The internet age has allowed the perfection of this particular fraud:
- I start a company to sell e-widgets over the internet.
- I produce e-widgets and sell them for $10.
- I pay my buddy $10 million to buy a million e-widgets from me.
- My buddy pays me $10 million for a million e-widgets.
- We do it again next month, but for $20 million and 2 million e-widgets.
- 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.”
- I sell 5 percent of the company to investors for $100 million and spend it on yachts.
- 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.
Last modified: November 29, 2018