Fraud and Thumb

Oct 2013

 

“After another moment’s silence she mumbled that I was peculiar, that that was probably why she loved me but that one day I might disgust her for the very same reason.” 

- Albert Camus, The Stranger

 

“The idea that we cause harm by doing what we perceive to be the right thing, that’s another theme that interests me. Because most people don’t intend to cause harm. Nobody thinks that they’re evil or bad, they always think that they’re doing the right thing. In fact, they cause harm by doing the right thing – in their mind.”

– Andrew McCarthy, St Elmo’s Fire

 

When I was little I always imagined fraud to be this huge thing that only someone wearing a suit could do. I would watch TV and the news would say “so and so executive has committed fraud” and my parents would look at each other and think what a horrible person.

It seemed like the most severe thing a person could do. Even more severe then being a regular criminal because the implication with fraud is that they’re not just stealing from one person but many. They’re stealing from the abstraction, a company, that serves hundreds or thousands of people so by extension they are stealing from all of them.

But when it happens in a startup the lines become a little blurrier. Because so much of a startup’s financial capability is made up of the founders of it. Whatever the founders are worth becomes what the company is able to do because they’re the only ones part of it at the beginning. And the founders just have to keep the company from dying. There are famous stories of founders mortgaging houses to keep their startup alive.

So a question becomes, why would a founder take from the very thing they are supposed to be keeping alive? Perhaps because they became disillusioned with it or don’t want to do it anymore. It’s perhaps a way of salvaging what they’d put into it. You never think someone close to you would do something like that so when it happens it isn’t really sad so much as shocking.

Then the emotions kicks in, the bitterness and the hurt and the betrayal and you feel very much like retaliating but that is perhaps the worst decision for the company, even if it might be satisfying.

 

One of my best friends, a co-founder and I had a fight. We had a trust system and they had access to the bank accounts and withdrew all of the company’s money without telling anyone and then quit without delivering anything and went dark for months. We’re still a small company so luckily the effect has been negligible.

The relationship has ended. Most of the money has been returned. And it only took talking to their parents and months sending an email nearly every day trying to figure out what happened and why. I still haven’t really gotten an answer. I don’t think I ever will.

Most people have probably never had that happen to them. I’m going to try and break down how it happens. First, it’s not all of a sudden. The leadup is something that happens gradually over time. When no-one is taking salaries, it’s very easy to slip into a state of powerlessness. Like the world has a stranglehold on you and there is nothing you can do.

I hadn’t previously realised how important communication is in a relationship. I always believed in autonomy, that if you send someone in a particular direction eventually they’d find their way. But perhaps there is such a thing as too much freedom. Like how if a homing pigeon flies too far away from where it left, will be unable to find its way back.

It also struck me why big companies have reporting systems, to avoid these situations. I’d never understood why big corporations monitor employees excessively but now I realise it’s a precautionary measure. It’s hard to do anything wrong when there is a paper trail for everything.

 

Founder relationships are often analagous to marriages and the leading indicator of a failing marriage is usually unsupportive spouses and a breakdown of communication.

In a startup setting it’s when you stop getting regular emails or they start ignoring contact. Or you start having to chase down the person just to find out something. Or when you find out from someone else they’ve done something substantial without telling you.

I think when that happens, the business relationship dies. If you’re friends, the friendship doesn’t have to change but it becomes difficult to continue being business partners.

I think for the most part it’s not done out of maliciousness but out of desperation. The reason is more opportunistic than villainous. I took a course in criminology once where the lecturer said two quite fundamentally altering things. 1) If you leave $100 in the open, you shouldn’t be surprised when it gets taken and 2) There was never a criminal in history that genuinely believed themselves a bad person.

The assumption there is not that it’s the persons fault for taking the $100 but mine for leaving it in the open to be taken in the first place. And that even if the person took it, they would not think themselves a bad person for having done so. The point I think is that if presented with the opportunity to do something wrong with few repercussions, most people would. Even a close friend. Which is when it is the most depressing.

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