Former Silicon Valley CEO Indicted for Allegedly Defrauding Employees of StartUp

https://www.justice.gov/opa/pr/former-silicon-valley-ceo-indicted-allegedly-defrauding-employees-tech-company-start

by protomyth • 9 years ago

182 76 9 years ago

justice.gov

protomyth• 9 years ago

follow-up to this thread https://news.ycombinator.com/item?id=12379518

x0x04• 9 years ago

An article with more backstory: http://www.bizjournals.com/sanjose/news/2017/06/08/wrkriot-i...

I'm guessing Al Brown, the CTO, is gonna leave this one off his resume. Here's his side of the story, btw https://news.ycombinator.com/item?id=12382955 -- he claims to have put $200k in. The feds didn't charge him, so presumably he was scammed along with everyone else.

obstinate• 9 years ago

Or he turned for immunity.

Shivetya• 9 years ago

Another article as well http://www.businessinsider.com/wrkriot-burned-700000-alleged...

rdlecler1• 9 years ago

Listening the the Theranos story I can't figure out why she hasn't been charged.

un9T64pPJGY7vR• 9 years ago

Why is that? Which law did Theranos or their founder break?

sooheon• 9 years ago

It's always hard to tell without hearing intonation whether questions like this are asked in good faith out of genuine curiosity, or as a bid to steer the conversation towards semantics and nits.

Whether one can list the specific laws broken by Theranos in their specific jurisdiction is one question, whether the fraudulent nature of the company passes the bullshit test is another.

orthoganol• 9 years ago

Seeing as people I know who don't even know or care much about Silicon Valley talk about Elizabeth Holmes like she's the next Jeff Skilling (something about Houston I guess), it seems, at the minimum, highly likely, given lawsuits, severed ties, total collapse, etc. that she trafficked in fraud. You're welcome to push PR on me, but you're fighting common sense, for better or worse.

nkw• 9 years ago

18 USC 1343, 18 USC 1001, and/or 15 USC 78j(b)?

ebbv• 9 years ago

She made totally false claims about her technology to investors; claiming they were performing tests with their own tech when they were using outside tech. That seems like fraud to me?

The reality is she's too well connected and wealthy to see any jail time, though.

x0x04• 9 years ago

I don't know anything about the investments, but I'm guessing a variety around providing human diagnostic testing that will be the basis for medical decisions.

justboxing• 9 years ago

(somewhat) related story (from last Nov) => "After exposing Silicon Valley scam in viral post, Penny Kim finds new startup home in Dallas" https://www.dallasnews.com/business/technology/2016/11/24/ex...

flipp3r• 9 years ago

Hah, I was thinking of this story when reading the justice.gov page.. They actually put an update on the bottom of the blog with a link to the justice.gov page. Looks like it's the same person.

e93• 9 years ago

definitely the same person: https://www.forbes.com/sites/womenatforbesfiles/2016/10/12/p...

godzillabrennus• 9 years ago

I'm so glad that this is the result. I was following this in the days after Penny Kim wrote her story and still don't understand how anyone can be as stupid as Isaac and raise any capital. I guess pedigree matters more to investors than I'd like to believe.

flippyhead• 9 years ago

Me too!

asdfologist• 9 years ago

Didn't he lie about his pedigree too?

robteix• 9 years ago

Choi sent a series of individualized emails to WrkRiot’s employees stating that salary payments were forthcoming, and attaching documents purporting to confirm wire transfers from a U.S.-based bank to the bank accounts of the recipient WrkRiot employees. In reality, as alleged in the indictment, Choi sent forged wire transfer confirmations in order to induce WrkRiot employees to continue working for the company without being paid.

I don't get it. How long can you fool anyone with this? A couple of days at most? And after that you're irrevocably and unquestionably revealed to have lied? How does that help you in any way?

pmorici• 9 years ago

If you aren't accustom to receiving wires and most normal people aren't you might not realize they generally only take 1 business day to clear. Scammers often find benefit in areas that aren't commonly well understood.

nolok2• 9 years ago

A fair amount of the "clearing" time is usually not spent in clearing but in processing. Eg I don't know how common this is elsewhere, but here most of the banks I've delt with charge you more for a 12h/24H/immediate wire, and their regular service is in the 48h/72h (we're talking guaranteed time here, it's not uncommon for the regular option to be done under 36h).

firebird84• 9 years ago

I recently did a domestic wire that only took a few hours to clear. That's the whole point of it all, otherwise I'd be using ACH...

Edit On second thought, it might depend on whether the banks on either side of the transaction are fed members. If they're not, I can see how it would take longer.

solotronics• 9 years ago

I am probably biased in favor but really this is an awesome application for cryptocurrency.

wojt_eu• 9 years ago

After a couple days the fraudster could claim that the wire transfer bounced, take another two days to check with their bank. Then they could say the problem is on recipient bank's problem with SWIFT/BIC code format and pretend to attempt the transfer again.

They might even go as far as actually commission the transfer in front of the recipient but then cancel it in the evening before it's cleared.

Another way to buy some time could be to send transfer for one percent of the amount and then claim it was a mistake with decimal point.

I guess this could be stretched to two weeks before recipients are convinced of the fraud.

nolok2• 9 years ago

As someone who has worked for an american company (I'm not from there and was working remote) and paid by wire, it legitimately happens enough that it would be believable. I once had to wait over a month for a wire to work out (fault was ultimately on my bank's side).

So, yes, an international wire being delayed for a couple of weeks because "issues" wouldn't alarm me enough that I would stop all work instantly.

walshemj• 9 years ago

having my salary wired and not having a standard bank paymenent for may salary would be a huge flag for me.

I wonder if the employees SS and tax payments where also not being paid - I have worked for a company that wet bust the hard way and it turned out that they had not being paying my NI stamp so no unemployment for me.

austenallred2• 9 years ago

My guess is the founder was frantically trying to raise money somewhere. That would make such behavior slightly more rational, I suppose, though no less criminal.

Bartweiss4• 9 years ago

Almost certainly.

That would both make it feel more ethical to the founder ("I'm just bridging the gap!") and look less useless ("If I can make it to Friday they'll get all the backpay, there's no problem!"). Without new money on the horizon it's simply incoherent, to say nothing of immoral.

Of course, none of that makes it right. There are plenty of startups that handle this without cheating successfully. I've gotten the phone call saying "we can't pay you now, but here's our fundraising schedule and when we expect to have money". It might lose you some staff, but I think it's not as bad as most people expect - either the situation looks good and people stay, or the situation looks bad and you weren't going to save the company regardless.

gmarx• 9 years ago

and if the startup had ultimately been successful this would be part of the founding myth and many people would think it was a positive

ProblemFactory• 9 years ago

> Choi sent forged wire transfer confirmations in order to induce WrkRiot employees to continue working for the company without being paid.
I don't get it. How long can you fool anyone with this? A couple of days at most?

I have (briefly) worked with a few people like this in the past. There is no clever long-term plan to it, they are persistent "excuse makers". If a problem, like employees complaining about not being paid, comes up, they will find the quickest way to solve it for today by making up a new excuse.

And in their mind, they aren't even doing anything wrong - they honestly believe that the big sale or investment round will definitely close any day now, and they are just "motivating" the team to get through a slump.

athenot• 9 years ago

I can confirm this type of personality exists: got to work with someone like that. They are in perpetual denial about the real state of their company and tend to surround themselves with "advisors" that will only say what they want to hear.

misiti37803• 9 years ago

I literally had this happen to me by a "non-silicon valley" startup. I reported this person to the DA (NYC), and nothing came of it.

If any reporters want more info, contact me.

pavel_lishin• 9 years ago

I reported this person to the DA (NYC), and nothing came of it.

How long ago? Choi's infraction seems to have taken place 9 months ago - that sounds pretty speedy, in terms of the justice system.

gedrap• 9 years ago

I had experience with this kind of employers in my very young days, when time and time again 'probably something wrong with the bank' or dozen of other bs excuses.

If you are inexperienced, very short on money (e.g. a student), and have no one to discuss these issues with, rationality might go out of the window. You can convince yourself that everything will be fine very soon, you will get your money next week, etc. So it's not very surprising. Quote from the original Medium post:

We had 8 young Chinese employees on H-1B visas with us as developers, limited in experience but eager to please and learn. They end up being the ones to suffer the most.

https://medium.com/startup-grind/i-got-scammed-by-a-silicon-...

e93• 9 years ago

on my first day at the job on H1B, in the first 10 minutes I walk into CEO's office and he says the company has 1 month of runway in the bank. Imagine my reaction after I just moved my family to Silicon Valley. It turned out fine for me at the end but after that experience I feel that it's immoral for startups to hire H1Bs.

bgribble• 9 years ago

When a less-powerful entity owes a more-powerful entity money, the debt obligation works to ensure that they get their money back. Like when you owe a bank money.

When the more-powerful owes money to the less-powerful, the debt obligation works to ensure that the less-powerful person's choices are limited to "walk away from my money" or "wait around and hope". When someone says they are going to pay you, you really really want to believe.

Funny how the debt obligation always works in the more-powerful party's favor :(

I have had a very similar situation happen twice, once when a VC gave a small startup the "check is in the mail... no wait we have to transfer money.. no wait we have to liquidate an investment" BS while the employees worked without pay for months on end. My first startup job, and the LAST time I will work for any amount of time without getting paid.

The second time (different company) the founder/VC (allegedly) defrauded the other investors by puffing up the startup's prospects, and then when the startup got acquired by ${BIGCO} for a very very low valuation only the founder walked away with any money... he was indicted, I think, I had to produce years worth of email for trial discovery and was lucky not to have to testify.

In my experience, working for a messed-up/sketchy startup is just a resume item that most people have, and you hope you only have one of...

Bartweiss4• 9 years ago

This is a reasonable summary, but I still don't understand the specific behavior in this case.

Stonewalling and lying are often effective for whoever's in power. Giving clear, easily-falsified evidence to everyone you're crossing still doesn't - as evidenced by the fact that lots of startups fail to pay, but this one is leading to a prosecution.

BearGoesChirp• 9 years ago

Funny how the debt obligation always works in the more-powerful party's favor :(

When you take a very critical view of the law, not just as written, but how it works in practice, you see the same appear constantly throughout all parts of our system.

When you are charged with a crime, even if you can prove your innocence, generally your day to day life suffers great harm that can be considered a punishment for daring to do what ever got you charged with the crime in the first place. But for someone (or some entity) who has access to the best lawyers, their day to day lives suffer by only a faction.

An accused poor individual can easily lose access to their money flow (they are fired for being in jail waiting for bail). A rich individual does not lose their money and has lawyers to significantly reduce the wait time. They are also treated better in general because they have the power to cause harm to those enforcing/making the law if they want (donating to an opposing candidate, buying commercials, etc.).

The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.

-Anatole France

daxorid• 9 years ago

I saw this kind of thing twice firsthand in 2000-2001. I suspect when the current bubble's funding tide goes out, you'll find many seemingly upstanding founders resort to desperate, and illegal, measures.

rodionos• 9 years ago

An indictment is merely an allegation and all defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

This verbiage sounds somewhat strange given the evidence they collected, but upon googling, this seems to be the standard clause in FBI indictments.

speby• 9 years ago

Yep, indicted just means being charged, which generally means a trial to result in a guilt/not-guilty verdict or out-of-court settlement.

dpark• 9 years ago

or out-of-court settlement.

You mean a plea bargain? Criminal cases can't be settled out of court. Prosecutors have no authority to sentence a criminal so cannot "settle" in the absence of the judge.

tomkat0789• 9 years ago

I remember Kim's story mentioned some H1B's from Asia who seemed stuck. What happened to them?

e93• 9 years ago

Good question. Hopefully they were able to figure it out. I had bad experience at startups on H1B. On my first day at the job on H1B, in the first 10 minutes I walk into CEO's office and he says the company has 1 month of runway in the bank. Imagine my reaction after I just moved my family to Silicon Valley. It turned out fine for me at the end but after that experience I feel that it's immoral for startups to hire H1Bs.

Simulacra2• 9 years ago

I think in twenty years someone is going to write a book about all of the startups out there that raked in the cash, never produced a viable, profit-making product or service, and eventually went bankrupt. There's an excellent article about the startup Tilt[0] and how it just went boom, and then bust. Makes me wonder if at least some of the startups out there know they're vapor but want to ride the gravy train.

[0] https://www.fastcompany.com/3069164/how-tilt-veered-off-cour...

kesselvon• 9 years ago

like Crinkl? I mean look at how many companies go public on the Dow without ever showing profitability...Netscape's IPO seems to have created this trend where tech IPOs don't have to be viable businesses

Simulacra2• 9 years ago

Wow I had to look Crinkl up, what a cluster... yeah that. Wow. I'm sure someone is already working on an in-depth analysis where someday we can look back and say: vapor, vapor, vapor, scam, great idea but no monetization, vapor, scam, etc. etc...

TarpitCarnivore• 9 years ago

What was the photo company that raised 50M before launch, Color?

ferentchak2• 9 years ago

There's a company I would list here but it's in bad taste because they are popular and my comment would not fit into the 140 character limit!

softawre• 9 years ago

https://medium.com/startup-grind/i-got-scammed-by-a-silicon-...

ethn• 9 years ago

This blog post[0] is ostensibly an account from one of their actual employees––considering the fraudulent actions happened on the same dates and both founders sent a fake wire as the account noted; among other shared similarities. Quite vindicating if it is so.

[0] https://medium.com/startup-grind/i-got-scammed-by-a-silicon-...

gefh• 9 years ago

I knew it sounded familiar - glad to see some action taking place, but jail time will not get those employees their money back, and it may prove hard to get any money out of him if he's currently broke.

philfrasty• 9 years ago

„Isaac Choi, aka Yi Suk Choi, aka Yisuk Choi, aka Yi Suk Chae, aka Isaac Chae, (Choi)“

What is this about?! Do they have a legal obligation to list all his (nick)names?

blazespin2• 9 years ago

Probably not, but it does help them make their case. I think the point of the press release was a shot over the bow of so called entrepreneurs doing the same thing. They're trying to send a message, but I think they also want to show that this guy was particularly egregious.

gaius2• 9 years ago

Why would you go by so many different names if you weren't trying to hide something?

jeeyoungk• 9 years ago

Though, I think only "Issac" and "Yi Suk" are his names, and others seem to be phonetic variations of his first / last names.

api• 9 years ago

The founder and chief executive officer of a now-defunct Silicon Valley technology start-up company was charged in an indictment unsealed yesterday in Orange County, California with allegedly defrauding several of his company’s former employees by luring them to join his company based on false and misleading statements about his educational, professional and financial background, and by allegedly enticing them to continue working for his company by providing them with forged documents purportedly reflecting payments for unpaid salaries.

I experienced something a little like this years ago. It was an awful experience, owing mostly to the fact that I was too young and naive to recognize it quickly and run away.

crawfordcomeaux• 9 years ago

I remember reading about WrkRiot's fall on HN. It doesn't look good for Choi.

I'm feeling sad over it because our justice system is designed to destroy lives, not repair them. I wouldn't wish most prison systems on my worst enemy.

justforFranz• 9 years ago

You might expect more of these problems coming to light as this current economic expansion ages and starts to wobble.

Former Silicon Valley CEO Indicted for Allegedly Defrauding Employees of StartUp

Related Stories