Perhaps against my better judgement I am going to give you the benefit of the doubt here. You seem to be misunderstanding the situation with IM and YC; according to what PG has said so far, the IM team did not "pivot" while in YC. Again, just to be completely, perfectly, totally crystal clear: nobody at YC was aware of IM. That's not what the team applied for, and it's not what they were accepted for. YC applications do not ask for work history. You are not required to share your resume. They do not ask for references. If I had in the past built a business on exploiting Wordpress installations, it would be largely irrelevant to YC (until such time as someone found out about it, posted it to HN, and triggered the predictable witch hunt).
And, again, even if someone knew about IM -- even if it was mentioned on their application as a past project -- there is absolutely no reasonable expectation that YC's principals should have looked far enough into it to come to the same conclusions that other people here did.
Furthermore, I'm not sure where people are getting the notion that YC funds things on some moral basis. As far as I know, there has never been any statement to that effect, nor is it supported by data. At most I would say only that YC looks for startups that "make something that people want". You seem to be on some kind of mission to "expose" YC, except that all you're really doing is exposing what you have imagined YC to be. This makes you look silly, not them. Every single batch, there is at least one thread on HN wondering why YC funded some company or another, usually because people disagree with the business model. Yet, people are still surprised when YC funds something they disagree with.
I did not at all misunderstand what questionable means. I used it exactly as I meant to.
Finally, your continued comparison to Murdoch is beyond absurd. You are performing a slightly more contemporary version of Godwinning this thread. I shouldn't dignify it with a response, but, Murdoch was found to have been willfully ignorant of what was going on, all while there were widespread (and well-founded) allegations that in fact the top-level executives of his various companies were (and still are) carrying out his wishes in spirit, if not in letter. The News of the World incident was only the one that they happened to get caught at. Only the most imaginative mind could find some kind of allegory between that situation and this one.
It's clear you don't seem to understand investments, given your assertion:
the IM team did not "pivot" while in YC
Like with any other venture capital or private equity placement, YC starts from the moment the team accepted the investment and ends when the legal entity behind Y Combinator fully divests its financial interests. YC can choose to sell its equity, and their refusal to do so is a tacit approval of the company and its actions.
You are trying to claim that YC has divested its interest. Clearly that didn't happen -- if it already did, then PG wouldn't have had to respond. Stop trying to change the subject by focusing on the application -- the problem you are trying to avoid explaining is on the fact that somehow they went from state A to state B, a massive shift, without anyone at YC noticing (ironically, this is exactly the storyline in the News of the World scandal that you find criminal in one case and plausable in another). YC is a significant investor in most of these companies and (based on their claims) has a sufficiently frequent engagement with the companies that it would be hard to pivot without them noticing.
"I'm not sure where people are getting the notion that YC funds things on some moral basis."
I don't think they are, but PG is in a state of cognitive dissonance: he is trying to claim that he is being "moral" by not sponsoring spam yet is profiting from the practice. That's the part that rubs me wrong (and, incidentally, another aspect of the phone hacking scandal that rubbed me wrong) Defending cognitive dissonance is not just silly -- it's deceptive and does a disservice to silicon valley.