
Star of “Startup.com” Charged with Accounting Fraud - harold
http://blogs.wsj.com/digits/2015/09/09/star-of-startup-com-charged-with-accounting-fraud/
======
dberg
I worked at ROO Media (which KIT Digital acquired) and met with Kaleil a
number of times. None of us who worked there are even remotely surprised. No
signs of revenue, yet we would spend like crazy and even acquire companies
with magical "stock money".

It was the most corrupt place I have ever worked in my life. The COO was a
ghost who just spent money (like staying at hotels all the time, even though
he lived an hour away by train) making 400K+ at a startup with no revenue, the
CEO (who Kaleil replaced) drove the company into the ground and subsequently
started another startup that is now under lawsuit as well after lying to his
employees and not paying them for months. Absolutely crazy stories.

Happy to answer any questions :)

~~~
api
"like staying at hotels all the time, even though he lived an hour away by
train"

Who invests in these things? Even more puzzling: how is it that these
hucksters keep raising money to found _another startup_? I've seen this
phenomenon before. I called them "financial serial killers" \-- hustlers who
raise money, vaporize it all, then raise again. They're "serial failed
entrepreneurs," and we're not talking failures where they legitimately tried.
We're talking failures that involve lots of stupid asshat money-burning and
nothing much of substance at all.

My mind boggles. It's like there's some clique of investors out there who
believe in supporting sociopaths as some twisted form of philanthropy. Either
that or they're making money too through some as-yet-mysterious means.

I do have one total speculation:

Is it possible that there could be some kind of money laundering going on
here? Are these money-burning "investments" actually something else? Sometimes
stupid things actually aren't stupid if they're viewed from the right
perspective, and things that make no business sense might actually make a lot
of sense in some other way.

~~~
dikdik
"Hustlers", I loathe that word, but it's pervasive in the tech industry. I
knew hustlers growing up, they sold cocaine cut with baking soda and screwed
people over when they could. I don't understand how so many entrepreneurs use
that word proudly.

~~~
jnbiche
> "Hustlers", I loathe that word,

I understand where that sentiment is coming from, but to be fair, I also heard
the word growing up, but used to describe a certain kind of athlete - the kind
who would dive into the bleachers to save a ball.

In that sense, it's like the word "hacker". A word with two diametrically
opposed connotations. And it _is_ interesting how two such potentially
ambiguous words have assumed such a prominent place in SV culture.

------
mikeryan
Oh man KIT Digital was one of the stranger companies I've run into over the
years. They were in the process of buying everything they could get their
hands on from Broadcast streaming to social games. Had some initial
conversations about them acquiring my small dev shop at the time (we were too
small for it to make sense), then they became a client. Even at that point as
an outsider the whole thing seemed a little off.

At one point I was supposed to meet Kaleil at CES and our plans kept falling
through. Finally as I was waiting for my plane back to SF I got a call from
his admin asking if I wanted to join him at his table for the AVN awards that
night (the CES dates always butt up against the AVN (porn) awards). I ended up
passing....

------
kragen
Have you seen the movie? There is ZERO evidence in the movie that either
Kaleil or his co-founder Tom are talented or successful. They're certainly, as
mikek says in his comment at
[https://news.ycombinator.com/item?id=10547832](https://news.ycombinator.com/item?id=10547832),
"driven"! But that's why they were seeking success by dishonest means in the
first place. As IMDB says:

> The process of building the business focuses on obtaining venture capital
> based solely on the idea, with the actual mechanics of the website seemingly
> almost an afterthought, or at least one left primarily to the hired help.

Basically they were two guys who tried to capture a lot of value without
creating any, basically by world-beating levels of hustle. That describes the
story of KIT Digital, too.

(Don't forget that Kaleil stabs his cofounder in the back in the middle of the
film, too — metaphorically, fortunately.)

I think this is a big problem with the current "entrepreneurial" ethos: you
have people out there who are really honestly creating a lot of value, and
then you have people like those guys who see a big pile of money and try to
scheme up a way to skim a bunch off the top, making life harder for everyone
who's actually contributing.

~~~
jacquesm
The problem is that some of the stories of great success are actually quite
close to the ones that are outright scams.

It's harder to tell the difference than it probably should be. Around the
2000's there were a number of acquisitions of companies that were mostly hot
air. It's a game of hot potato (don't pick it up!), if the investors make bank
on your BS company then nobody will complain (except for the acquiring party,
but hey, that's their problem...).

It is also hard to tell which companies are actually contributing and creating
value and which companies are simply pumping money around. See: groupon for
instance.

~~~
kragen
Oh, yeah, I worked at a startup at the same time whose founders were super
brilliant technical people. We went to go see the movie when it came out (we'd
all left the company by that point IIRC), and we recognized a _lot_ of common
experiences with what we saw on the screen.

I don't know about Groupon. Group buys have been very successful in China but
I have the sense that Groupon has institutionally evaded the accountability to
its product buyers that is required to make a group buy into a net-positive
interaction, let alone a win-win.

(Amusing sidenote: in Groupon's heyday I met a US spy (who of course didn't
admit she was a spy) here in Argentina whose cover story was that she was
coming here to open up a local presence for a more exclusive Groupon-like
company called Theliste, which turned out not to exist. We had a good time at
dinner talking about Arabic grammar and morphology, which she had been
studying at a language school in Monterey, California; her boyfriend and my
wife were unfortunately a bit left behind by the conversation.)

Pumping money around can contribute and create value — consider Bitcoin, where
the question is not whether Bitcoin creates value, which it clearly does, but
rather whether its potential to destroy civilization (through prediction
markets and tax evasion) is more or less significant than the value that it
creates.

Also, there are plenty of great successes that are outright scams. The British
East India Company, for example, or the Congo Free State, or the police
department of Ferguson, MO, or Bernard L. Madoff Investment Securities LLC, or
the Treaty of Guadalupe Hidalgo, or the divine right of kings, or the sale of
indulgences. Heck, we could even include those guys who robbed me on the train
a couple years back.

~~~
lifeisstillgood
Why did a spy tell you she was a spy?

~~~
waterlesscloud
The fact she went to a language school in Monterey is a good hint as to her
background at least.

[https://en.wikipedia.org/wiki/Defense_Language_Institute](https://en.wikipedia.org/wiki/Defense_Language_Institute)

~~~
lifeisstillgood
I think there was some editing between comments - the whole Monterey thing is
new to me.

Now of course the question is, who's side was she a spy for ;-)

------
drpgq
I can't say I'm surprised. If you haven't seen it, Startup.com was great.
Tuzman came across as about as likeable as Billy Mitchell.

------
mikek
It's sad when people who are talented and driven and successful decide that
their success isn't good enough and they have to take it to the next level by
dishonest means.

------
bsdpython
I wonder if Tom Herman (Kaleil's partner at GovWorks and partner at KIT) is
going to get wrapped up in this too. I hope not since Tom came across as a
nice enough guy in the film.
[https://www.linkedin.com/in/tomherman](https://www.linkedin.com/in/tomherman)

------
dpcan
Watched the film in 2001, still waiting for USPS to start scanning my PO Box
mail and email it to me.

Actually, they don't have to go that far. I'd take a simple email notifying me
that I HAVE mail in my PO Box, and maybe who it's from. Would save me a trip a
week probably.

~~~
ibejoeb
Have you considered using a registered agent service, e.g., Virtual Post Mail
and Earth Class Mail? They do this, along with other services like check
deposit, and it's only marginally more expensive than a PO box.

~~~
strictnein
Earth Class Mail filed for bankruptcy recently

[http://www.geekwire.com/2015/heavily-funded-earth-class-
mail...](http://www.geekwire.com/2015/heavily-funded-earth-class-mail-files-
for-bankruptcy-leaving-ignition-as-largest-creditor/)

Edit: They're also who I thought this was about. I get Startup.com and Start-
up Junkies mixed up. Start-up Junkies followed Earth Class Mail, and was also
pretty interesting.

~~~
lpsz
ECM is still very much functional, fortunately, this seemed like some kind of
a restructuring move.

Disclaimer: customer for many years

------
tristan_b
I too can add another testimony to just how mad KIT Digital and ROO both were.
But goodness me it gave me some stories for the diary. The C level was nuts,
but everyone else, goodness they were good, hardworking people.

------
jrcii
One of my favorite all-time movies, even though their plan ultimately failed
Kaleil and Tom were my heroes as a teenager. Really sad to see this.

------
waterlesscloud
Wasn't that the movie with the scene where the founders are presented with
deal terms and given X hours to decide and they think they can't consult with
any outside people (attorneys, etc) during that time?

Does that ever really happen? My instant answer would be "No" if I was
seriously given that restriction.

------
tgb
Next they'll be investigating Tup.

------
rajacombinator
Looks like Preet Bharara has found tech headlines even juicier to chase than
hedge funds. Unicorns beware.

