Lots more examples in the Netflix documentary shows Dirty Money and Rotten.
Lying about why youâre firing someone â or firing a large number of people at once â is a common way that businesses commit fraud.
You might think it doesnât matter very much. But if it didnât matter, they wouldnât lie. They are putting work into lying because itâs relevant to things like severance packages, unemployment benefits, managementâs reputation and bonuses, and the companyâs stock price (investors are trying to figure out if there is a market downturn, too low demand for the companyâs services, or something along those lines thatâd mean low growth expectations).
The woman in the video knows why sheâs being fired (management screwed up and hired too many people), and she brings up the reason, and they still really want to lie to her and never admit it because their fraud has concrete impacts. They arenât lying just to be psychologically cruel to her; I donât think they want to be cruel at all; I think they just have financial incentives to lie, which makes it financial fraud.
On a related note, taking a new job like that is a big deal in peopleâs lives (as she mentions), and being fired quickly without doing anything wrong is a really bad outcome. I think some people have âcapitalistâ views about at-will employment, and therefore think it doesnât really matter to fire someone unpredictably at any time for no reason, and I think thatâs wrong and generally not thought through beyond some vague abstractions about an efficient market and free market economics.
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Wow. The way the HR people were speaking and responding to her questions made my skin crawl.
The woman in the video knows why sheâs being fired (management screwed up and hired too many people), and she brings up the reason, and they still really want to lie to her and never admit it because their fraud has concrete impacts . They arenât lying just to be psychologically cruel to her; I donât think they want to be cruel at all; I think they just have financial incentives to lie, which makes it financial fraud .
I read your comment here as attributing the fraud to the HR staff tasked with the firings. But I suspect these two HR people are obeying orders from above about how vague to be when letting people go, and so their choices about their responses are limited by those orders? Like these people are being tasked with firing people and making sure the impression they give is that itâs because of performance, but the decision to commit fraud is likely above them. (I donât know much about company management hierarchies and could be wrong.)
Theyâre participating in it but I didnât mean that they originated it. Policies like this are set by top executive(s).
Looking at this TikTok reminds me of something Iâve experienced a lot at work at Starbucks. Which is selling Americanos (espresso and hot water) as brewed coffee. I believe this would count as fraud, however officially we are not supposed to do it. A lot of the time this happens is because all the Starbucks Iâve worked at, six so far, are terrible at managing their floor (I donât know how much to actually blame not being given enough labor, their are times when their is clearly excess labor yet they still do a poor job of keeping things running), so when it comes to keeping up with brewing fresh coffee they almost always run out during peak hours.
The solution? Just give them an Americano which tastes similar to the brewed coffee they expected. Why? Itâs quicker to have two shots of espresso come out of the espresso machine and put hot water on it then it is to brew fresh coffee. What disturbs me is how commonplace and how indifferent people are to it. My brother works at the Starbucks that apparently has some of the best operations in the district and he has gotten lectured before on somewhat small things when making a drink like making sure a tea is shaken, yet when it comes to brewed coffee they show indifference. They even joke about it over the headset about how they are about to âAmericanoâ somebody. My brother pointed out this hypocrisy and the supervisor just broke down and said heâs mean.
This happens in part because of the need to keep the flow of customers going and reducing their wait times but instead of looking for actual solutions they just lie.
Checking the Starbucks menu a grande americano has 225mg of caffeine and a grande pike has 310mg of caffeine. Not only do you get a different tasting cup of coffee, you get less caffeine then you expected.
I believe this happens more often than not. All the stores Iâve worked at do it. Whenever we get people from other stores working at our store, if they see we are out of coffee they immediately make an Americano. If you ask any Starbuck worker if they gave you brewed coffee or an Americano theyâll say itâs brewed coffee, however if youâre going during peak hours the chances theyâre lying to you and giving you an Americano is quite high.
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Yeah, (bad) management likes to try to dodge responsibility for what happens under their management.
Telling people not to do it or having a rule against doing it means theyâre aware itâs happening. And I think they know that telling people not to is ineffective without addressing the causes or doing any enforcement or monitoring to prevent it.
Also, itâs hard to tell from your story how much this behavior might vary by store owner, regional manager or country.
True. I double checked with my manager and while she doesnât have access to any of the records she has been told by her bosses that our area and district fares quite highly in comparison to the rest of the country. Thatâs pretty bad. Also the vast majority of Starbucks are corporate owned, so the corporation plays a much larger hand in how stores are managed. From what I can tell this is pretty bad. Most managers end up becoming glorified rule pushers and any change against the standardized rules is seen as bad. Iâve been 50/50 on it. Some managers I know of are way too arrogant and do much worse than following the standard rules. However, for certain issues Iâve seen managers (particularly my manager) who will do a small change from a standard rule that is actually helping and she ends up feeling guilty later when the district manager will tell her to stop doing it because it is not standard procedure. I think a lot of corporations are looking for glorified rule pushers, instead of people who manage a business.
I have a whole slew of things I could share on the bad management of Starbucks however I feel like that would go off-topic of policing big companies. I think whats been bothering me is the how low the standard is in the actual world to be considered a good manager.
Edit: I was wrong about most Starbucks being corporate owned. Iâm fairly sure most stand-alone Starbucks are, but then I forgot how many licensed locations their truly are.
The company opened 816 net new stores in Q4, ending the period with 38,038 stores: 52% company-operated and 48% licensed. (source)
âWe finished our fourth quarter and full fiscal year strong, delivering on the higher end of our full-year guidance. Our Reinvention is moving ahead of schedule, fueling revenue growth, efficiency and margin expansion,â commented Laxman Narasimhan, chief executive officer. âNotably, we continue to see the positive impact of our Reinvention on our partner and customer experiences, proof points that we can continue to create, grow and strengthen our business while creating value for all. As we enter the current year, in the face of macro uncertainty, we remain confident in the momentum throughout our business and headroom globally. We expect sustained momentum throughout the company for years to come,â Narasimhan added. (source)
During the end of the last quarter of last year and during the current end of the first quarter of this year Starbucks was cost cutting a lot (these last two quarters is when I paid attention a lot, this happens though every quarter) which I feel like is lying in terms of how they try to portray the health and success of their company to consumers and investors. We will go from having bi-weekly meetings, managers having extra admin time to work on stuff, people coming out quickly to fix broken machines and property, etc. to only focusing on production, managers only on the floor, and focusing only on important fixes such as on the espresso machines. This seems reasonable if profits arenât as what they expected, sure.
What bothers me here and what I feel like is lying is the reasoning behind the cost-cutting. Costs are being cut because the money isnât there. Which is fine. However, this isnât shared explicitly. A recent example that irked me is talks of our growth and expansion while hours across the board are being cut all across the district. Sure, they get their numbers but the way they present these numbers makes it seem like they got in the context of things going good/as expected for the company.
Yeah itâd probably be better to make a separate topic for it than post a ton of it in this topic.
I know a lot of examples of big companies being bad, but I donât know a lot of details for most of the examples. News stories tend to only give a few details of what itâs like working somewhere, not a full picture. So sharing an example in more detail could be interesting to me and others.
I donât know what your goals are or what alternative activities you might do instead. Sharing more could give you writing and critical thinking practice. Itâd also offer some possibility that someone disagrees with something you said and that leads to some debate. Someone could also point out extra things, ask a question, offer sympathy, or make various kinds of comments. (But the forum is pretty small and quiet, so you might not get much response.)
Anyway, Iâm glad to hear that someone with relevant life experience (and pro-capitalist views, I think, not just someone biased against for-profit companies) is finding my comments and theories fit their experiences well. (Rather than being like âOh you philosophers, you just sit in your armchairs and make things up and have no idea what the world is like!â A lot of philosophers screw that up and I try not to.)
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I overall have capitalistic views and it was specifically your essay on policing big companies that made me start looking at companies more objectively. Before I read it I did have the view that most of the stuff on places like r/antiwork were just anti-corporate, leftist, propaganda.
I would say Iâm better than most at tying in ideas to reality and not evading stuff I disagree with, as it just sticks in my head for a while, though that is to say Iâm not perfect or close to anything ideal when it comes to evasion.
9 posts were split to a new topic: Learning Philosophy (was: Capitalism Means Policing Big Companies)
Regarding companies committing fraud, itâs pretty important to know what fraud is. Matt Levine and I seem to be in agreement on a lot of the main points, but a judge in Texas isnât. He basically just ruled that you can only defraud people directly, not indirectly, so for example stock market (or crypto) pump and dumps are legal because the victims buy the stock (or crypto) from the public markets, not directly from you the liar who says itâs a great stock that youâre buying and holding (but actually you planned all along to sell as soon as your gullible audience bought it).
https://www.bloomberg.com/opinion/articles/2024-03-21/pump-and-dumps-are-legal-now
Nothing is securities fraud?
The simplest form of fraud is that you lie to someone and they give you money. Perhaps you give them something in exchange for their money, but you lie about its attributes. (They pay you for magic beans, but the beans are not magic.) Or perhaps you lie about giving them something and give them nothing. (They pay you for the Brooklyn Bridge, but you do not give them the Brooklyn Bridge.) Fraud is often illegal, though exactly how it is illegal will depend on how you do the fraud, and to whom, and what you are lying about.
For instance, doing fraud about securities is illegal under US federal law; this is called securities fraud. Securities fraud often takes the simple form: You lie to someone (about securities) and they give you money (for the securities). You tell people that you have started a company that has discovered cold fusion, you offer them a 1% stake in the company (stock, a security) for $1 million, they pay you, you deliver the stock, but you were lying about the cold fusion.[1] This is fairly standard; Elizabeth Holmes and Sam Bankman-Fried are recent high-profile cases of people convicted of fraud for lying about their companies to sell stock to investors.[2]
But securities fraud often does not work that way. In modern public stock markets, it is possible to lie to people in a way that costs them money, and gets you money, without them giving you the money. Schematically:
- You have some stock.
- You lie about it.
- The people who believe your lies buy the stock, anonymously, on the stock exchange, so it goes up.
- You sell the stock at a profit, anonymously, on the stock exchange.
- Eventually your lies are discovered and the stock goes back down again.
You made money (Step 4), and your victims lost money (Step 5), and your lies caused their losses and your gains. But you didnât necessarily sell the stock to the victims: You sold the stock on the stock exchange, they bought it on the stock exchange, and you have no idea who was on the other side of any of those trades. Quite likely the victims bought the stock from some sophisticated electronic market maker, and you sold the stock to some sophisticated electronic market maker, and the market makers didnât believe or even see your lies.
This is quite a common form of securities fraud. Companies, for instance, are regularly accused of doing securities fraud for lying about their business in a way that keeps their stock price up, even if they are not selling the stock themselves and lying directly to the purchasers. (âEverything is securities fraud,â I often say.)
But this sort of securities fraud doesnât have to be done by the company. We have talked a few times about fake takeovers, where someone buys stock, puts out a fake press release saying that the company will be bought, and then sells the stock at a profit. More broadly, a âpump and dumpâ is a classic form of securities fraud in which someone â perhaps a promoter affiliated with the company, perhaps just a guy online â buys a stock (often a small, illiquid penny stock) and then tells lies about it. âThis company discovered cold fusion,â he says, to his email newsletter subscriber list, or on X or Reddit or whatever. People believe him, they buy the stock, the stock goes up (the pump), and he sells his shares (the dump) before the price crashes again. He doesnât necessarily sell the shares to his email subscribers or X followers, but their buying is what makes his sales profitable.
This is, if you think too hard about it, actually a bit of a puzzle. If you are charged with fraud, you might say: âOh sure I lied about this stock, and it went up, and then I sold the stock. But nobody can prove that I sold the stock to the people I lied to. So how can I have committed fraud? As far as you know, the people I lied to never gave me money, and in fact I never even wanted them to. I just wanted them to buy the stock, so it would go up, so somebody else â some anonymous person on the stock exchange who never even heard my lies â would give me money.â
I think most people think this is too cute. It sure looks like fraud: You lied, someone believed you, they paid money, a fairly mechanical process (the workings of the stock market) occurred, the money came to you. Surely thatâs fraud. In US securities law, this is called the âfraud on the market theory.â In 1988, the Supreme Court endorsed the theory[3]:
The fraud on the market theory is based on the hypothesis that, in an open and developed securities market, the price of a companyâs stock is determined by the available material information regarding the company and its business. Misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on the misstatements. The causal connection between the defendantsâ fraud and the plaintiffsâ purchase of stock in such a case is no less significant than in a case of direct reliance on misrepresentations. âŚ
The modern securities markets, literally involving millions of shares changing hands daily, differ from the face-to-face transactions contemplated by early fraud cases, and our understanding of Rule 10b-5âs reliance requirement must encompass these differences.
In face-to-face transactions, the inquiry into an investorâs reliance upon information is into the subjective pricing of that information by that investor. With the presence of a market, the market is interposed between seller and buyer and, ideally, transmits information to the investor in the processed form of a market price. Thus, the market is performing a substantial part of the valuation process performed by the investor in a face-to-face transaction. The market is acting as the unpaid agent of the investor, informing him that given all the information available to it, the value of the stock is worth the market price.
If you lie to the market, and the market believes you and gives you money, then that is fraud, even if the particular people who believe you are different from the people who give you money.
Or, I mean, thatâs what I thought yesterday.
In 2022, federal prosecutors and the US Securities and Exchange Commission brought securities fraud charges against a group of people who allegedly did pump and dumps using Twitter, Discord and a podcast. We talked about the case at the time. It was typically silly: The defendants went by online nicknames like âMrZackMorrisâ and âMystic Macâ and âThe Stock Sniper,â the podcast was titled âPennies: Going in Raw,â the SEC complaint had pictures of a Lamborghini, and the defendants were publicly saying things like âIâll never get sick of pumping ⌠money into my followers bank accounts. LETS ALL GET RICH!â while they were privately saying things like âWeâre robbing f*cking idiots of their money.â
So I couldnât not write about it. But it was kind of boring, really, just the most garden-variety pump and dump imaginable. âPretty straightforward fraud,â I called it. âI donât know why people keep falling for it,â I wrote. There was nothing particularly novel or interesting about this case except I guess the names.
But yesterday a federal judge in Texas dismissed the criminal charges against MrZackMorris and friends in an absolutely wild opinion ruling that, in fact, a pump and dump is not securities fraud, because the people who bought the stock didnât buy it from the pumpers[4]:
Unlike a traditional fraud case, in which the victim directly surrenders their property to the defendant (or an entity in the defendantâs control), the investors here surrendered their property to the stock market at market prices, and in return, received the benefit of the bargain in the form of securities. Thus, the scheme did not deprive investors of their money or property through any misrepresentation; the misrepresentations deprived them only of accurate information necessary to make discretionary economic decisions.
And:
There are allegations that the Defendants intended to âmaximizeâ their own trading profits and that Defendants in fact profited from their activities. These allegations adequately allege that obtaining financial gain was an object of the Defendantsâ scheme to defraud; obtaining financial gain, however, is only half of the equation. It is the other half of the equation â harming a victimâs traditional property right â that is lacking.
The Indictment states that âthe defendants used their credibility to maximize their own trading profits through their tweets and posts in Atlas Trading Discord, often at the expense of their Twitter followers and members of Atlas Trading Discord.â That allegation, however, underscores the issue with the Governmentâs allegations when accepted as true â the defendants may have âused their social media influence to pump and dump securities for their own financial gain,â but the language of the Indictment indicates that losses to victims happened incidentally (i.e., âat the expense ofâ) rather than as the âobject ofâ the alleged scheme. Rather than plead a scheme aimed at harming someoneâs traditional property right, the scheme as pleaded is totally indifferent to its effect on the alleged victims. Many of the alleged victims may have actually made money. This was confirmed at the oral arguments. Moreover, even accepting as true that the alleged victims ultimately lost money on the stock market because the value of their shares went down, the Defendants did not obtain something of value from the entity to be deceived. The investorsâ trading losses are one step too far removed from the Defendantsâ alleged fraudulent misrepresentations.
What a weird opinion. Part of the theory here seems to be that itâs only fraud if you want your victims to lose money, which ⌠I mean, then nothing is fraud, is it? Surely everyone who does a fraud is âindifferent to its effectâ on the victims: The goal is to get money for yourself, not to cost the victims money, though of course that is the usual outcome.[5] If you sell people fake magic beans, you will get money, which is what you want, and they will probably lose money, which you donât care about one way or the other. But if they turn around and resell the beans at a profit to some other sucker, you donât care, and you still did the fraud!
But the main part of the judgeâs theory is just that, since the victims bought stock on the stock market instead of directly from the pump-and-dumpers, the pump-and-dumpers could not have been doing fraud on them. Fraud requires a direct connection, a victim who âdirectly surrenders their property to the defendant.â And in the public stock market, where everyone is buying and selling anonymously and probably through market makers, you can never really prove that the victim traded with the defendant.
Seems wrong to me, but what do I know
If itâs right, though, it means that pump and dumps are completely legal, as are fake takeover offers[7]: Itâs not fraud to lie about stocks and make money trading them, as long as you are only trading on the stock market and not directly with the people youâre lying to. (Not legal advice! This is one weird opinion in Texas, donât try it at home.) If thatâs right, the stock market, and social media, are going to get pretty weird.[8]
âSeems wrong to me, but what do I know If itâs right, though, it means that pump and dumps are completely legal, as are fake takeover offers[7]: Itâs not fraud to lie about stocks and make money trading them, as long as you are only trading on the stock market and not directly with the people youâre lying to. (Not legal advice! This is one weird opinion in Texas, donât try it at home.) If thatâs right, the stock market, and social media, are going to get pretty weird.[8]â - Matt Levine, article
I wonder if he actually read the court opinion. Its not too long, just 12 pages. Iâd recommend reading it. As far as what the judge cited it seems pretty legitimate based on the court cases he was citing (I just googled them and read a summary of the rulings on Oyez). A lot of how U.S. law is defined is by court cases. So as far as I can tell the judge isnât that wild in his ruling as he was basing his ruling off of the precedent set by other cases. The cases he cited mentioned an intent is needed. Now I donât think this is correct in how fraud should be handled, but this is a larger issue of how the law is dealt with rather than one judge. The cases that the defense (the defrauders) used to cite their reasoning were quite recent. One of them, Ciminelli v. United States, was decided in May of last year which is very recent as far as Supreme Court stuff goes. The other one, Greenlaw, had no good summaries available as it was a decision by the fifth circuit court but from the Justia summary plus skimming it seems reasonable as to why the judge deemed it necessary for an intent requirement.
His ruling was based on other rulings. While I think I agree with you and Matt Levine on what fraud is, his ruling was from a chain of other bad rulings. The way the U.S. legal system works, as far as I know, if theres not a statute its determined by cases.
Heres the thing that never made sense to me but Iâve heard some lawyers talk about it (Robert Barnes, he has a good legal podcast in my opinion and has a lot of experience with big companies and the stuff they do, and Harvey Silverglate in his book Three Felones A Day): fraud, and more broadly many crimes in general, are only illegal in the contexts in which they are written to be legal. For you to convict someone under securities fraud. You canât simply do fraud related to securities. You have to commit fraud as those statutes and related case determine what fraud do. I can find relevant quotes from Three Felones a Day from Harvey if anyone is interested, heâs mentioned that a worry prosecutors have is that a criminal can commit what seems to be a crime but it is not written in the books to be a crime yet.
This never made sense to me. Fraud is fraud. Now I think there is a lot of benefit to define what fraud looks like in various contexts in order to make it easier for courts to prosecute, but I never understood why apparently fraud was allowed to be committed, to an extent, over mail and wires until mail and wire fraud laws were made.
So yeah, as far as I understand for a lot of legal matters it has to be made illegal in very specific contexts or otherwise it canât be charged unless someone in courts wants to make the time to make some case law on the matter.
Oh sorry, I just quoted write off the article you had in there. It does look like its from you, Apologies.
I was going through my notes and I forgot I watched this and took notes on it.
I think Pepsi made a legitimate offer. People put disclaimers on ads all the time. Pepsi couldâve easily put a disclaimer on the ad and they did put a disclaimer for the Canadian ad.
Pepsi made it seem that John Leonard was a crazy kid trying to go for the jet because no one else did. Its irrelevant if no one else did. Also the points were so high for the jet that most people could think its legitimate and still not do it because the offer seems too high.
Pepsi is a large corporation with supposedly smart people and lawyers. Numerous times in the documentary comments were made that John was trying to âgetâ Pepsi and this wasnât a serious consideration at an offer. Who cares? Pepsi is not a small business with no legal counsel who made a mistake. Its a company with squads of some of the best lawyers money can buy.
I think its interesting that in episode 2, as portrayed by the documentary, Pepsi first reaction to this is to immediately go to their legal team and try to make it go away. They donât even try and see if this is a reasonable offer they messed up on.
Also in episode 2, around 9 minutes, they casually mention defrauding John, ââ[Jeff] Someone, and it might have been Michael, said, âHey, why donât we keep the $700,000 and weâll send him the model from the commercial?â".
Pepsi sued very quickly and raised the points to 700,000,000. They knew they messed up and refused to take responsibility. Fun fact: the case was filed in the Southern District of New York which apparently has a bad history with corruption and overstepping their bounds, according to Robert Barnes (a prominent attorney I follow).
Pepsi also has a history of defrauding winners in other countries. In 1992, they messed up a certain promotion in the Philippines leading and refused to pay the winners out. The winners were supposed to get 1,000,000 pesos which was equivalent to $40,000 USD at the time. According to this NYT article from 1992 their profits were around $425.7 million. They could much better afford to pay this mistake compared to their future Harriet Jet mistake and still didnât.
I think Pepsi is a bad company that tries to use fraud among other bad tactics to get people to buy their product.
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