Being Frank
Tech companies have laid off tens of thousands of employees over the last year, for a variety of reasons that can be justified in many convenient ways - inflation, interest rates, changing consumer habits, supply chain, whatever. Last week, Google unceremoniously dumped 12,000 employees, many finding out via surprise email the morning of. Many people let go had long tenures at the company, and many were making or had made millions of dollars in tech. Why would a company like Google - wildly profitable on a bad day - move to axe some of its most valuable team members with years and decades’ worth of knowledge?
By now, there have been dozens of thinkpieces written analyzing what the Google layoffs indicate about the tone in Silicon Valley, but the scattershot nature of the firings reveals a more insidious motivation: fear. Not fear in the executive suite, whose only sacrifice in these cuts will be to receive a somewhat smaller 7- or 8-figure bonus, but creating fear and uncertainty among tech more broadly. These layoffs were meant to send a message to the country’s most well-compensated workers: you are expendable. We don’t care if you’ve worked here since the company was founded, or that you make millions a year, or possess vast troves of critical operational knowledge. You work for us, and we can fire you any time we want.
Whether this was a calculated move years in the making or a spontaneous decision to capitalize on the convergence of (mostly made up) financal crises is impossible to know, but judging from the shock and outrage on tech Twitter, LinkedIn, etc the gambit has paid off, so to speak.
We talk a lot around here about how shareholders and investors contaminate corporate culture, forcing companies into shortsighted decisions in pursuit of quarterly growth. Viewing through that lens, let’s tell a story about the last year or so in Big Tech.
For the last decade, tech companies have had access to huge pools of cheap cash, and been told by their investors and shareholders they must grow at all costs to maintain stock prices and deliver outsized returns. Tech giants bought up their smaller rivals, absorbing more and more debt - financial and technical - and their staff numbers ballooned. When markets contracted, cheap debt dried up, profits slowed down, and the same growth-obsessed shareholders began to moan about profitability and efficiency, experiencing a sudden change of consensus on what makes a successful tech firm. Would that they’d done so ten years ago so we could have avoided the Ubers and WeWorks, but hey.
In response, tech companies cut. They diverted resources away from moonshot projects back into serving more ads or writing code or selling subscriptions or whatever. They shut down offices, cut benefits and services. Then, when their rivals started slashing jobs, they leapt to trim the labor bloat they’d accumulated from years of binge eating. This story is as tired as it is predictable - it is the natural result of the incentives created by public and private investor markets. We’ve had three or four bubble and burst cycles by now, and we fail (or refuse) to learn anything resembling a lesson.
Google, perhaps due to its huge profits and built-in monopolies, took a far more cynical approach to downsizing. Historically, if a tech firm needed to scale back it cut recent hires and junior staff, or moved top performers from one project to another to curb waste. Google’s utter disregard for seniority, performance, or job role gives away what may become the new normal in tech: driving down wages and increasing productivity by creating an environment of fear and uncertainty. If those people can be fired after ten years at Google, so can anyone.
Was this necessary? Of course not. Google makes tens of billions of dollars a year in profit, returned tens of billions more to shareholders via stock buybacks, and is growing its revenue even as its margins fell slightly from their historically ridiculous levels. Its executives will still make tens of millions, it will still pay Apple billions a year for access to its phones, and largely nothing will change.
Perhaps Google saw threats from unionization in tech, or is firing the first shot in a skirmish to drive down the profligate wages it has paid for years. Only time will tell. But the many many articles about Googlers laid off after many years of loyal service miss the point. It was never about performance. Politics? Maybe. Power? Absolutely. Google could point to the actions of its peers - layoffs, shuttering unprofitable business lines, etc - and justify its own anti-labor moves by waving a press release in Wall Street’s general direction. Thus far, the media has taken the bait.
For the laid off, even the ones making 6- or 7-figure salaries, there can be non-financial consequences. A Stanford professor who studies layoffs discusses the mental and emotional toll of the experience, and the negative effects on society. Should we feel bad for someone who spent years being paid millions to create dark patterns in our search results? Maybe not, but we can acknowledge that being fired is a traumatic event, even for people with jobs we find distasteful. More importantly, when bosses and corporations gain more power over workers, everyone loses.
Charlie Javice
We often discuss charismatic startup founders who receive glowing coverage from the tech press while avoiding scrutiny of the underlying venture. When said ventures inevitably collapse, explode, whatever, we get media autopsies bemoaning how no one - including said media - detected the signs of malfeasance.
Here is one such Insider account of Javice’s startup Frank, currently embroiled in lawsuit(s). What happened?
Barely a year after selling Frank to JPMorgan Chase & Co. for $175 million, the bank accused the 30-year-old of fabricating almost four million client names and emails — the overwhelming majority of her company's users.
Javice is accused - pretty credibly! - of fabricating nearly all of her student aid startup’s customers. One damning tidbit are her emails to the guy who fabricated four of the four-and-a-quarter million ‘customers’ from her work email:
The messages, according to the bank, included copious evidence that she had hired a data science professor to create fake information to prove to the bank that the millions of customers Frank claimed to have were real.
Highlights from the emails also included a Frank engineer’s questioning of Ms. Javice’s data manipulation request. She responded that she didn’t think anyone would end up in an “orange jumpsuit” over it…
I am sure reading ‘I don’t think we’ll go to jail for this’ was a relief to her co-conspirator, but it’s provided JP Morgan with incendiary evidence in its lawsuit.
Elsewhere in media denial, here is a good write-up (takedown?) in Forbes, which coincidentally named Javice one of their 30 Under 30s in 2019. Some key bits of info about Frank that might have been worrisome to, I don’t know, a bank’s risk department were:
Javice/Frank were sued for mismanagement and wage theft in 2017
The Department of Education accused Frank of misleading customers in 2017
A bipartisan group of Congresspeople asked the FTC to investigate Frank’s ‘deceptive practices’ in 2020
A NYT op-ed written by Javice was heavily amended, citing errors in basic descriptions of the student aid process
Frank’s tuition aid forms lacked necessary questions to provide aid appeal assistance (a service it charged for)
Frank’s web traffic numbers showed a fraction of the visits required to amass millions of customers
These are things you’d imagine the nation’s largest bank would investigate as part of basic due diligence before cutting a 9-figure check. When a startup has attracted the attention of the Department of Education, the FTC, and multiple members of Congress within a few short years, you’d hope a thorough explanation would be required by JPM’s lawyers, if not its executives? Nah.
In fact, no one noticed the deception until JPM’s marketing department tried to email Frank’s userbase:
After JPMorgan acquired Frank, the bank set out to turn what it thought were the startup's more than 4 million users into JPMorgan customers. Last January, JPMorgan sent a marketing email to a batch of about 400,000 Frank users.
"The marketing campaign was a disaster," the bank alleged in its lawsuit. About 70% of the emails bounced back, and only 103 of the email's 400,000 recipients clicked through to Frank's website. JPMorgan launched an internal investigation.
That was what set off the investigation? Not, I don’t know, the company’s financials, or any other amount of legal review? Was there any scrutiny of this deal, by anyone?
We often beat the media up in stories like this, and there’s plenty of culpability there - Javice spent years doing fluff pieces on TV, radio, podcasts, and writing opeds in the New York Freakin’ Times, but paying $175 million dollars for a company that fabricated ninety percent of its userbase and critically did not have revenues to match - Javice does not appear to be accused of forging bank statements…yet - is all on JPM. If bankers can’t do basic math, and everyone who looked at this deal gave it an enthusiastic thumbs up, that’s less a failure of a complicit tech press than it is an indictment of the comical incompetence at our biggest financial institutions.
Recurring Characters
I should probably stop writing things like:
That means we only have to talk about Theranos one more time before we can put Silicon Valley’s highest profile fraud case behind us.
At the time, I foolishly believed Holmes would quietly exit the public discourse after her sentencing. Even that had weird drama, via her failed attempt to secure a new trial after one prosecution witness had a change of heart. Well, much to my great displeasure, Holmes in back in the news, for a very dumb reason:
Elizabeth Holmes made an “attempt to flee the country” by booking a one-way ticket to Mexico departing in January 2022, shortly after the Theranos founder was convicted of fraud, prosecutors alleged in a new court filing Friday.
[…]
The claim that she tried to leave the country last year surfaced as part of a new filing from prosecutors arguing that Holmes should begin serving her prison sentence rather than living on an estate reported to have $13,000 in monthly expenses for upkeep.
Holmes denies the charges via her lawyers, but I’d imagine the prosecution has a copy of the plane ticket. Not a good look! As usual, nothing in this newsletter should be construed as legal advice, but if you are going to flee the country after a criminal conviction, you live in the San Diego area, and have access to wealth sufficient to be living in a thirteen thousand dollar rental, I’d suggest literally any mode of transport other than the most tightly surveilled in the country. What did you think was going to happen, Elizabeth?? Come on.
Elsewhere in Dumb Criminals, guess who’s back?
The Federal Trade Commission on Friday asked that notorious “pharma bro” Martin Shkreli be held in contempt of court for forming a new drug company in violation of a judge’s ban on the convicted fraudster from working in the pharmaceuticals industry.
Surely he can’t be that stu-
In its court filing Friday, the FTC noted that Shkreli in July announced the formation of a new company, Druglike, “that appears to be involved in the drug industry.”
The filing quoted Druglike’s press release on that announcement, which called the company “a Web3 drug discovery software platform co-founded by Martin Shkreli.”
I. Can’t. What. Adding ‘like’ at the end of a word does not imply that your company is not involved in the drug industry. Nor does adding web3, though it does indicate you aren’t serious about running a drug company. In the FTC’s defense, they did attempt to question Shkreli on his budding new venture:
The FTC and a group of states that sued Shkreli said in the filing he has failed to comply with their requests to give them documents and submit to an interview as part of their probe into whether his involvement with Druglike violates the Cote’s order banning him from the industry.
Bro. Come on. When you are under court order preventing you from forming a drug company, and you start a company with THE WORD DRUG IN IT and refuse to answer the government’s questions? What do you think is going to happen? Also, where is all this seed capital coming from?
The FTC said the company’s creation, as well as Shkreli’s failure to pay his nearly $25 million share of a $64.6 million judgment he owes in the lawsuit, suggest that he is violating the court’s orders in the case.
I am not saying they should throw Shkreli back in prison, but maybe we need to look at our methods of deterrence are for unrepentant white collar criminals. The tens of thousands of people behind bars for parole and probation violations must be wondering what Shkreli’s secret is. Maybe it’s in his newsletter.
Also in the week’s least surprising political news:
Rep. George Santos, R-N.Y., made a significant revision to his 2022 campaign filings Tuesday by specifying that a $500,000 loan he made to the campaign didn't come from his personal funds.
The amended filing, however, provides no new information about the source of the funds — it says only that the loan came from the candidate but wasn't his personal money.
Yeah, no shit.
Fireball
I love a good food lawsuit, so a headline like this one is like a flashing neon sign, beckoning me in:
People buying small bottles of Fireball Cinnamon at their local convenience store might be surprised to learn that they’re not getting the same stuff that comes from the liquor store — and that difference is at the center of a lawsuit in which a customer is suing the maker of both beverages.
The maker of Fireball Cinnamon Whiskey and Fireball Cinnamon is being sued for misleading packaging, since the non-alcoholic mini bottles look nearly identical to their boozy cousins. That said, I am not entirely sympathetic to anyone who believed they were buying airplane bottles of whiskey for 99 cents at a store which does not sell alcohol. Did they believe they’d found a secret hack? Come on, y’all.
It is good to see our Vanilla Vigilante back on the wagon, so to speak:
The lawyer representing Marquez and others in her class is Spencer Sheehan, a plaintiff’s attorney famous for filing hundreds of class-action lawsuits against food companies. Sheehan is sometimes called the “Vanilla Vigilante” for his litigation over products that contain artificial vanilla and not the real thing.
I will nearly always side with consumers against giant, faceless food (and beverage) brands but I gotta say, claiming millions in damages on behalf of people snapping up handfuls of cinnamon-flavored sugar water thinking they’ve found a cheap and easy way to get wasted at the 7-11 probably ain’t it.
Short Cons
NPR - “Following Hurricane Katrina in 2006, hundreds of welders and pipefitters were recruited from India to come to the Gulf Coast to repair oil rigs. But when they arrived in the U.S., it was nothing like what they were promised.”
WGAL - “The indictment alleges that beginning in 2018, Zambrano and Jara and others began acquiring thousands of E-Z Pass transponders from retailers in Pennsylvania and New Jersey.”
Bloomberg - “It told the doctor that it would enforce a contract clause requiring employees to give 120 days’ notice when quitting or pay a hefty fee, equivalent to his salary for the remainder of that four-month window.”
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