Stanford Fraud

The Weekender

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In the last several years, we have seen yet another Stanford Alum charged with fraud.  Maybe we had some heuristics or biases and were too close to the Bay Area tech nexus. Let’s look back – just a few years and some quick research.

Graduates

2016

Owen Li (Stanford 2008), former managing member of hedge fund management company Canarsie Capital LLC, pleaded guilty last year to one count of securities fraud and one count of making materially false statements. After losing $57 million of investors’ money in less than three weeks, he entered the plea.

2022

Elizbeth Holmes (Stanford dropout) Elizabeth A. Holmes was sentenced today to 135 months (11 years, 3 months) in federal prison for defrauding investors in Theranos, Inc. American business and government leaders lost more than $600 million by privately investing in Theranos.

2022

Caroline Ellison (Stanford 2016), former CEO of Alameda Research, the trading firm affiliated with the cryptocurrency exchange FTX. According to sources cited by the Wall Street Journal in November 2022, Alameda Research owed $10 billion to FTX. The source said FTX had lent the trading firm money from customer funds at FTX.

2023

Kwon Do-Hyung, (Stanford 2015) known as Do Kwon, is the South Korean co-founder and CEO of Singapore-based Terraform Labs, the parent company of crashed stablecoin TerraUSD and cryptocurrency Luna.

Faculty, Staff, and Administration

2020

Chen Song, a Stanford visiting neurology researcher, was arrested for not disclosing that she had apparently been an agent of China’s People’s Liberation Army. Stanford had also been investigated by the Department of Education for some $64 million in alleged Chinese-affiliated donations over a decade, all from previously unnamed, unidentified, and anonymous Chinese donors, most of them believed to be government associated.

2022

Stan Cohen (Stanford Geneticist) has paid $29.2 million in damages after losing a lengthy court battle. Cohen was found to have committed “a species of actual fraud and…deceit” in misleading investors into a biotechnology company he founded in 2016. Cohen also admitted to providing inaccurate testimony to the court.

2022

Marc Tessier-Lavgne (Stanford President) Scientific integrity consultant Elisabeth Bik had raised concerns about four papers (in such journals as Science and Nature) that were co-authored by Tessier-Lavigne, findings which The Stanford Daily confirmed. Tessier-Lavigne has vehemently denied allegations of any falsification of data, "This is a breathtakingly outrageous set of claims that are completely and utterly false.” The investigation is ongoing.

Operation Varsity Blues

John Vandemoer, Stanford University's former sailing coach, was the first person to be sentenced as part of the college admissions scandal. Prosecutors alleged in court documents that Vandemoer accepted $610,000 in bribes (donations for admission-only scholarships) to facilitate the admissions of students as salinity recruits. Court documents say the funds were put into Stanford's sailing program.

Tao Zhao, whose family reportedly funneled the largest check received by William “Rick” Singer, the admissions consultant at the center of the explosive case brought by federal prosecutors. The pharmaceutical executive’s daughter, Molly, earned a spot at Stanford University by casting herself as a recruit for the school’s sailing team, according to the Los Angeles Times, which broke the story, at a cost $6.5 million. There is “no indication” the young woman ever participated in competitive sailing.

Daniel Golden, author of “The Price of Admission: How America’s Ruling Class Buys Its Way into Elite Colleges,” conferred with sources in the Office of Undergraduate Admission at Stanford while writing his books. A Development case is a term that refers to the children of important donors or potential donors,” who receive an even more substantial advantage than legacies (students whose parents attended the school). The generous applicants can help "develop" the university (the funds their families donate will be used for development) or these applicants themselves are in need of further "development" since they do not meet the "normal" admissions standards of the university. How Much Money Do You Need to Donate (or Potentially Be Able to Donate) to Qualify as a “Development Case”? An admissions officer will not publicly answer this question; his research found that Stanford considers development cases to be applicants from families capable of donating $500,000 or more.

Of Mention

2022

Sam Bankman-Fried – (MIT – only his upbringing and parents are tied to Stanford) The cryptocurrency world also has its eyes on Stanford Law School, where disgraced FTX founder Sam Bankman-Fried’s parents and legal advisors all teach. SBF’s upbringing on Stanford’s campus means the school and its Silicon Valley ties are implicated in the story of his crypto empire’s epic rise and fall. The parents, Joe Bankman and Barbara Fried are or were active law professors at Stanford; the FTX fraud is estimated at $8 billion.

One More Whack

Stanford has taken some big hits. They have had serious issues with Dei, Freedom of Speech. The 2022 disaster was when Justice Duncan was invited by the Federalist Society to speak at the law school.

                  

Victor David Hanson wrote that the debacle revealed four disturbing characteristics about Stanford law students.

1. They acted as if they were bullies and cowards. Videos of the mess showed how they turned mob-like in their chanting, flashing creepy placards, and, like Maoists, walking out on cue. Yet, when the judge fired back at their rudeness, like wounded fawns, they took offense and pouted. And later, when there was mention that the names or photos of the protestors might be published, tit-for-tat, in the manner they themselves had put up posters of the Federalist Society members, they screamed that such exposure was unfair.

2. They seem incompetent. To the degree there were any questions and answers, few knew how or even attempted to engage the judge on matters of the law and judicial theory. In other words, any grammar-school students could have matched their performance since it required no knowledge of the law, just an ability to chant and—in groupthink style—cry, scream, and mimic the majority.

3. They were arrogant. One protestor blurted out that Justice Duncan probably could not have gotten into Stanford, as if their puerile performance was proof of the school’s high admission standards. That was as obnoxious in addition to the fact that, as of recently, it may have become not so true. In July 2022, Stanford Law School announced that an uncharacteristic 14 percent of its graduates had flunked the California bar exam on their first attempt, a radical increase from past years. Four other California law schools—UC Berkeley, UCLA, UC Irvine, and USC—had a higher bar pass rate.

Memory tickler – What school did Sam Bankman-Ford's parents teach at?

Analysis and Recommendations

Many fine and prosperous and thoughtful graduates have come from Stanford. Many more, I hope, are still coming from Stanford. Further, Stanford is not the only prestigious School having these and similar problems. But Stanford has a current bad culture.  One venture capital angel in Menlo Park said so many are ready to “Fake It Until They Make It.”  She further added fake it till you make it into prison.  The tone must be seated at the top.  Stanford has had a serious ethical lapse in enrollment – many have “donated” the way into the acceptance of their child.  Faculty have had some serious issues of misconduct and retractions. Click on this link and scroll through 16 pages of articles on Retraction Watch involving Stanford.

Corruption and Fraud are cousins.  Corruption is convincing someone to betray their loyalty for personal benefit.  Fraud is theft without violence.  Thwarted ambition encourages the person to consider corruption or fraud a shortcut to achievement. Blind ambition, the stuff the kids who come into top names schools possess, must be tempered with ethics. In any institution, the tone is set at the top. From the President’s office, through the faculty, to the students, and how the students are selected for admission. Stanford has forgotten the two key rules for ethics, The Golden Rule and The Silver Rule. Stanford has damaged its brand and now its graduates.

Recommendations for investing.  Don’t buy into the hype of a big-name school’s brand behind someone’s name, now especially Stanford’s.  Verify all credentials with the credential-granting sources.  Ensure there are controls in place in any investment, especially private, to keep business decisions and transactions transparent with officers and directors held accountable.

Why do fraudsters buy fake degrees to put on their walls?  The fake credentials are so you lower your guard, get a little greedy and with defenses down and greed up – you make the investment without doing your due diligence.

Stay paranoid, my friends.

L. Burke Files CACM DDP

Advisor to the Founder and Sr. Researcher

Unicus Research LLC

Weekender Music

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