Paying for Popularity Can Be Fraud



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…

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Last modified: November 29, 2018

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