The CEO of a Silicon Valley startup has been jailed for three years, and fined $1.5m, for defrauding investors in his gift-card app business.
Croatian Renato Libric was sentenced [PDF] this month in a California court for what prosecutors called an "elaborate fraud carried out over a period of months." His startup, Bouxtie – pronounced "bow-tie" – attempted to crack the gift card market, which is worth more than $100bn in the United States. It offered retailers an app that their customers could use to purchase digital gift cards for friends and family, and personalize the cards with a message or photo.
But like so many Silicon Valley upstarts from that time, the whole idea was a non-starter as it relied on adding itself as a middleman into an already established market with low margins. The only thing it really offered was that the cards could be bought and personalized on a smartphone.
Like food delivery, there was virtually no money to be made, and Bouxtie was running out of seed cash just as Silicon Valley's venture capitalists were insisting on seeing actual revenue before investing because they sensed the app economy bubble was about to burst.
Libric, who was living in Redwood City, was desperate to get in new investors but without a higher profile, money in the bank, and the promise of being bought out by a larger company, no one was interested.
And so he concocted all three. Libric promoted himself with a back story about his upbringing (which also made its way into court hearings [PDF]) and his move from Croatia to the US, including a claim that he was advised by Richard Branson personally to take his business to America because "you have a much bigger vision than can be realized here," and "if you really want to change the world and have those kind of big ideas, the money is in San Francisco."
Libric also told potential investors that there were three large companies interested in acquiring his business – something that wasn't true – and managed to get all of that information, including the Branson quote, into a puff-piece in Forbes that he then referred potential investors to.
So far, so Silicon Valley. But Libric crossed the line from creative hyperbole to fraud when he forged the signature of an exec from a public corporation on a term sheet in an effort to prove that it was interested in buying his upstart. And he also falsified a bank statement showing that Bouxtie had over $2m in the bank when in fact there was just over $7,600.
He didn't stop there, either. He forged signatures from his own company's board of directors on a document that said he could enter in a "loan" from investors that could be later converted into Bouxtie shares.
And it worked: Las Vegas-based Moose Run invested $1.5m in the company. But the startup still faced the same market realities, and wasn't bringing in anywhere near enough revenue. Going further down the path into outright fraud, the same day he banked the check for $1.5m, he transferred $130,000 of it into his personal checking account.
It didn't take long for things to unravel, and on May 10, a federal grand jury indicted him for wire fraud. He was arrested shortly after, and pleaded not guilty. Four months later, he changed his plea to guilty.
Libric's lawyer argued in court that the 39-year-old tech wannabe had made a "tragic error" in a desperate effort to keep the company going as it "teetered on the edge of success." The prosecutors were far less romantic. "This was not a crime of passion, or a spontaneous bad decision. It was instead an elaborate fraud carried out over a period of months," they argued in court.
In addition to the prison term, the US district court judge sentenced Libric to a three-year period of supervised release, and ordered him to pay over $1.5 million in restitution.
All of which should serve as a lesson to wannabe tech startups: don't screw the money men. And know when to walk away from your failing business. ®