As a private company, are there any laws that restrict me from lying to the public about my financials? As long as I'm not defrauding an investor or lying to the tax man or various regulatory bodies I can say anything I want, right?
I only ask because Blodget has proven himself very willing to do just that kind of thing in the past, though I'm unsure what the angle would be.
It could possibly fall under misrepresentation[1] law under certain circumstances. For example, as a service company, pretending you have solid revenues might induce a potential client into buying your services (if your client has a policy of only dealing with established companies).
You have to selectively report, optimize withholding, use legitimate tax minimization strategy, diversify into a range of activities and shell companies.
Are you sure you aren't thinking of public companies? I've been in a fair number of sales and M&A meetings where I heard people lying up a storm about corporate health or financials. Any laws to cite?
can't directly lie, but people play games with accounting numbers all the time. for all we know, a large chunk of that revenue could be going to pay year-end bonuses.
but given they have 45 people, after salaries and benefits, and after all the costs of running the site, that kind of net profit doesn't seem entirely unreasonable on $4.8M rev.
I'm a little confused, perhaps I was unclear. It sounds like I'm in agreement with you that I don't think the numbers are crazy. However, accounting is more of an art, and you can play games with numbers. E.g., large companies typically have two sets of books (and are allowed to), one for investors, one for the IRS. The latter typically makes things look worse so you don't have to pay as much tax.
I'm no lawyer, but given the company has investors, I'm pretty sure the SEC can still come after them if they're misleading their investors. Sending out a press release saying your company is making $100B would be very much like what Madoff did. They can still come after you.
Also, think revenue numbers are a bit harder to fudge, so doing a sanity check off of those based on how many people they have, I think it's in the right ballpark.
Agreed that if you're misleading investors that's generally going to be fraud of some type of another. But presumably his investors already had his numbers, they aren't waiting for a blog post linked to by tech crunch to find out.
It seems like you're blurring the line between a public company and a private company. Why use accounting tricks? This isn't a 10Q, it isn't certified, it wasn't prepared by an auditor. It also isn't his tax return, or testimony to the government.
I also think you're overestimating your ability to back out rev numbers from headcount. I've worked at a similar sized company that booked $0 in rev, and I'm sure plenty of 1 person companies book more than that.
My point really isn't about the numbers, it's about credibility. This guy got barred from the securities industry by the SEC for telling the public one thing when he believed the opposite.
All I'm saying is you can't tell how accurate it is, but it doesn't sound like to me they are fudged. Companies play with numbers to make one set look favorable to investors, and another set look poor to the government at the same time so you avoid taxes. For all you know, that could be the number he reported to the government for his tax return. But there are laws saying you can't lie about it, especially if you have investors (public or private - linked a couple above). Tax evasion comes into play because even if you have two sets of books, those have to tie out at some point, and if you're lying, there's likely some issue you're running into with the IRS.
I'm not estimating revenue. I'm saying ~4.8M rev - (45 ppl * ~80-100K avg all in comp) - operating costs checks out to around the break-even profit. Nothing more. Both numbers could be fudged - I don't know.
Agreed with you that he has questionable credibility. And I'm also saying that that could certainly be happening here as well. But we have no way of knowing, even if we had the numbers in hand
>> But presumably his investors already had his numbers, they aren't waiting for a blog post linked to by tech crunch to find out.
For clarification, from the OP's OP, TC didn't exactly have to do any investigative journalism to get this data. BI released it voluntarily themselves from the beginning. TC got their data from that post:
"Well, we're a private company, and we've never disclosed any of that stuff, either. But I'm honestly not sure why.
So we're going to try an experiment. We're going to disclose that stuff. Then we're going to see if something horrible happens to us.
If it does, we'll probably never disclose that stuff again. If it doesn't, maybe we'll still never disclose that stuff again--because, you know, it's "confidential" and "competitive" and "we're private, so we don't have to disclose that stuff."
What law are you talking about that would penalize me if I sent out a press release tomorrow claiming my company is taking in $100bn a quarter?
Why vet the first number off of the second? Surely if you're willing to misrepresent one...
To be clear, I have no specific reason to doubt the numbers except that he's an unreliable source and that public disclosures of private company financials are so uncommon. If your brother in law got convicted of running a boiler room you're not going to take his stock picks at face value, right?
I only ask because Blodget has proven himself very willing to do just that kind of thing in the past, though I'm unsure what the angle would be.