Paying for Popularity Can Be Fraud

Pay-for-download

The internet age has allowed the perfection of this particular fraud:

1. I start a company to sell e-widgets over the internet.
2. I produce e-widgets and sell them for $10.
3. I pay my buddy $10 million to buy a million e-widgets from me.
4. My buddy pays me $10 million for a million e-widgets.
5. We do it again next month, but for $20 million and 2 million e-widgets.
6. I go to investors and say, “look I have gone from nothing to $20 million of revenue per month; at 8 times annual revenue that justifies a valuation of $2 billion.”
7. I sell 5 percent of the company to investors for $100 million and spend it on yachts.
8. E-widget sales dry up (once I stop paying my buddy to buy them), the company shuts down, the investors lose all their money, and we all…

For the rest of this article, please visit https://www.bloomberg.com/opinion/articles/2018-11-19/paying-for-popularity-can-be-fraud.

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Last modified: November 29, 2018