Ask YC: Ethical Question, possible fraud

If he is exaggerating to get investors then he is most likely violating the law. This is really bad policy, since due diligence will wipe those illusions clear.

If exaggerating features of a product, again bad policy, if you are selling something you don't have you are going to end up with an unhappy customer. In this case exaggerating number of employees would be exaggerating features if he is selling support as a feature, bad policy to make promises that are not true.

Overall as long as they arent asking you to do anything you feel is not just, i wouldnt worry about it to much. These lessons usually end up making teachers out of themselves.

Some people are naturally prone to exaggeration. Immaturity comes in to this as well -- once you've been around the block a few times you realize that fake posturing is easy for customers to spot.

If it's not investment related, it's not criminal. I'd have a word with the guy, something along the lines of you can't lie your way into trusting business relationships. After that, I'd make a call as to whether it was worth staying or not. I wouldn't.

But seriously, it's a no win situation for you. People will say a lot of things to close a deal, and even more to make payroll.

So either your founder is: 1. Desperate and willing to say anything, which means you might want to be cautious about the general health of the company 2. Just a sneaky and over the top exaggerating salesguy (ok, a liar) because that's the only way he know's how to sell. A shame, but you'd be surprised what salespeople will do to close a sale. 3. Has a 'corvette' complex. His lies are not about what amazing things his product will do and how it will transform the customers business, which is more common for a salesperson to 'embellish'. Instead, it's about how big and successful his company is.

If the company isn't healthy, and he's desperate, I'd figure out a way to either help or bail.

If the founder is just a liar, I'd go elsewhere. The thing about liars is they lie about everything, sometimes for no reason about absolutely trivial things. Life is to short to be around them. And the saddest part is that his customer might be looking for a nice, small company who really wants their business and will jump through hoops to get it as they would be a highly valued customer, not just one of many.

If it's the 'corvette' complex then run. He's starting a company to prove something to the bully in the playground.

And the bully is probably mowing lawns for a living.

If you CAN do X, and the only thing stopping you from getting the deal is the other side's perception of you, then influencing their perception (i.e. lying) can save the deal, save your company, and solve their problem -- all at the same time.

It can OFTEN be in BOTH your AND your client's best interest to lie.

And ask for forgiveness later after they are happy with you, IF it ever comes up...

What I would do is not listen to that. They have their job (selling the software) and you have yours. If they commit a fraud, you will not go to jail for it.

Do you hear the car dealership mechanic tell the customers the cars was NOT really driven by an old lady to church every Saturday?

Now, where you KNOW there is a fraud, you have a legal obligation to disclose it. But fraud is very different than what you are describing.

I'd keep my mouth shut about it. It might not be what you would do, but it does not sound illegal.

A good personal moral compass in such situations is whatever helps you sleep soundly at night. Life is rarely black or white, more shades of grey (can't remember where I read that).

Curious to know, what would you have said in the same situation, would you have said we have 2 customers, one office, couple of customers, you would be third if we are lucky and hey guess what you are going to beta test our product.

Also, think about the second order effects of this deal not going through. Can you company make payroll without it? Is this deal the break your company has been looking for?

I did technical sales for 3 years, first real job right after school, the 2 things that really helped me sell were:

1. Tell the truth and

2. Put your customers interest before your company's

Good luck!

At that point, you won't have to face the dilemma of doing the right thing vs. making rent.

In that particular order.

The bottom line is that it's tough to bootstrap a company and sometimes the salespeople will "throw the ball ahead of the runner" a bit.

The morality has to do more with whether or not the founder believes that what he's saying will be true soon enough that telling the customer that info isn't misrepresenting the company.

If you went to work for a big company you'd sit in a cube and not hear any sales conversations, but they'd probably be much more distorted -- at least in a startup everyone can help make the dreams (of the founder and the customers) a reality... there is much more of a team mentality.

When you hear the founder say such things you should be thinking "wow, he really believes that we can do that" and feel motivated by it. It's part of the entrepreneurial psychology. He has you on the team b/c he believes you can make whatever he says true.

If you don't like spirited optimism, I hear the IRS is hiring :)

I would leave. No dilemma there. But I won't judge / advice. There is no absolute morality.

And that sort of thing, while a little weird, doesn't really harm anyone. It was when he started putting in ads in the trade press that we did things or had things that we blatantly didn't (and couldn't) that things started to get a bit dodgy. I left shortly afterwards.

Firstly, i have to ask though was this put in writing or just while talking?

Secondly, there is a difference between almost closing a deal(Customer has show interest and you reassure him with the numbers) and the customer hasnt made a choice and you use the lies to convince him. In the second instance it's fraud.

If it were me, i would leave.

Reevaluate any promises he's made to you or any agreements you think you have with him. If you have a manager between you and him, same goes. A manager who is much closer than you to his dishonesty and is OK with it is going to act the same way to you, or claim to be on your side but, gosh, was overruled by the boss.

Now that you know you can never trust your bosses, it's time to find a new job.

There are a lot of factors involved (in this case, can you deliver the software they want). If your company delivers what's been promised, then it probably won't be a big deal.

Legally, you probably aren't on the hook. It's unlikely that your company will agree to be audited so they probably aren't cooking their books. It's equally unlikely that they will sign contracts that contain false statements. I would rest easy if I were you - this sounds like part of the sales game. Your founders probably won't let it turn into a legal situation.

In short, your options are:

  * confront the founder
  * get vocal outside of the company (customers, investors, etc)
  * quit 
  * keep your concerns to yourself and continue working

Keep in mind that the decision to twist the facts was conscious. This is in all likelihood his mode of operation, so talking about ethical concerns will probably not yield any response. It's not like he'd say - "Damn, you are right. What was i thinking ?".

If the checks bounce, leave immediately (that day) and contact the labor board - they will get your money for you; and under no circumstances go back as an employee - if they want to pay you upfront as a consultant, and this of course is at your choice.

In any case you sound unhappy at your current job and should get another one at a company you can feel good about working for.

This isn't water-tight, but the reality is that verbally telling people you have more employees or offices than you actually have, within reason, are really not going to get anyone into trouble.

Nearly all startups pretend they're more established than they are.

Nearly all startups pretend they have more customers in the process of signing up than they do.

I hate to see everyone acting like these kind of exaggerations are the same as dishonesty or fraud.

People that make these kind of exaggerations can definitely be trustworthy.

There is a very big difference between exagerrating the position of a startup to break out of a catch-22 and being a liar and untrustworthy.

I'm sure a lot of people feel the same as I do - it's just that they'll not comment with their established usernames, and advisably so because that'd be a stupid thing to say on record.

Five years ago, at 20 years old, I was offered an amazing opportunity -- running leadership conferences across Canada, and leading teams of youth around the world to promote business/development. I'd been running projects with the organization for a couple of years and absolutely loved it.

Then, I discovered that the founder was committing fraud with taxpayer money -- criminal mismanagement. Had anyone gone to the media, it would have been a juicy scandal involving taxpayer money (but that would only have hurt the youth involved). He was hurting himself, his family, and at times even putting people in danger.

After consulting mentors I trusted (an ethics law professor, retired business person and retired diplomat)and a five hour conversation with the President, I turned down his bribes and caused a minor but localized fuss in a genuine attempt to improve the situation. It was unsuccessful.

Even though I was right, and even though my mentors and friends verified this and helped me form my actions, I would have been much better off by keeping my mouth shut, politely declining their job offer, and simply shifting my focus to creating my own future.

This would have avoided the stress of going through hell in a fruitless attempt to make things better, that most people would never understand and would leave me disconnected to a group of people I loved being apart of (aside for just the couple of people who were causing all this nonsense) -- I was disconnected from them because I couldn't explain why I was taking action without endangering the good that the org. was also doing for a lot of young people. ie. I didn't want to harm the org. by actually having the media get wind of it.

So next time I will button my lip, acknowledge the world exactly as it is, and stay focused on what I want my own life to be instead of getting hung up on others..

If you think that you might have legal trouble for not telling people about this, then talk to a lawyer. Otherwise, find another job and don't look back. If you hear anyone doing business with this guy again and you care about them, warn them about what you overheard and why you left - personally, I would really appreciate such advice. Otherwise, don't mention it unless someone asks.