In the 2000s I was the CTO of a startup that quickly ran into trouble. Our CEO wildly over-promised in order to keep funding flowing, and he then got fired by the board. They appointed a new CEO, and he and I then went around to visit investors. One said “What we have here is a case of the F-word. I don’t mean that F-word. I mean the serious F-word, Fraud.” That was not a happy meeting! The company did actually run for another seven years, and the parts were good enough to be sold for another 15, but that was a low point.

I was reminded of this by a stream of recent reports on tech hype-frauds:

Lordstown Motors finally declared bankruptcy in June ’23 after failing to build electric pickup trucks. Their CEO, Steve Burns, was fired two years ago for claiming huge pre-orders that had no real money behind them. They got a lot of support from GM, including one of their closed plants, but couldn’t get the trucks working. They tried to sell themselves to Foxconn, which is desperate to improve US-China relations, but they couldn’t get them working either. They had gone public in 2020, albeit with a SPAC instead of a real IPO. Burns made $60M from that.

The CEO of Nikola, Trevor Milton, went even further – he released a video of a truck powered by hydrogen fuel cells driving along a desert road:

A sharp-eyed investor found where the road was and discovered that it was actually coasting down a slight grade. They had tilted the camera. The truck had no engine. He was convicted of securities fraud in 2022. The company still exists, but their battery-powered versions have all been recalled and many have caught fire.

Jess Carpoff of DC Solar had a great idea in 2007 – put solar panels and batteries on a trailer and use them in place of diesel generators for movie location shoots. They would be clean and quiet enough to not interfere with the microphones. The panels folded up while on the highway, and tilted to catch maximum sun:

Movie studios loved this. Better still, you could buy them with 30% down and claim the whole 30% as a renewable tax credit. DC Solar would borrow the remaining 70% from you and pay it back to you in installments from income gained from leases. You put up no net money and got good lease income! Even Berkshire Hathaway bought in. Unfortunately, Carpoff was a garage mechanic with a troubled legal background, and had no idea how to make these work. No one was actually leasing them, and they built only a small fraction of what they claimed. It was a straight pyramid scheme, where the initial 30% down payment paid the lease outflow on everything thereafter. Carphoff bought himself mansions and collections of snazzy cars before the feds closed in. He went through a billion dollars, all covered by Uncle Sam’s tax credits. He was sentenced in 2022 and is serving 30 years. This all comes from a nice article in the May ’23 Atlantic: The Billion Dollar Ponzi Scheme That Hooked Warren Buffet and the US Treasury.

These are just the explicitly criminal cases. I would also call Tesla’s “Full Self Driving” a criminal promotion of dysfunctional software for the sake of stock promotion, and that has actually killed people. Those cases are in the courts right now. Outside of automotive tech, there’s the entire cryptocurrency sector, which creates literally nothing, and burns about 50 terawatt-hours per year to boot. That would power Massachusetts.

So what’s going on? It sure looks like too much money is chasing too few ideas. Now that it costs very little to actually make or grow anything, all the excess that people pay for has to go somewhere. The world is flooded with investments looking for returns. Much of it is Chinese and petro-state money looking for safety away from their unstable homes. A lot of it used to be Russian money doing the same, but those guys are falling out of windows these days.

When there’s this much money sloshing around, the unscrupulous are inevitably going to take advantage. In the grand scheme of things, though, the few billion lost in the above isn’t that big a deal. The risk is that the scamsters tarnish all new ventures. Self-driving cars, for instance, actually are getting better, but Tesla is doing its best to ruin the whole concept. The highly unstable venture capital market can easily turn against good concepts if enough fraudsters come in. My company was almost done in by that attitude, and many others actually have been.