20 Genuine Businesses That Were Turned Into Fake

Theranos was among the biggest startup frauds ever perpetuated.

The failed blood-testing company had raised a whopping $1.1 billion in total funding. Its investors included Blue Cross Blue Shield Venture Partners and Fortress Investment Group.

Theranos claimed to have accomplished something that many hematologists had long thought to be close to impossible; it appeared to have developed a proprietary technology allowing clinicians to test patients’ blood with a fraction of the blood volume needed in typical tests.

If the biotech company’s claims were to be believed, it could do it with between a hundredth to a thousandth less blood.

The problem – a huge one – was that Theranos’ exclusive blood-testing technology never existed; it was completely fictitious. The company  lied to investors, patients, and the media for years.

Top executives, including CEO Elizabeth Holmes, made false statements and bogus test results, misleading stakeholders about the capabilities of the company’s technologies.

It eventually released incomplete devices that did not deliver and even had the courage to deny wrongdoing in media appearances.

The outcomes of the whole scandal included the ban of Holmes from the laboratory testing industry for two years, charges of wire fraud by the Department of Justice, and the dissolution of the company in 2019 (no surprises).

Satyam Computers Services Limited, aka Mahindra Satyam, is another prominent example of business fraud.

This global IT firm, based in Hydrebad, India, did not exactly have fake products, but they had fake accounts. They inflated their earnings by $1.5 billion by falsifying revenue, cash balances, and margins. Founder and Chairman Ramalinga Raju later admitted the fraud in a letter to the board of directors. 

In the letter, the fallen CEO states: 

“What started as a marginal gap between actual operating profits and the ones reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions.” 

He goes on to describe the process as “riding a tiger, not knowing how to get off without being eaten.”

Ramalinga and his brother, Rama Raju, faced multiple charges, including breach of trust, conspiracy, falsification of records, and cheating. 

After major scrutiny and collapse of the company’s stock price, Tech Mahindra, Mahindra Group’s IT arm, purchased a major stake in the company and the company was rebranded as Mahindra Satyam in June 2009 and merged with Tech Mahindra in June 2013.

Further, the scandal forced authorities to think hard about the importance of corporate governance and make necessary adjustments in their existing framework.

The younger founder of Frank was apparently not so frank about her company.

Charlie Javice, according to the lawsuit, sold a startup with fake users to JPMorgan Chase for around $175 million (Rs. 1450 crore) in 2021.

The Honest Company, founded by actress Jessica Alba in 2011, did not live up to its name.

Alba set up the company to offer consumers natural, healthy alternatives to heavily processed household items like cleansers and toiletries.

The startup had collected a total funding of $490M from investors including AllianceBernstein, Glade Brook Capital Partners, and Lightspeed Venture Partners.

However, its claims came under fire in 2017 when the company was alleged to have engaged in fraudulent labeling of some of its products.

The Honest Company’s promotional materials claimed that the firm’s products were free of synthetic chemicals. However, the independent tests of its offerings, including toothpaste, floor cleansers, and laundry detergents, all contained synthetic chemicals, some even known to be toxic.

The company denied all allegations. However, it agreed to change how its products were labeled. It paid $7.3M to settle the class-action suit.

Talk about yet another questionably named company. 

Mozido is another addition of a fintech company to the list.

The company had raised $314M in funding from investors such as MasterCard and Wellington Management. In 2014, the mobile payments company was valued at $2.3B.

The startup said it aimed to create financial products for the 2B “unbanked” people worldwide. It wanted to serve those people who lack a traditional bank account but can access mobile technology. It had ambitious plans to revolutionize mobile payments in markets, including Africa, India, and southeast Asia.

So, what went wrong? The fraud perpetuated by Michael Liberty, Mozido’s founder, overshadowed its plans.

In 2018, Liberty was indicted by the SEC on fraud charges. He had allegedly defrauded 200 investors and raised $55M. He was further accused of using several shell firms established between 2010 and 2017 to divert money from investors to his personal accounts.

That was not all. Authorities claimed that Liberty used funds to support his other business ventures and even pay for interior decoration services for his ex-ife. He also reportedly paid a discouragement penalty levied against his another investment scheme.

Despite the charges, the Mozido founder pled not guilty to ten separate federal fraud charges in March 2019, by which he could face up to 20 years in prison. His trial was postponed to a later date.

Bouxtie wanted to disrupt America’s massive gift card market but in vain.

The startup, founded by Croatian-born entrepreneur Renato Libric, amassed $2.5M in funding from investors like Plug and Play Ventures and RIT Venture Fund.

Libric’s start up, Bouxtie (pronounced “bow-tie”), offered personalized digital gift cards to consumers to send to their family and friends with custom messages and graphics.

However, afterward, it came to light that the founder had engaged in various elaborate deceptions to convince investors to continue financing his company.

In order to create the illusion of a successful, attractive venture, Libric resorted to methods to inflate the company’s financial health. He falsified signatures on checks to create a false impression that a public corporation was giving Bouxtie an acquisition offer. 

Furthermore, he forged multiple signatures of the directors to acquire a “loan” from a company in Las Vegas that had previously invested in the company. He intended to eventually convert the illegally acquired pool into Bouxtie shares.

Consequently, Libric was charged with defrauding an investor of $1.5M and was sentenced to 3 years.

WrkRiot’s short-lived house of cards fell down when its reality came out.

WrkRiot, formerly known as JobSonic and 1for.one, was founded by Isaac Choi in 2015. It had collected $1.1M in total funding.

The defunct job board site soon learned its lesson when it closed down after a series of scandals, leaving the company’s reputation in tatters.

Later, Choi’s engagement in numerous deceptions after founding his company came to light.

The company’s troubles began when Penny Kim, a former employee, wrote a post on Medium titled, “I Got Scammed by a Silicon Valley Startup.” The article outlined her experiences with WrkRiot and Choi, accusing the company of fraud.

After the publication of Kim’s post, several investors started investigating Choi and the company — the FBI joined them shortly after.

The Department of Justice confirmed in June 2017 that Choi was indicted on several charges. It stated that: 

Choi falsely claimed that he received a degree from a prestigious New York business school, worked as an analyst at a major financial institution, had access to significant personal wealth, and was investing significant amounts of that money into the company.

It further alleged that Choi falsely claimed that a major portion of the capital he had pledged to invest was tied up overseas and elsewhere.

Choi pled guilty to all charges in February 2018, leading to his sentence in May 2018. He could have faced up to 20 years in federal prison, but his sentence was reduced to time served.

Outcome Health started off great but was almost stalled by the mischiefs of its founders.

The health startup had accumulated $500M in funding from investors like CapitalG, Goldman Sachs, and Pritzker Group Venture Capital.

Shradha Agarwal and Rishi Shah founded the healthcare information startup in 2006 while the duo was still studying at Northwestern University in Illinois.

Outcome Health offers pharmaceutical firms advertising airtime on televisions and tablets that it distributes to 40,000 clinicians’ offices across the United States. Outcome’s screens also display educational content.

The product was aimed at effectively monetizing time spent waiting in doctors’ offices. However, the company used what prosecutors said was “fraudulent and false information” to encourage backers to invest more by selling advertising inventory for more screens than it possessed. 

Goldman Sachs had conducted examinations of the company’s investment materials that apparently inflated the success of its advertisers’ campaigns in ten separate case studies given to Goldman as part of the company’s due diligence.

Agarwal and Shah denied all accusations, and Outcome settled all pending lawsuits in January 2018 on the condition that the two step down from their leadership positions.

LendingClub was marred by the financial misdeeds of its founder.

The startup had collected $263M from BlackRock, Norwest Venture Partners, and Sands Capital, among others.

Founded by Renaud Laplanche in 2006, the fintech company quickly got the rank of one of the largest online lenders in the United States.

It became a major online lending service provider as entrepreneurs eyed the Byzantine financial sector as full of possibilities for disruption.

However, the company’s progress was obscured by the founder’s unexpected resignation in 2016 after pressure from the company’s board.

They forced Laplanche out of LendingClub over the sale of approximately $22M in near-prime loans sold to a single investor. Although details surrounding the trade were scarce, reports indicated that he had sold the loans in a way that contradicted investor instructions.

Laplanche admitted to no wrongdoing but would later settle with the SEC. He was barred from being involved in the securities industry for three years in addition to a fine of $200,000.

Hampton Creek took things to a whole another level to boost its sales.

The company had raised $240M from Khosla Ventures, Marc Benioff, and Eduardo Saverin.

While demonstrating sales is a necessity for retail startups, even more so in the intensely competitive food vertical, what Hampton Creek did was indisputably wrong. The company was busted buying its own merchandise.

To get rid of weak sales and secure additional investment, the vegan food products manufacturer allegedly falsified sales data by employing a network of independent contractors and instructing them to secretly buy back Hampton Creek items from supermarkets across the States.

At the center of the scandal was it’s flagship product, a dairy-free mayonnaise called Just Mayo sold at Kroger, Walmart, and Safeway, among other retailers.

The environmentally conscious food startup was concerned about low sales jeopardizing its image. It worked to falsely create the perception that its produces were significantly more popular than they actually were.

Additionally, contractors were reportedly tasked to contact regional supermarkets to inquire about Hampton Creek products to create  further illusion.

Following the accusation in 2016, Hampton Creek CEO Josh Tetrick claimed the buy-back efforts were done to monitor product quality.

However, the explanations were not convincing enough. People pointed out that quality assurance processes for most food products are carried out before the product leaves the factory.

Hampton Creek went through a rebranding and became ‘Just’ in June 2017. It continues to sell vegan dairy substitutes at retail stores nationwide.

Rothenberg Ventures breaches the most essential fiduciary duty, breaking the trust of its investors.

Mark Rothenberg founded his venture fund called the Rothenberg Ventures, which would fund seed-stage tech startups in the Bay Area.

Having invested in Elon Musk’s SpaceX and many virtual reality startups, the company had gained the confidence and trust of investors and appeared to have a bright future ahead.

As it would turn out, the trust was misplaced.

The fund management company had its image tarnished after Rothenberg allegedly used investors’ money to fund his extravagant lifestyle.

The investor had gained the reputation of squandering investors fund for his personal benefits. He would engage in indulgences like hiring race car driver Collete Davis to arrive in her car at promotional events and co-producing a music video for Coldplay.

He also allegedly used the money to throw lavish parties and to book a Super Bowl suite to attract more investors to his fund.

Problems at the firm came to light in 2016 when several senior executives left the firm, including the CFO, general manager, and the head of the San Francisco office.

The SEC alleged that Rothenberg had spent more than $7M of his investors’ money on his personal lifestyle. He would later admit no wrongdoing, but ultimately step down from his post in 2018.

Asenqua Ventures is another supposed venture capital firm that defrauded people.

MIT alumnus Albert Hu founded a venture fund named Asenqua Ventures in 2001. He had convinced many individual investors to invest around $5M in several types of technology companies via a “hedge-fund strategy.”

Around four years later, Hu wanted to relocate Asenqua to Singapore, claiming vague tax and privacy reasons.

By this point, his deceptions had started to catch up and in 2009, Hu was extradited from Hong Kong to the US to face seven counts of wire fraud. 

Hu was found guilty and given a sentence of 12 years in prison. 

However, that wasn’t the end of the story. Asenqua resurfaced in 2015 with a new website and another entity called Asenqua Financial Advisors, Inc. 

Hu’s name was absent, but several of the executives listed on Asenqua’s new site also turned out to be fictional. 

The newly-appearing company claimed to:

support a diverse array of financial engagements, including mergers and acquisitions, leveraged buyouts, restructurings, recapitalizations, and capital formation. 

Another financial scam on the list is the elaborate Ponzi scheme by Crescent Ridge Capital Partners.

Tamer Moumen, founder of the firm, perfected his fraudulent elevator pitch after many years of practice.

Moumen defrauded over 50 individual clients between 2012 and 2017 by persuading them to liquidate their financial assets and invest the money in his hedge fund.

With his carefully created and convincing persona, Moumen told investors that Crescent was managing huge sums of investment capital for its clients after several years of experience.

In reality, he had zero experience managing a hedge fund. He had long been losing money in the securities market and even used investors’ money to fund his lavish lifestyle. 

As indicated by court documents, Moumen had squandered financiers’ money to buy a $1M home in Leesburg, Virginia, and a brand new Tesla.

Moreover, investors were not his only targets. Moumen launched a GoFundMe campaign in September 2015 seemingly intended to help organizations giving humanitarian aid to Syrian refugees.

The campaign, which raised over $30,000, later vanished from the site. The money went straight into his pocket, according to the Department of Justice.

In May 2017, Moumen pleaded guilty to charges of wire fraud. He was sentenced to 10 years in prison and forced to pay $7.5M in restitution to his victims.

Among the several cautionary tales from the dot-com bubble heydays is that of Pixelon.

An individual who called himself Michael Fenne founded Pixelon in San Juan Capistrano, California, in 1998. In reality, Fenne was the alias of David Kim Stanley, a known con artist and convicted felon.

Stanely had been on the run for two years, skipping bail in Virginia. He was wanted on charges of defrauding elderly investors of over $1M in the late 1980s.

His victims included parishioners at a church where his father served as pastor. Stanley had been sentenced to up to 36 years in prison for his crimes, with 28 years suspended.

After arriving in California in 1996 and attracting nearly $30M in funding, Stanley spent $12M to throw a launch party for Pixelon at the MGM Grand Casino in Las Vegas.

The party featured a range of prominent performers, including the Dixie Chicks, KISS, Tony Bennet, Sugar Ray, and The Who.

When the event could not be properly live streamed by Pixelon’s technology, investors were prompted to examine the company’s technologies more closely, eventually leading to Stanley’s deceptions coming to light.

Stanley surrendered to authorities in April 2000 and Pixelon dismissed its executive team and filed for Chapter 11 protection in June.

The perpetrator quickly faded from public view after his arrest, and his current whereabouts are unknown.

Nikol Corporation is one of the most recent cases of genuine businesses allegedly turning out to be fake.

Trevor Milton, the wealthy founder of Nikola Corp., was recently convicted of charges that he deceived investors with exaggerated claims about his products.

He reportedly lied to his backers about the company’s progress in making zero-emission 18-wheel trucks that ran on electricity or hydrogen.

The verdict was made against Trevor Milton after a jury deliberated for about five hours in Mahattan federal court.

At the trial, the government indicated that Milton was a con man, whereas his lawyer called him an inspiring visionary being railroaded by overzealous prosecutors.

Nikola, founded by Milton in a Utah basement in 2016, is alleged of falsely claiming to have built its own revolutionary truck while it was actually a General Motors Corp. product with Nikola’s logo on it.

Further evidence showed that the firm produced videos of its trucks doctored to hide their flaws.

Milton, 40, who resigned in 2020, has pleaded not guilty to securities and wire fraud. Sentencing for Milton is now set for January 27.

Scorpion Capital has been straightforward in calling Gingko’s business model “hocus-pocus” and “a colossal scam.”

The synthetic biology company went public in 2021 through a $1.6 billion SPAC (special purpose acquisition company) deal, which raised its market cap to $23 billion.

Although the firm has promised the capability to harness living organisms in producing a range of biopharmaceutical and industrial chemicals via genetic editing, Scorpion is suspecting.

Furthermore, the activist short seller firm, Scorpion Capital, claimed that Gingko’s current income is largely based on “a dubious shell game” consisting of customers that Ginkgo helped create and invested in. 

Within an hour of the publication of Scorpion’s 175-page report, the firm’s stock price dropped by at least 20%, down to about $9.50 per share.

Scorpion Capital wrote on its report:

Based on interviews with its related-party ‘customers,’ we believe that at least half of Ginkgo’s reported foundry revenue is phantom—that is, noncash and pure accounting hocus-pocus.

Scorpion further called the company a “hoax for the ages.”

Yet another company that promised something that it could not deliver is LightSale Energy.

Danielle Fong, the co-founder and chief scientist at the clean energy startup LightSail, promised a large-scale energy storage system using compressed air that would fix an ‘impossible’ issue.

Her business concept was so promising that the firm even raised around $70 million from the likes of Bill Gates, Vinod Khosla’s VC firm, and Peter Thiel’s Founders Fund.

Unfortunately, the promised system never came to be. LightSail could only come up with was a set of gas storage tanks, and it never went commercial.

Disgruntled staff later spoke to Greentech Media about Fong’s lavish spending, such as the purchase of a company car — a Tesla Model S.

Getting a hefty salary of $225,000 and being constantly absent from the office, Fong was not thought to be the best leader.

By 2017, her company had run out of cash. Co-founder and CEO Stephen Crane said, “We would have liked to have gotten a bit further.”

Pseudo was claimed to be an openly fake company, eight years after its close.

Serial internet entrepreneur Josh Harris founded the webcasting and internet TV site, Pseudo.com. It was remarkably prescient, like several now-defunct companies formed around the dot-com bubble.

Pseudo pioneered real-time webcasting from its studio in NYC, with Harris correctly predicting everything from user-generated content to regular people sharing every little detail of their lives through online video. 

Harris, frequently considered as a modern-day Andy Warhol, invited actors, musicians, and performers to produce content for his platform.

However, the company shared the fate of other dot-com-era startups which were doomed to die in the crash.

Further, the real twist came in 2008, when Harris confessed that Pseudo had been a fake company from the very beginning.

Per Harris, the startup was “the linchpin of a long-form piece of performance art.”