How is that even possible? Aren’t the books and statement audited?
From the article:
>"The company’s unaudited financial statements were reviewed by an auditing firm in May 2020. According to the complaint, the review concluded that Headspin’s cumulative revenues from inception through the first half of 2020 totaled only approximately $26.3 million, instead of the $95.3 million originally reported by the company. The review also calculated the cumulative net loss from Headspin’s inception through the first half of 2020, totaling approximately $15.9 million, instead of the $3.7 million net income originally reported by the company."
The first audit found the fraud (which probably means it just wasn't well covered-up).
At the end of the day cashInBank==investment+sales-costs. How can close to $80 millions be missing on the balance sheet without anyone noticing!? Genuinely curious.
In other words it’s just not a big source of losses in the VC industry and so you don’t need to spend much effort guarding against it. (Especially considering that VCs expect most of their investments to fail for some reason or other.)
Too much follow on money that said oh I'm sure the previous guy did it.
I wonder what triggered the audit though. If he knew he was cooking the books then why allow it?