How Do We Prosecute Venture Capital?
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In the heady days of a 1980s Wall Street, a new breed of financial criminal — like Mike Milken, Steve Cohen and Ivan Boesky — rose in the historic boom.
These criminals came up during a massive innovation in financial products: junk bonds and adjustable rate mortgages, mortgage-backed securities, CDOs. There was a new type of extremely rich and powerful firm running Wall Street — while hedge firms weren’t new, they became a titanic force in the 80s and there was a large proliferation and huge quantities of money flowing through them. It was a low-regulation environment and better than that, the regulators were far from hip to the new rules of the bubble. Money was coming out of the sky, unprecedented personal wealth and power abounded, and significantly, there was a high concentration of sociopaths and psychopaths.
Recipe for disaster.
The massive amount of money, rapid changes in the economy, and lack of regulation, incubated and radicalized these financial criminals. They were able to cause massive damage and amass enormous wealth and power. If you want to learn more about these specific criminals, I recommend Den of Thieves by James B. Stewart.
In response to this new financial environment, the new factors, the new players, the legal and regulatory system had to adapt to new economic crimes, and shape innovative strategies for how to prosecute these innovative financial crimes. As financial crime evolves, so must the approaches of law enforcement and regulatory boards.
I usually am careful about comparisons of Wall Street to Silicon Valley, because there are really significant differences and comparisons have a tendency to obscure venture capital’s trajectories. But in this case I think there’s useful similarities to the Wall Street 80s and the venture capitalist in the 2020s. You have a range of new, innovative financial products coming onto the market from venture capital: cryptocurrency, NFTs, tokenized real estate, etc. You have a culture of greed and power, a near-total lack of regulation, incredible speeds of growth; you have a financial vehicle in VC, that resembles the take-off of hedge funds in the 80s. And just like then, you have a legal and regulatory system that has simply not caught up.
When there is new innovation in financial crime, there is a need to develop new prosecutorial strategies. To date, there has been very little prosecution for financial crime in tech and certainly none that have come even close to addressing root problems. Even the Elizabeth Holmes case was limited in scope, down to a population of two. The investigation into FTX doesn’t address a systemic problem in any material way and is far and away from the actual core of the issue. FTX was a relatively small player.
So there is just incredibly limited prosecution even happening.
Do we think that multi-billionaires just started cropping up in force out of the venture capital ecosystem, and there hasn’t been rife financial crime? The existence of these people and their personal wealth is open evidence of financial crime. The general population feels scammed by technology, thinks it is run by evil overlords and monsters and sociopaths. Yet the legal system is not bridging that gap. Just like in the 80s, we simply don’t have experience formulating a prosecution strategy for these new actors and new patterns.
This is going to require fierce and fearless investigators and prosecutors and offices, and innovative approaches to meet the new times. That said, there is obviously a rich history of prosecuting financial crime here and many of the core tenants absolutely apply in this scenario if you know where to look.
In this post, I want to use readily available frameworks that we all know to reason about what these crimes are and how cases against VC might be built. I am not a lawyer, but then again, you don’t really need to pass the bar to understand that general outline of a financial crime of this magnitude, that is playing out in public view. And if I can do it, so can you.
VC is moving at light speed and legal matters could absolutely slow that down, damage parts of the conspiracy, yield new information on criminal activity, and educate the public via high-profile trials, similar to what we have seen with Wall Street in the past. The exposures of these crimes have been the catalysts for Occupy Wall Street, the most powerful anti-capitalist movement we’ve had in the last 10 years. Right now, the general public doesn’t know much about venture capitalists, much as the general public knew little of hedge firms back then.
The first question is, what is the crime or what is the provence of the crime, stated in financial terms? I would describe the crime in this way:
In 1998, PayPal was founded with the goal of coming up with a new currency. The goal was to “blow up all the central banks” (Thiel quote). Since those days, a small group of venture capital conspirators have gained control over the startup ecosystem and funneled a massive amount of money into an effort whose consistent, stated goal was an attack on the existing financial system. This has meant massive investment in crypto startups, mega purchases of cryptocurrencies, and a culture war against traditional finance.
Through the entire timeframe of the conspiracy, from the inception of PayPal to now, we see ongoing, public statements by core executives and venture capitalists in this space, that the goal of crypto is to destroy the existing financial system: to sabotage it, replace it, expose it, subordinate it. They are building all of this with a specific goal: to fight the banking system. Members of this conspiracy have referred to crypto as “the revolution against central banks”. The archives of venture capital over the past 10+ years don’t even bother to conceal the hostile intent of these efforts.
When Bitcoin debuted in 2009, this conspiracy had a breakthrough — and indeed, we can place Satoshi near the PayPal Mafia and a16z on several occasions. The first recipient of Bitcoin had actually known Marc Andreessen for years, leading a pentest for Netscape in the 90s that was related to credit card transactions over the web. When PayPal had started in 2000, the technology wasn’t there yet. But when the Satoshi paper was published nine years later, it finally was.
At this point, this small conspiracy began to build up the infrastructure around crypto currency, using manipulation of the tech ecosystem to gain decisive amounts of the market, and many pieces of major financial infrastructure. Through a huge consolidation of wealth and power, and cronyism across multiple decades, they came to dominate and control the crypto market.
Venture capital will be expecting 10x+ the returns on their investment, from their own purchases of cryptocurrency which are likely enormous, as well as the startups they have created. These returns will come from exits, pay-outs, IPOs, sales (perhaps on VC’s own stock market), etc. but when they do, we’re going to see another order of magnitude increase in wealth and power for tech.
Especially if they don’t have to pay any taxes on it.
Which they have no intention of doing.
Because they weren’t just building monopolies on crypto infrastructure. As their investment in crypto began to grow and grow, VCs also got very busy quietly executing on an ambitious plan to set up sovereign lands outside of the United States and leave America, to report to no high authority than its own, to evade taxation and regulation, and to damage the American economy. To establish the sovereign venture capital state, using all its winnings from fucking up the American financial system.
As of now, they’ve made considerable progress. In Nigeria today, venture capitalists are establishing a“startup city” without laws or taxation. “The moment you are inside the zone, you are outside the Nigerian state.” Peter Thiel has been instrumental in this play.
In El Salvador, amidst a dictatorship and mass human rights abuses, venture capitalists have been going all-in on the “Bitcoin City”, entering direct contract with the dictatorial leadership, and passing legislation that removes taxation and regulation — including capital gains tax — on all tech innovation, including AI and crypto currency. Setting it up to be yet another den of VC criminality.
In fact, the whole time they have been amassing crypto assets, VCs were quietly building an internal consensus around this agenda of leaving the country to get out of paying taxes and being accountable to the American people. With every brick they laid for crypto, they laid another one lining their path out. VCs created a number of “communities” and “societies” with the goal of secceeding, such as Ubit and the DAO model, which maps neatly onto these plans for a new state. a16z has gone so far as to publish The Network State, which describes, in detail, how venture capitalists plan to pull off their plot. Openly citing taxation as justification for VC flight. One choice quote: “Taxes are secular tithes, and the gov-fearing man is like the God-fearing man — you simply cannot pay enough money and respect to the state”.
We are facing, in real time, the efforts of a few venture capitalists to flee the country, carrying with it trillions of dollars in returns on startups and crypto currency plots going back 20 years.
That is how I would start framing the issue as far as the lens of financial crime.
This isn’t an outlandish theory; it is a description of a criminal body that not only has motive and stated intent, but is negotiating with outside nation-states for land and regulation / tax shelter, and is establishing land mass outside of American jurisdiction, from which it can operate free from American regulation of any kind, under its own sovereign.
Venture capital is trying to do this in multiple geological areas simultaneously, and we can show venture capitalists in active negotiation for tax shelters for crypto wealth.
Coinbase looking for global trading HQ - outside of the US - is happening in line with this plot.
This is a complex, multi-firm conspiracy to escape US jurisdiction through an elaborate scheme: setting up a distributed, sovereign nation with pieces of land all over the place, extorted from poor countries, respected as sovereign entities, connected to each other by corporate conspiracy. And to do this under the guise of “innovation” and “political philosophy”, when it is simply a large scale version of tax evasion. Same kind of crooks, same kind of crimes.
The tax evasion case feels substantial. I think we could estimate we are looking at as much as 10x in venture capital wealth over the next half decade to eight years. And it could well be more than that. The new VC nation will surely attract a massive amount of international backing, with the Silicon Valley crown jewel up in the air. As global markets continue to struggle while tech wealth increases exponentially, global investors will see a rare opportunity to not only get some of the VC returns but actually to be a founding investment of the venture capital state.
An extraordinary amount of that wealth is going to be coming up from seeds that have been carefully tended by this conspiracy. This is what Marc Andreessen once subtly alluded to as the “spring” following the crypto winter. Having incubated this wealth here on American soil with American resources and American workers, VC is trying to carry trillions of dollars out of the country and avoid taxation in perpetuity, a scheme they have developed in lock step with their crypto build-out.
It may very well be the strongest legal cases against venture capital conspiracies would come down to tax evasion, tax fraud, tax conspiracy, attempting to defraud the country, etc. These are important legal frameworks with a lot of precedent and a lot of extensibility, which gives us the possibility of adapting and encompassing the crimes that we are seeing come out of venture capital today.
The challenge to prosecutors, is how to operate in an environment where these conspiracies are being carried out via hundreds of startups controlled by the venture capitalists, and where this conspiracy is coming across multiple generations of financial technology.
There is as much opportunity for investment as for prosecution. Let’s make magic.
I like this approach because one thing that America absolutely the fuck wants is taxes. From the interests of America, it has itself invested huge amounts into the technology industry and VC, from the defense and intelligence deals, to the public school and academic education, in significant tax breaks, and in the investment of limited partners into venture capital, which have come from a wide number of state-funded apparatus, including school endowments, pension funds for state and federal workers, retirement funds for police unions, and so. And that’s BEFORE we get into research grants, major contracts with police and military, the education of CS students by state schools, and so on.
Which means that most of the money and resources that venture capitalists have been using to get rich, come right from America. This is basically the equivalent of giving someone money to invest in a fruit tree and when the fruits come in, takes them all, takes the tree, and flees the fucking country to eat lemons in peace.
With 10,000 of their friends who also stole a tree.
As America has actually put up a huge amount of money into venture capital, I imagine she would feel quite entitled to its profits and future growth. These were investments made on American soil, with American money.
And if it comes down to it, I will even concede myself to being an American and thus part of the class. :)
The issue of conflict between VC and America over taxes is far more serious than anyone is giving it credit for. They are fighting a fucking war over it, even if the US doesn’t yet realize. Though I imagine they are starting to get hip, with all these new investigations and notices from the SEC floating around.
Spring!!!
To venture capital, taxation is also a personal issue as, year after year, so much of its money is going into America, instead of into new startups and more technical infrastructure. How much money do you think Marc Andreessen has lost, total, across every single one of his firms and investments and startups, to taxation? Between his VC firm, all of his startups and the taxes they pay, all of his workers across his entire portfolio and the taxes they pay, all the taxes on his personal income, his investments, his stock portfolio, and all the taxes he pays on all of his houses, all of his land that he owns both personally in the Bay Area, having married into a massive real estate empire, as well as real estate for all his companies, and his real estate startups. Like Flow, which already owns 4,000 apartments in America on last check.
Oh boy. I mean, I’d be mad too. I HAVE been very mad on much more humble sums. Marc is an empire; he certainly doesn’t want to accept a 30-40% cut off his returns to support a country he loathes and openly believes to be both failing and containing his own reckless, unending, mindless expansion and greed. This is a fucking ton of money that is going out the door and they know, and feel the pain, of every single cent. After all, they have a nation to build.
They and their companies have been implicated over and over again in manipulations like bribing cities for major tax breaks, which we saw with the Mid-Market Tax Breaks and companies like Square, Medium, and Twitter entering the Tenderloin to take it over. This is simply part of the same design; however, we must prosecute it in totality. RICO!!!
The motive for a crime is clearly there. The VC hatred and desire to avoid taxes, has been documented BY THEM, in books, on conference stages, in Tweets, in their political involvement, and in their tax-evasive maneuvers.
Something great about this legal strategy is that VCs absolutely love to crow about how great they are and their amazing future plans, typically just direct confessions and admissions of crimes. The Network State would itself make a fantastic exhibit A for a tax evasion lawsuit, because they come right out and say they want to leave the US so that they don’t have to pay taxes anymore.
Welp!!
Going beyond simple tax evasion, it seems to me that there has to be some kind of case here around a conspiracy to harm the American financial system for the personal gain of a small group of rogue venture capitalists (the PayPal Mafia + a16z). Racketeering, RICO charges, and market manipulation charges are all of interest here.
If we accept the premise that VC is a hostile financial actor, it brings into a new light other, non-crypto products from these VCs. Why wouldn’t these entities, like OpenAI, invested in by all of the same VCs, also be participating in the war on the economy? OpenAI is an economic threat because it is designed specifically to replace workers, and to enable hundreds of startups to automate the jobs of other industries, and has no intention or even notion of doing anything to enable a safe, societal transition to AI, guaranteeing any kind of income security, etc. During a very precarious economic time, they are flooding the market with ways to automate and lay off workers. Large numbers of layoffs are already citing ChatGPT, starting with the tech giants themselves. Creating massive job instability and layoffs, when located in a broader context of economic war and attempts to flee the country, takes on a new tone.
If we can accept as our premise that this is an economic attack — that the crypto economy has been built as a economic attack — that opens us up to see the full scope of the financial crime, which INCLUDES OpenAI and other plays that have negatively impacted the economy or weakened it.
And to take a two-leap speculation, I wonder if there would be another angle of civil or criminal prosecution here that is about the larger fraud of taking all of this money from the LPs, and using it not to make pragmatic investment decisions, but to drive a massive financial conspiracy and tax evasion scheme. Of course, this surmises that the LPs aren’t implicated in the crime, which I imagine is only a portion of the funds represented.
We… don’t know who these people are, and that is a huge information gap. We need a legal approach to turn up information like this. As I’ve written previously, I am deeply concerned that LPs are using venture capital to produce weapons, financial instruments, and real estate plays that may or may not be legal. The fact that there is such a large missing piece of this financial picture, leads me to believe that demons lie that way. As VC gets deeper and deeper into weapons manufacturing, are we seeing a “laundering” system where LPs can use VCs to indirectly fund weapons manufacturing?
Food for thought!
The IRS is a pretty heavy hitter and does not fuck around. All other standards of civic participation aside, it is gonna fucking repo the money, period. They are used to looking at conspiracy of tax evasion, and they have wide latitude when it comes to getting the fucking money, and so on. We can clearly show statements of intent to evade taxes, statements of desire to harm the financial system, concrete moves to escape US sovereignty (using US money) — none of this even requires much detective work, which also leads me to believe that there is a whole TROVE of illegal bullshit in information that can only be unlocked through depositions and subpoenas.
This is a topic I hope to come back to. I’ve been learning a lot about financial crime as we face this threat. I’m working on at least one piece about legal frameworks for crimes against humanity and human rights that I believe address the VC criminal behavior at a very deep level, and a way that is more closely connected to direct victims of harm. But, I’m also looking at this through a RICO lens and seeing what else comes to the fore.
I am writing this because unfortunately, the legal system could be one of our best hopes for catalyzing resistance to the venture capital threat. In a good mood, I think these conditions of severe economic downward pressure, upward wealth transfer, and the exposure of criminal bodies like venture capital, could help catalyze more broad-based resistance to the financial system, as we saw with Occupy.