankman-Fried, the company’s owner and CEO, emerged as the new face of digital currencies and quickly rose to prominence for his philanthropy and political ties. He was however accused of money laundering, faking firm revenue, and wire fraud. One billion dollars in customer monies went missing from FTX’s own accounts while it was rescuing other faltering firms.

Top 10 funded startups of India
Top 10 funded startups of India

FTT, the company’s own cryptocurrency token, was used as collateral for Alameda Research, another Bankman-Fried business. Alameda possessed USD 14.6 billion in FTT, according to information from Alameda’s balance records that was highlighted in a CoinDesk investigation. Then, CEO of Binance Changpeng Zhao sold his FTT coins, which caused their value to crash. After conducting due diligence, it withdrew its attempt to acquire out FTX. FTX filed for bankruptcy over the following ten days, and Bankman-Fried was detained in December 2022 and fined heavily.

Elizabeth Holmes, CEO of Theranos, claimed to have created a ground-breaking gadget that would perform blood tests with just a drop of the patient’s blood and accurately detect diseases at a lower cost and faster turnaround time.

According to sources, Theranos was valued at USD 1 billion and later raised USD 700 million. Although Holmes and former COO Ramesh “Sunny” Balwani were successful in deceiving investors, the scam technology had flaws by 2015.

Clinical trials revealed the device’s shortcomings and the technology’s lack of foundation. Millions of investors had been duped by the founders. These include BlueCross BlueShield Venture Partners and Fortress Investment Group.

They were unable to avoid legal action, nevertheless. After a thorough examination by the Securities and Exchange Commission, Holmes was permanently barred from conducting laboratory tests. In 2018, they were accused of wire fraud, and as a result, they were forced to shut down. In 2022, Holmes and Balwani were found guilty in several lawsuits and given prison terms. Holmes started serving her 11-year term in Texas on May 30, 2023.

Lucking Coffee, formerly regarded as China’s appropriate response to Starbucks-like companies, was involved in a significant fraud in 2020.

When Luckin Coffee went public in 2019, its shares shot up from USD 17 to USD 50 in just one year. Internal auditors discovered, however, the following year that USD 310 million in sales were really connected to other companies connected to the company chairman. Additionally, raw supplies worth USD 140 million were unlawfully purchased. As a result of Luckin Coffee’s delisting from the Nasdaq stock market, several senior executives were fired.

The company is back in business, according to a 2023 US News article, with share prices above USD 26. According to the research, “Its most recent quarterly revenue increased 52% year over year, with a full-year revenue gain of 67% in 2022″The company started growing in early 2023 and launched 500 new locations. It also has intentions to expand into Southeast Asia.

USA Outcome Health

During their time at Northwestern University in Illinois, Rishi Shah, Shradha Agarwal, and Brad Purdy founded this healthcare information firm, which provided pharmaceutical companies all around the US with advertising opportunities. For this, they provided over 40,000 clinical practitioners throughout the nation with free TVs and tablets. To keep patients entertained as they waited, these devices also broadcast instructional material.

However, it was discovered that Outcome Health billed their consumers fraudulently for the right to display adverts. Shah, Agarwal, and Purdy “sold advertising inventory the company did not have to Outcome’s clients and then under-delivered on its advertising campaigns,” the US Department of Justice claimed in a statement. The business continued to bill its customers as though it had delivered in full notwithstanding these underdelivery instances. They exaggerated their numbers and carried on with their fraudulent fund-raising.

Up till 2017, it lasted. The three were charged with defrauding investors and clients out of USD 1 billion in funds gained through fraud and were caught hiding evidence.

USA Mozido

Mozido was once a potential FinTech business that sought to offer financial goods to people in poor countries who had access to technology but perhaps not a legitimate bank account. The business entered the market as a mobile payment option and focused on Southeast Asia, Africa, and India.

The US Securities and Exchange Commission, however, accused Mozido founder Michael Liberty and co-defendant Paul Hess of defrauding investors and using their money to fund his shell companies rather than Mozido in a press release from 2018. Then, Liberty and his supporters spent more than USD 48 million on their opulent lifestyle and valuables. They collected the aforementioned sum between 2010 and 2016.

Hess was ordered by the court to pay USD 2.97 million in disgorgement, prejudgment interest, and penalties in December 2022, while Liberty entered a guilty plea and was taken into custody.

The world’s largest fundraising festival was set to take place in Noida in March 2023, and hundreds of creators had signed up to present their ideas to prominent investors and business leaders.

They anticipated meeting influential bankers and business leaders, networking with possible clients, and securing funding from investors. Nitin Gadkari, the Union’s minister of transportation, Mansukh Mandaviya, and state chief ministers were scheduled to attend the event. Influential figures including Ankur Warikoo, Prafull Billore, Raj Shamani, and Chetan Bhagat actively pushed the event.

In fact, the likes of Sundar Pichai, Elon Musk, Gautam Adani and the Crown Prince of Dubai, Sheikh Hamdan, were also named “noted invitees” of the event.

However, headwinds started pouring in right from the first day. Participating startups spent between nearly USD 85 to over USD 302 for admission passes and some, like Bambrew and Builder.ai, shelled out nearly USD 45,000 to sponsor the event. They alleged there were hardly any investors and VCs. Within hours, the World Startup Convention descended into chaos as founders claimed to be cheated.

Reportedly, 2,000 startups were scammed of hundreds of crores. Participants lodged a police complaint for breach of trust and false promises. They took over the event stage, as they called themselves the victims of India’s biggest startup scam.

Although Warikoo had given statements to news outlets for not knowing the In fact, the event’s “noted invitees” included people like Sundar Pichai, Elon Musk, Gautam Adani, and Sheikh Hamdan, the Crown Prince of Dubai.

On the other hand, headwinds began to blow heavily from the first day. The cost of entry passes ranged from around USD 85 to over USD 302 for participating startups, and others, including Bambrew and Builder.ai, paid close to USD 45,000 to sponsor the event. They claimed that investors and VCs were in short supply. The World Startup Convention quickly turned into turmoil as founders complained about being taken advantage of.

According to reports, hundreds of crores were stolen from 2,000 firms. Participants reported the police for breaking their confidence and making false promises.

The event’s organizers, Luke Talwar and Arjun Chaudhary, denied all accusations and claimed that anti-BJP protesters caused the disruption.

In general, the World Startup Convention disaster made news and exposed a current startup scam.

Additional prominent startup scams

While the aforementioned cases are contemporary startup frauds, other corporate scams include Satyam Computer Ltd. (India), whose founder B Ramalinga Raju, his brothers, and seven other people were found guilty of fraud for over USD 84.65 billion and sentenced to seven years in prison.

In the Enron (USA) case, the business was hit with a 40 billion USD lawsuit. WorldCom, Freddie Mac, and Wirecard are more examples of these businesses that were linked to significant scams that totaled billions of dollars and rattled the international business community.

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