Seattle Startup's Ex-CFO Accused of Diverting $35 Million, Losing It In Crypto Crash (seattletimes.com) 36
A former CFO of a Seattle startup is accused of diverting $35 million and losing it when the crypto market crashed last year (Warning: source paywalled; alternative source), according to a report. The CFO allegedly used the funds for personal expenses and investments without authorization. The Seattle Times reports: Nevin Shetty, 39, was hired in March 2021 as CFO of a company called fabric, which makes software platforms for retail commerce. About a year later, after the company informed him it was letting him go over job performance concerns, he secretly took the money and transferred it to HighTower Treasury, a crypto platform he controlled as a side business, the indictment said. His idea was to pay the company 6% interest while retaining profits above that, but soon the $35 million investment was practically worthless, the U.S. Attorney's Office in Seattle said in a news release.
The indictment in U.S. District Court charged Shetty with four counts of wire fraud. He is scheduled to be arraigned May 25. Shetty's attorney, Cooper Offenbecher, said in an emailed statement that he and his client had been in regular contact with prosecutors and disagreed with the decision to bring an indictment. "As the CFO of his former employer, tasked with making investment decisions for its benefit, Mr. Shetty was personally devastated by these losses, which occurred as a result of a catastrophic crash in the cryptocurrency market in May 2022," Offenbecher wrote. "We look forward to responding to these allegations in Court."
Prosecutors, however, said that as the company raised hundreds of millions of dollars in startup funding, it adopted a conservative approach to managing that money -- a policy that Shetty had helped draft. According to the Seattle tech news website GeekWire, fabric had raised more than $293 million by February 2022 and was valued at $1.5 billion. In an emailed statement, the company said it had been cooperating with law enforcement and appreciated the work of the FBI and federal prosecutors. "While the amount taken is substantial, fabric remains very well-funded with years of runway," the statement said.
The indictment in U.S. District Court charged Shetty with four counts of wire fraud. He is scheduled to be arraigned May 25. Shetty's attorney, Cooper Offenbecher, said in an emailed statement that he and his client had been in regular contact with prosecutors and disagreed with the decision to bring an indictment. "As the CFO of his former employer, tasked with making investment decisions for its benefit, Mr. Shetty was personally devastated by these losses, which occurred as a result of a catastrophic crash in the cryptocurrency market in May 2022," Offenbecher wrote. "We look forward to responding to these allegations in Court."
Prosecutors, however, said that as the company raised hundreds of millions of dollars in startup funding, it adopted a conservative approach to managing that money -- a policy that Shetty had helped draft. According to the Seattle tech news website GeekWire, fabric had raised more than $293 million by February 2022 and was valued at $1.5 billion. In an emailed statement, the company said it had been cooperating with law enforcement and appreciated the work of the FBI and federal prosecutors. "While the amount taken is substantial, fabric remains very well-funded with years of runway," the statement said.
Controls? (Score:2)
While this guy was CFO, didn't anyone else notice this money being moved? Depending on the timeframe, didn't any auditors see this?
Re: Controls? (Score:3)
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How big would a company need to be to have a separate Controller and CFO?
Re: Controls? (Score:5, Funny)
>How big would a company need to be to have a separate Controller and CFO?
Mathematically speaking... at least 2 people.
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Perhaps this guy was also the Controller.
This makes a pretty solid argument for why the roles need to be separate, lol.
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Yeah, but that's probably bad practice. You want to set up financial systems in a way that fraud is hard for one person to do, requiring him to have to *trust* a confederate.
Of course sometimes you get a small company where fewer people do fewer things, or have inflated titles that imply they perform jobs that don't really exist yet. I've seen police departments in small towns where the single officer wears five stars on his collar like he's commanding the NYPD, or small software companies where the lead
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or have inflated titles that imply they perform jobs that don't really exist yet.
That's what it really is.
It's a thing you generally see in a few-owner LLC. I've recently seen the practice in a company with a revenue of ~$15m. Not nothing. Not big.
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There's smaller businesses set up like that, that have pretenses to be a big company, but it's run by a couple of partners, and their total headcount is like 10 people, but there's an "IT department" there's "HR", there's "Marketing", "project management", etc, etc.
They don't really have any of those things.
For example, "HR" is just an email alias for one of the partners and the actual payroll, benefits, insurance is done by some outsourced 3rd party company that actually handles that stuff because they don
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It's not new either. This is basically just an updated Nigerian Prince scam, only they found a way to justify you giving them millions instead of a few hundred bucks.
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Re:Controls? (Score:4, Interesting)
They didn't catch it in time to stop him, but they must have figured out what has happening reasonably quickly. He's going on trial about a year after the offense, which is fast turn-around for a white collar case. It's quite likely the company didn't have the controls a bigger company would have, which is how he could get away with it at all.
The thing I find interesting is the article says he sent the money to the crypto company after his employer had decided to fire him. This is exactly why so many companies escort people out of the office the moment the decision has been made to fire them, or the moment they announce their intention to leave if they give notice. If he had been locked out the moment the company decided to get rid of him, they could have saved $35 million.
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It was probably marked as an investment. The CFO is responsible for managing the company's cash reserves. If there's too much cash, it's not unusual to invest it somewhere. And for some time, it was probably producing 6% interest, which is pretty good, depending on the risk.
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Re: Controls? (Score:2)
Typically that money is there for long term health. If you just got a $40 million investment round, that might only be enough to keep you going for a couple years. So you kee $5million for near-term expenses, then invest the rest. Paying out wide-scale bonuses with run-way money is a good way for a company to crash and burn, leaving all your employees out of work.
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Maybe if they actually paid their employees bonuses, they'd stick around and actually have enough morale to improve whatever it is they're selling, and customer service.
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Not regulated, so no auditors in the picture unless the board wanted some.
values (Score:2)
Their company values include "trust is earned," so maybe he'd already earned their trust.
They also include "the impossible is possible," though, and apparently that just wasn't true.
No opening for a CFO, in case anyone's wondering.
http://www.fabric.space/careers [www.fabric.space]
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Their company values include "trust is earned," so maybe he'd already earned their trust.
The textbook example of a successful con-job.
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Yes! People don't get this. "Con" is literally short for "confidence man".
The people who you trust, the guy in a 3-piece suit that looks like a pillar of the community. You can't judge a book by its cover. Always run checks. ALWAYS.
Anywhere known for startups (Score:2)
Some laws need to scale better in their punishment (Score:3)
CGO (Score:4, Funny)
Chief Gambling Officer
FTFY
That's just awful (Score:5, Funny)
I mean, it wasn't just his reputation that's being tarnished... but he's selfishly also sullying the sterling reputation of cryptocurrencies!
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He did a shetty job.
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You know, usually, my reply to spammers hawking a page is that their request for a free pentest has been granted and that the results will be posted here.
But targeting vulnerable people is not asking for a pentest.
It's asking for a DDoS.
Shetty (Score:1)
Thatâ(TM)s a Shetty thing to do.