What do FTX, Frank, Theranos and Context Media (rebranded as Outcome Health) have in common?

These companies have all been involved in scandals recently –

Elizabeth Holmes, the founder of Theranos was found guilty of defrauding investors out of hundreds of millions of dollars as the technology she claimed would revolutionize blood testing proved to be unreliable.

FTX was a crypto trading platform that experienced a crash, Sam Bankman-Fried (SBF) the CEO has been arrested and charged with wire fraud, securities fraud, and money laundering.

ContextMedia was sued by the Federal Trade Commission for allegedly deceiving investors by misreporting performance numbers.

Frank is a student loan refinancing company that misreported number of student accounts at the time it was purchased by JP Morgan Chase.

I wanted to understand what do these case studies have in common?  More specifically why didn’t JP Morgan chase do their due diligence and verify the number of student loan accounts? Why did investors, shareholders and the general public believe Elizabeth Holmes and Sam Bankman Fried? Is it because they fit the mold of young, attractive, ivy league school graduates or dropouts who are promising us ‘too good to be true’ results? Is it because technology is changing faster than most of us can comprehend and we expect these young entrepreneurs who are able to create and innovate in a rapidly changing technological landscape to be smarter than the average person?

I put Chat GPT to work, I asked it a basic question and got a basic answer which did not have the depth that I was looking for :

Basic Question to ChatGPT : What do Theranos, ContextMedia, FTX and Frank have in common?

Basic Response from ChatGPT : All three companies have been involved in scandals.

I then changed my prompt to be more detailed and contextual and got back a response that was better than what I could have written myself!

Updated Question to Chat GPT : Provide deep insight into what these companies have in common. Why didn’t JP Morgan chase do their due diligence and verify the number of student loan accounts? Why did investors, shareholders and the general public believe Elizabeth Holmes and Sam Bankman Fried?

Updated Response from ChatGPT : One factor may be the allure of the “unicorn” startup – a term used to describe a startup that has reached a valuation of $1 billion or more. Investors and the media often place a high premium on these types of companies, which can create a hype cycle that obscures potential red flags or warning signs.

Another factor may be the “cult of personality” that can develop around charismatic founders or leaders. Elizabeth Holmes, for example, was known for her confident demeanor and compelling story, which may have made it easier for investors and others to overlook warning signs.

In some cases, investors may not have had access to all the information they needed to make an informed decision. Due diligence can be a time-consuming and expensive process, and investors may rely on reputational signals or other shortcuts to make investment decisions.

There is also Confirmation bias: Investors may have had a pre-existing belief in the potential success of these companies or their founders, leading them to interpret information in a way that supports their beliefs and overlook potential red flags.

Finally, the fast-paced nature of technology, lack of expertise and the startup ecosystem can make it difficult to keep up with changes and developments. Investors and others may be more likely to believe in the promise of new technologies or business models if they don’t fully understand the underlying details.

Overall, it’s likely a combination of these factors and others that led to investors and others placing too much trust in companies like ContextMedia, FTX, and Theranos, and their founders. It’s important for investors and entrepreneurs alike to remain vigilant and critical, even in the face of hype and excitement.

So what does this mean for us? I was able to write this post (the image generation did not work that well and I needed Google’s help) in the fraction of the time it would have taken me to write without ChatGPT. It played the role of an assistant that I’ve always wished for, it followed instructions well and created content faster and better written that I could have myself! 

Generative AI is seemingly everywhere, all at once and the possibilities are limitless  BUT its worth noting that I needed to create the prompt and connect the dots between these companies which means that ChatGPT is only as good as the prompt creator!