Introduction
There is increasing interest in understanding how entrepreneurs employ deception (Shepherd 2019, Scheaf and Wood 2022, Gehman and Wry 2022, Palmer and Weiss 2022, Garud et al. 2025). In organization science, for instance, the cultural entrepreneurship literature’s focus on how entrepreneurs craft and mobilize compelling stories, narratives, and frames to acquire resources, provides a starting point for thinking of deception as an extension of dramatized discourse. Scholars suggest that entrepreneurial stories may deceive because they “do not necessarily need to reflect any objective reality to be effective” (Lounsbury and Glynn 2019, p. 15); moreover, they are often dramatized, selective, and stylized (Taeuscher et al. 2022), and audiences may even expect dramatization from entrepreneurs (Gamez-Djokic et al. 2022). Empirical work provides further nuance, showing how entrepreneurs leverage dramatization by crafting ambiguous narratives (Bureau et al. 2026) and projecting exaggerated venture identities that are only loosely connected to the venture’s actual resources (Martens et al. 2007, Piazza et al. 2023). Further, scholars assert that dramatization happens as entrepreneurs formulate outsized, aspirational claims that may prove unachievable (Wood et al. 2022), leading entrepreneurs to either revise such aspirational stories (Garud et al. 2014) or dramatize even further by generating evermore unrealistic goals (Garud et al. 2025). Despite these important advances, one potential trajectory of deception remains severely underexplored: how entrepreneurs may begin to transgress from dramatized discourse into more severe, criminal deception, employing deceptive means to defraud audiences. The consequences of criminal deception include not only losses for victims but also legitimacy loss for entrepreneurs and their ventures, as well as potential prosecution and incarceration.
Recent high-profile cases of technology ventures’ involvement in entrepreneurial fraud surface some of the underlying dynamics of dramatization-turned-criminal deception. For example, the technology venture Nikola organized high-end product demos to provide evidence for its claim of having successfully created a hydrogen fuel cell truck. In actuality, the truck was made to roll down an inclined stage and highway in these demonstrations, masking the fact that Nikola’s technology was far from operational (Boudette and Ewing 2020, SEC 2021). Similarly, Frank, a fintech venture focused on student financial aid, organized a network of collaborators to fabricate a synthetic data set in support of its narrative of rapid customer growth, concealing that its actual customer base was only 1/10th of the 4 million users portrayed to investors (SEC 2023). These and other less publicized cases show how discursive work and organizing work are inextricably linked as entrepreneurs craft convincing, yet false, stories and carry out discrete organizing efforts to artificially substantiate them. Accordingly, we build on cultural entrepreneurship’s empirical focus on the interaction of discursive and organizing work (Lounsbury and Glynn 2001, Zott and Huy 2007, Karp and O’Mahony 2025) to begin to advance our understanding of how entrepreneurs also mobilize organizing efforts to deceive audiences. More specifically, we leverage the discourse-organizing interface1 to help us understand how, beyond crafting dramatized stories, symbols, and narratives for audiences, entrepreneurs also employ organizing efforts to generate fake data, evidence, and information in support of their stories.
Adjacently, the literature on organizational wrongdoing has a long tradition of studying the antecedents and consequences of misconduct, illegality, and fraud within and across organizations (Greve et al. 2010, Palmer 2013, Palmer et al. 2016). Nevertheless, the organizing efforts underlying these transgressions—the often-hidden yet critical “how-tos” of wrongdoing—are rarely theorized. Steeped in the context of large, publicly listed corporations, the wrongdoing literature captures the environmental conditions that can facilitate corporate illegality (Gabbioneta et al. 2013), the processes that lead to the diffusion of deviant practices within and across organizations (Mohliver 2019), and the effects of fraud on organizational outcomes, including entrepreneurial innovation (Wang et al. 2021). Similarly, the emerging literature connecting entrepreneurial fraud and organizational wrongdoing provides a useful foundation for understanding criminal deception; however, it remains restricted to conventional theorizing on the causes of entrepreneurial fraud (Palmer and Weiss 2022) and the processes through which deception diffuses within ventures (Mohliver et al. 2022). To comprehensively theorize criminal deception in the context of entrepreneurship, we argue that a scholarly agenda integrating both discourse and organizing is needed. Accordingly, we ask: How do entrepreneurs carry out criminal deception?
To address this question, we must overcome an important methodological barrier in studying criminal deception, namely, that criminal acts and processes are typically hidden and difficult to observe empirically. To this end, we leverage an underutilized data source that affords detailed insight into the acts of criminal deception: court documents on the prosecution of technology entrepreneurs and their ventures for securities fraud in the United States. By examining civil and criminal prosecutions by the U.S. Securities and Exchange Commission (SEC) and Department of Justice (DOJ), we constructed a database of Silicon Valley–based entrepreneurs and their technology ventures charged with securities fraud between 2000 and 2023. Arguably, some criminal deception remains undetected or unprosecuted. Nevertheless, in the spirit of qualitative research, we sample prosecuted cases to reveal the hitherto understudied processes involved in criminal deception. Our sample includes 12 ventures that collectively raised $1.8 billion in equity capital funding and were involved in 27 court cases, resulting in cumulative financial losses of $687.6 million and 73 years of prison sentences for entrepreneurs.
We focused on Silicon Valley because it constitutes an innovation ecosystem in which audiences have extraordinarily high growth expectations anchored in a collective vision and pursuit of a hyped, ideal venture type: a rapidly scaling “unicorn” typically valued above $1 billion (Zankl and Grimes 2024, Canales et al. 2025, Hampel and Dalpiaz 2025). Entrepreneurs may be particularly prone to leveraging deception when confronted with a significant discrepancy between audiences’ institutionally conditioned performance expectations of rapid scale and the venture’s actual performance—that is, when entrepreneurs face a significant expectation-reality gap. Research has shown that entrepreneurs manage the expectation-reality gap —often once it has been exposed or acknowledged—in a variety of ways, such as through revising aspirational visions and venture goals (Garud et al. 2014, Chapple et al. 2022), formulating even more unrealistic goals (Garud et al. 2025), recalibrating expectations (Karp and O’Mahony 2025), carefully managing audiences (McDonald and Gao 2019), or pivoting (Hampel et al. 2020). In contrast, we suggest that deception may constitute an avenue through which entrepreneurs can eliminate an expectation-reality gap in the eyes of audiences by enveloping the latter in a false sense of reality.
Based on inductive coding of our court data (Charmaz 2011), we theorize criminal deception as a process of “façading.” A façade is broadly defined as a “false, superficial, or artificial appearance or effect” (Merriam-Webster 2025) and is understood by organizational scholars as “a symbolic front erected by organizational participants designed to reassure their organization’s stakeholders of the legitimacy of the organization and its management” (Abrahamson and Beaumard 2008, p. 43). Our data show how façading by entrepreneurs integrates both discursive and organizing efforts, including constructing a façade, performing the façade before resource-holding audiences, and protecting the façade from scrutiny.
In particular, we theorize three forms of façading that correspond to specific degrees of expectation-reality gaps and capture increasingly sophisticated organizing efforts. The first form, surface façading, occurs when entrepreneurs engage in discursive work by fictionalizing stories of imminent venture success that lack any evidentiary basis in the venture’s operational reality. The second form, reinforced façading, captures how entrepreneurs go beyond discourse and reinforce their fictionalized stories of progress by (a) organizing the production of interlocking sets of false, highly specific retrospective evidence of a venture’s historical performance (e.g., faking realized revenue, falsifying bank statements, or fabricating nonexistent customer contracts) and (b) organizing to centralize and control information flows within and outside the venture. The third form, deep façading, describes how entrepreneurs employ highly sophisticated organizing efforts ranging from faking experiential performances (e.g., fake product demos) to co-opting verification processes (e.g., sabotaging due diligence) and manipulating regulatory compliance, as well as entrenching organized secrecy in their ventures.
We synthesize our findings to inductively develop a theoretical framework of criminal deception that explains how entrepreneurs backfill expectation-reality gaps through façading, and we further theorize façading sophistication as a discontinuous process contingent on the degree of the expectation-reality gap. By engaging in façading, entrepreneurs effectively decouple the venture’s externally projected appearance from its operational reality, making it appear to audiences as if no expectation-reality gap exists, despite the venture’s actual (subpar) performance. We argue that entrepreneurs transgress from dramatized discourse into criminal deception when their stories become unhinged from reality and involve increasingly sophisticated organizing efforts to fabricate material evidence, data, and information about their ventures’ performance.
Through our analyses, we contribute to four critical areas of theory and practice. First, we expand the cultural entrepreneurship literature by introducing a theoretical framework of criminal deception as a process of fictionalizing not just the future but also the past through discursive and organizing efforts. Second, we advance research on organizational wrongdoing by exploring and theorizing the hidden acts and processes of wrongdoing, rather than focusing strictly on its causes and effects. Third, our study augments the growing discussion on the social effects of entrepreneurship by accentuating the harm of carrying out criminal deception and problematizing investors’ implication in deception. Fourth, this paper contributes to ongoing policy conversations in the legal domain by supporting the call for additional SEC surveillance of privately held startups and the extension of whistleblower protection schemes to institutionalize mechanisms for detecting and reporting criminal deception.
Theoretical Motivation
As early as 2007, cultural entrepreneurship scholars called for more research into the acts and processes through which entrepreneurs misrepresent and falsify their ventures’ operational realities when engaging with audiences (Martens et al. 2007, Lounsbury and Glynn 2019, Gehman and Wry 2022). Yet, despite cultural entrepreneurship’s recognition of the importance of both discourse and organizing (Zott and Huy 2007, Delmestri and Greenwood 2016, Massa et al. 2017, Karp and O’Mahony 2025), the recent literature stream on deception has predominantly theorized the discursive work involved in crafting deceptive stories, narratives, and frames while sidelining the organizing efforts that are also involved in deception. We suggest that refocusing attention on the discourse-organizing interface can advance our understanding of the often-hidden practices involved in deception, providing a more holistic theoretical account of more severe, criminalized forms of deception.
Deception as Dramatized Discourse
The cultural entrepreneurship literature provides an important starting point to begin to understand deception. Specifically, regarding entrepreneurial stories as dramatized discourse of venture resources and progress affords a theoretical window into how deception may emerge. Taeuscher and colleagues (2022) emphasize how entrepreneurial “narratives can disproportionally emphasize a highly unusual feature of an offering or a unique aspect of the entrepreneur’s identity to positively influence perceptions…packaging certain stylized dimensions of reality while hiding others to promote an offering to audiences” (p. 2105; emphasis added). The literature goes further and captures embellishments and exaggerations, wherein stories are inflated or loosely connected to a venture’s stock of financial, social, and human capital. For instance, in examining IPO prospectuses and investor decision-making, Martens and colleagues (2007, p. 1125) “did not find complete correspondence between a firm’s objective resource level and its socially construed identity,” suggesting that “authors of entrepreneurial narratives have at least some freedom to ‘represent’ the facts.” Similarly, more recent empirical work reveals that entrepreneurs who signal expertise in their self-presentation narratives receive more resource flows from audiences, irrespective of whether their signaled expertise corresponds to their actual underlying skillset (Piazza et al. 2023).
Relatedly, dramatized discourse through projective storytelling is often recognized as part of entrepreneurial future-making (i.e., formulating and attempting to bring about aspirational claims and visions of the distant future). Garud et al. (2014), for example, argue that skillful entrepreneurs develop stories with compelling plots, making future possibilities seem plausible and achievable to investors by communicating concrete steps and milestones. When these milestones are not reached, entrepreneurs can respond by revising their stories. Likewise, entrepreneurs may engage in “omitting, embellishing, misrepresenting, or fabricating facts” (Garud et al. 2025, p. 15). Consequently, entrepreneurs may drive dramatization further as they set evermore unrealistic goals to access additional resources while retaining legitimacy in the eyes of key audiences. Similarly, scholars have argued that entrepreneurs utilize dramatized discourse to generate ambiguous narratives that conceal fraudulent activities (Bureau et al. 2026), generate fictions that they later need to turn into reality (Wood et al. 2022), mobilize implied social validations to “fake it” (McMullen 2025), and produce outright false promises, speculation, and “reality distortions” (Gehman and Wry 2022).
Beyond its focus on dramatized discourse, however, extant research has only alluded to the underlying organizing efforts at play in deception. This is surprising, given the volume of work that has studied how entrepreneurs can manage the expectation-reality gap through a variety of discursive and/or organizing work (McDonald and Gao 2019, Canales et al. 2025, Knight et al. 2025). For example, Karp and O’Mahony (2025) theorize how integration work through organizational and technological adaptations in conjunction with recalibrating audience’s expectations help narrow the gap between expectation and reality. Hampel et al. (2020) showcase how ventures pivot and, beyond discursive work, also engage in organizing work by changing manufacturing processes, developing new products, and changing their community engagement efforts to bring expectation and reality into renewed alignment. In line with our focus on theorizing deception, Garud et al. (2025) evoke Goffman (1959) to emphasize the analytical distinction between “what is happening backstage” (p. 16), whereas entrepreneurs project a “frontstage” image. Yet, “backstage” practices and processes remain under-researched. Building on these initial insights, our goal is to develop a more holistic account of the work involved in constructing, performing, and protecting entrepreneurial lies and misrepresentations.
Wrongdoing and Entrepreneurial Fraud
Over the past decade, research on organizational wrongdoing has offered a rich understanding of the environmental conditions that facilitate the diffusion of wrongdoing within and across organizations, as well as an appreciation of the outcomes and consequences of wrongdoing (Palmer 2013; Palmer et al. 2016; Gabbioneta et al. 2023). Yet, even as the literature has empirically investigated severe forms of fraud, misconduct, illegality, and criminal behavior, the underlying organizing of the acts and processes involved in wrongdoing is largely sidelined as descriptive material and is rarely leveraged to advance explicit theorizing.
More recently, scholars have begun to build interdisciplinary links in order to understand what makes entrepreneurial firms particularly vulnerable to misconduct (Scheaf and Wood 2022, Mohliver et al. 2022, Palmer and Weiss 2022, Wood et al. 2022). Connecting to foundational work in sociology (Davis 1959, Goffman 1959), we note an emerging, yet fragmented, trend in organization science to more richly describe and theorize the organizational acts and processes involved in wrongdoing, including how it is executed and sustained over time. For instance, in studying overprescription in the medical field, Zhang et al. (2023) focus on organizational practices and underscore the difference between liminal prescribing (a practice of acceptable, ambiguous overprescription due to a lack of updated information) and deviant prescribing (where norms or rules are knowingly broken in unambiguous wrongdoing). In a different context, Eaglin (2026) investigates strategic misconduct in South Africa’s minibus industry and illuminates a set of organizational tactics that entrepreneurs use to address environmental constraints in their pursuit of firm survival and growth. Other authors have demonstrated how institutional and organizational contexts can create opportunity structures that enable fraud and misconduct to remain concealed and unpunished (Gabbioneta et al. 2013, Kaynak and Rahman 2024, Lodge et al. 2025). We connect to these emerging and distributed research efforts to make explicit the otherwise hidden acts and processes involved in wrongdoing by offering a more coherent theorization of criminal deception.
Taken together, the cultural entrepreneurship and organizational wrongdoing literatures provide important theoretical building blocks for advancing our understanding of entrepreneurial ventures’ deceptive practices. In drawing on securities fraud court data involving entrepreneurial ventures, we develop an empirically grounded theoretical framework of criminal deception at the discourse-organizing interface.
Methods and Data
Empirical Context
With its history of producing fast-growing technology ventures, Silicon Valley is one of the world’s most reputable innovation ecosystems. In this institutional context, the concepts of “scale” and “scaling” are key elements. Increasingly rationalized in both academic (DeSantola and Gulati 2017, Jansen et al. 2023, Coviello et al. 2024) and practitioner conversations (Gil 2018, Hoffman and Yeh 2018, Hoffman et al. 2021), the imperative to scale generates expectations among entrepreneurs and audiences (e.g., investors and employees) to achieve extraordinary venture growth (Zankl and Grimes 2024, Canales et al. 2025, Hampel and Dalpiaz 2025). The term “unicorn” embodies these institutionally conditioned expectations, anchored in the ecosystem’s ideal venture type that connotes the achievement of a $1 billion financial valuation over a relatively short time frame (approximately five to seven years from founding). Because of the collective vision and pursuit of high-growth, rapidly scalable ventures, Silicon Valley entrepreneurs face pressures to meet such expectations, often represented by the burden of proof—that is, the imperative to produce credible evidence of a scaling venture in order to meet audiences’ high-growth expectations and acquire resources (Logue and Grimes 2022).
Organizational and legal scholars have noted that, due to the high liquidity of private markets, new ventures remain private for longer and manage to avoid the greater formal oversight and institutional scrutiny that come with going public (Davis 2016, Platt 2022, Pollman 2022a, Carlson 2023). Indeed, the SEC has historically focused its surveillance and enforcement on public companies, leaving private ventures to operate with limited systematic oversight (Pollman 2020). In this context of institutionally conditioned high-growth expectations and limited formal surveillance by state actors, scholars recognize an opportunity structure for entrepreneurs and ventures to backfill expectation-reality gaps via criminal deception (Pollman 2020, Palmer and Weiss 2022); this makes this empirical setting particularly appropriate for our study.
Data Set
With our analytical focus on how entrepreneurs carry out criminal deception, we constructed a novel data set by focusing on court cases of detected and prosecuted securities (and related bank and wire) fraud against Silicon Valley–based technology ventures and their entrepreneurs in the postdotcom bubble era between 2000 and 2023. Court cases contain detailed, evidentiary-based information regarding criminal acts and processes and thus afford a unique empirical window into criminal deception. Below, we explain the three-step process used in constructing our data set.
First, we identified the U.S. legal codes that enable mandated social control agents (e.g., the SEC, DOJ, and Federal Bureau of Investigation (FBI)) to prosecute ventures for securities-related fraud. We considered both civil and criminal charges related to the following codes: §15-77 and §15-78, as covered by the SEC in 17 C.F.R. §240.10b–5, “employment of manipulative and deceptive devices”; §18-1348.F “securities and commodities fraud”; §18-1343.F “fraud by wire, radio, or television”; §18-1344.F “bank fraud”; and §18-1349.F “attempt and conspiracy to commit mail fraud.”
Second, we focused our case selection on Silicon Valley–based technology ventures, where institutionally conditioned expectations of high growth are arguably most salient. To identify cases, we searched the publicly accessible federal database of electronic court records—PACER (Public Access to Court Electronic Records). After searching for cases prosecuted in the U.S. District Court of Northern California (whose jurisdiction covers Silicon Valley, including San Francisco), we downloaded the database for all court cases associated with the above-mentioned legal codes between 2000 and 2023. Next, we accessed each court case and manually verified that it met our selection criteria. We also conducted a comprehensive search of SEC and Northern California DOJ press releases to identify additional prosecutions. Our selection criteria included private equity capital-financed, and high-growth oriented technology ventures situated in Silicon Valley that had been prosecuted for securities fraud occurring within the first 10 years of their existence.2 Recognizing that prosecuted cases represent only a fraction of existing criminal deception, we constructed a conservative data set to hold key dimensions constant and thus allow for cross-case comparisons. Hence, we excluded cases related to other venture types, such as real estate or investment firms. We also excluded fraud charges against publicly listed companies and ventures that had been prosecuted in direct relation to going public (e.g., for false claims made in an IPO prospectus), because these have been extensively studied elsewhere. Likewise, we excluded cases in which the SEC had opened investigations that were ultimately settled out of court or where the SEC had closed investigations without further notice and without pursuing prosecution, because detailed data are not publicly available in such cases.
Third, we conducted further searches on PACER to identify any additional charges against the entrepreneurs or ventures identified in Step 2. Because certain founders and ventures had been prosecuted multiple times for securities fraud during our study period, this additional search resulted in 27 unique court cases. Table 1 presents an overview of venture characteristics and of the court cases associated with each venture.
 | Table 1. Venture Information, Court Case Details, and Legal Consequences |
Data Analysis
Given the limited inductive analysis of court records in organization science, we describe our five-step analytical process in greater detail below.
Step 1: Selection of relevant court documents. We began by analyzing a single court case in detail. The first step involved downloading the chronological list of all court documents and administrative entries produced in the case (available as docket entries via PACER) and selecting relevant documents for analysis. Depending on the case’s length and complexity, a case record can contain tens to hundreds of documents. To familiarize ourselves with the initial case’s court records and history, we read all related documents (e.g., initial complaint, motions, replies to motions, orders, memoranda, judgments). However, given our analytical focus on how entrepreneurs carry out criminal deception, we prioritized empirical material that substantively covers the accusations against entrepreneurs and ventures, the evidence and argumentation pertaining to deception, and the resolution of the case.
With the insights from this preliminary process, we systematically selected the following for coding: (1) the initial complaint and/or indictment listing the charges against the defendant(s) as well as the defendant’s reply to the complaint; (2) any court records adjudicating the case (e.g., plea agreement, jury verdict, sentencing order, final judgment), as well as related documents revealing the prosecution’s and the defendant’s arguments (e.g., sentencing memoranda, motions to dismiss); and (3) additional court records containing substantive information on the practices of criminal deception (e.g., transcripts of trial hearings with witness testimony). We excluded purely administrative documents (e.g., motions to reschedule a hearing date, changes to legal representatives) and documents related strictly to the judicial process itself (e.g., motions to admit or exclude certain types of evidence from a jury trial, juror instructions). In our findings section and tables, we reference data sources using the venture’s pseudonym3 and indicate whether the data pertain to a civil or criminal case.
Step 2: In vivo coding of selected documents. We used in vivo coding to code the eight cases associated with the first three ventures. For the first venture, each author independently coded the documents with a broad focus on the criminal deception process: the various reported practices and dynamics through which deception was deemed to have been carried out; the victims of deception and degree of harm suffered; the motives attributed to entrepreneurs for their acts of deception; and the consequences of deception for the entrepreneurs, the venture, and various stakeholders. During several meetings, we discussed the overlap and divergence in our coding in order to develop aggregate codes. For instance, we initially grouped early first-order codes, such as “listing clients that discontinued business relationships as existing customers” and “doctoring invoices to show higher billed amounts by hundreds of thousands of dollars,” into an emerging second-order theme of “producing retrospective evidence” in support of entrepreneurs’ stories.
Step 3: Engaging with relevant literature and developing a codebook. We consulted the relevant literatures on deception and entrepreneurial fraud and iterated between literature and data to generate a codebook that captured both discursive and organizing efforts. Specifically, we identified a latent, untheorized connection between the organizational construct of façades in the cultural entrepreneurship literature (Lounsbury and Glynn 2019, p. 15) and the deception literature (Garud et al. 2025). Hence, we built our understanding of the construct by consulting key references (Nystrom and Starbuck 1984, Abrahamson and Beaumard 2008).
As a first stage of this step, we captured the work involved in criminal deception with the term façading, which showcases the three subprocesses of (1) constructing a façade, (2) performing a façade before audiences, and (3) protecting a façade from scrutiny. Concretely, we captured constructing a façade by identifying the facet(s) of the venture toward which entrepreneurs oriented their deceptive acts, such as finances (e.g., doctoring revenue invoices), customer engagement (e.g., fraudulently claiming nonexistent clients), business model (e.g., faking product-market fit), or technology (e.g., falsely portraying technological capabilities or readiness). Our coding also captured the different discursive and organizing efforts of deceptive acts, such as through fictionalizing stories (e.g., making baseless claims of imminent acquisition or IPO), reinforcing stories through the organized production of interlocking sets of faked evidence (e.g., fabricating past bank or revenue statements), faking experiential performances (e.g., faked product demos), co-opting audience verification processes (e.g., organizing the impersonation of customers and investors during investor due diligence processes), and manipulating regulatory compliance (e.g., avoiding regulatory approval). Table 2 provides a selective overview of the practices associated with these deceptive acts. We further coded for the operational reality the entrepreneurs had sought to mask by constructing a façade (e.g., lack of traction and revenue, deceleration of startup).
| Table 2. Selective Practices of Constructing a Façade |
Second, we coded for performing a façade to showcase the resource-holding audiences (e.g., investors, customers, employees, professionals, novices) toward which a façade was oriented and the kind of image entrepreneurs sought to project (e.g., of a resourceful and mature venture, a scalable venture with proven product-market fit).
Lastly, we coded for the work involved in protecting a façade to capture the varied approaches entrepreneurs used to deflect scrutiny and prevent the unmasking of their deception up until the point of detection. For example, we coded for simple tactics such as “passing blame to others to deter investigative behavior” as well as sophisticated forms of organized secrecy such as “developing code names to prevent detection internally and externally.”
Step 4: Creating summaries and timelines for each case and venture. Building on our emerging insights, we developed individual case summaries for each venture.4 We created venture-specific timelines that detail the venture’s founding, all documented instances of deceptive acts and their situational or audience-induced circumstances as described in the court data, any episodes of investigative behavior (probing/scrutiny) by audiences, the eventual detection of criminal deception and initiation of court proceedings, and the consequences of prosecution for the entrepreneur and the venture. Pitchbook data afforded further contextual information on scaling, such as when each venture completed (or failed to complete) various funding rounds. We mapped funding data onto the timeline to better understand the venture’s full trajectory and audience expectations related to different phases of the venture’s life cycle. Online Appendix A contains exemplary case timelines for each of the three forms of façading.
Step 5: Consolidating findings into a conceptual model. In a final step, we compared the 12 venture case summaries and timelines to reveal patterns of criminal deception across our sample. We noted that some deceptive schemes were comparatively rudimentary, whereas others involved more sophisticated organizing work. To pursue this observation, we grouped cases based on the variety of deceptive acts involved and the range of audiences defrauded. We also constructed several tables to help us test different explanations for the patterns in our data. For instance, we examined whether the sophistication level of façading depended on how soon deceptive acts began relative to the venture’s founding and how long the deception was sustained. This inquiry led us to explore how stages in the venture life cycle (corresponding to different degrees of expectation-reality gaps) affect façading sophistication. Based on these patterns, we developed three aggregate dimensions of façading—surface, reinforced, and deep—that informed our theoretical framework of criminal deception.
Findings
Our findings reveal how entrepreneurs backfill minor, wide, and extreme gaps between institutionally conditioned expectations for high growth and the operational reality of their ventures’ performance. Through three forms of façading, as summarized in Table 3, entrepreneurs alter audiences’ perception of venture reality. Our findings inform an inductive theory of criminal deception, capturing how façading sophistication is contingent on the degree of the expectation-reality gap and the audiences that entrepreneurs engage with.
| Table 3. Forms of Façading |
Surface Façading
Existing work on deception has highlighted that in order to resonate with audiences, such as investors, entrepreneurs dramatize by crafting embellished stories, projecting exaggerated identities, and making outsized aspirational claims for the distant future, which are only loosely connected to a venture’s operational reality (Martens et al. 2007, Garud et al. 2014, Scheaf and Wood 2022, Piazza et al. 2023). Nevertheless, it has remained unclear how deception through dramatized discourse may transgress into criminal activity. Our findings show that entrepreneurs transgress into criminal deception when they engage in what we term surface façading, which involves constructing fictionalized stories of imminent financial success that are fully unhinged from the venture’s operational reality, masking the actual lack of achievements and progress. In the early stage of a venture’s life cycle (e.g., the ideation and seed stage), when the expectation-reality gap is minor and audience demands for concrete evidence to substantiate entrepreneurs’ stories are low, we find that entrepreneurs backfill the gap through surface façading, involving a high degree of discursive and a low degree of organizing works. We illustrate surface façading using exemplary empirical material from three prosecuted entrepreneurs and their ventures: Speedify, TakeOff, and RapidLauncher (see Online Appendix B for additional data).
Constructing a Façade Through Fictionalized Stories.
Our data show that prosecuted entrepreneurs engaged in discursive work by fictionalizing stories about their ventures’ financial resources. For example, one entrepreneur had founded two technology ventures, hereafter identified as Speedify,5 that offered online classified ads and e-commerce services, respectively. Within a year of the ventures’ founding, the entrepreneur had engaged in criminal deception to acquire $7 million, as the SEC complaint details:
During investor presentations made in 2007 and 2008, [the entrepreneur] made serial misrepresentations about the companies’ prospects, claiming, among other things, that: (i) both companies would soon conduct IPOs (e.g., “within six months to a year”) with skyrocketing stock prices; (ii) the companies had lucrative patents and contracts that would generate millions in revenue; and (iii) [the entrepreneur], as a wealthy venture capitalist who had previously conducted IPOs, had the requisite experience and contacts to take the companies public. None of these claims were true.
In this example, the entrepreneur’s fictitious stories conjured an image of imminent financial success based on claims of realized achievements, such as acquired patents and contracts and the entrepreneur’s expertise and skill. The stories set near-term expectations of an impending IPO, made explicit across Speedify’s pitches and as captured in the civil complaint which reports that “[Speedify] would ‘go public or sell’ within a short period of time that ranged from specific quarters (e.g., ‘QI or Q2 2008,’ ‘Q3 or Q4 2008’), ‘six months to a year,’ and/or ‘after August 2008’; The IPO was ‘a done deal’.” As the data reveal, this dramatized discourse was fully disconnected from the ventures’ strategic plans and operational realities, masking Speedify’s lack of achievements and progress, as the complaint describes (emphases added):
In reality, [Speedify was] years from even considering a public offering and had taken only the most rudimentary steps toward generating revenue in 2007 and/or 2008. The companies had no revenue-generating contracts, were still developing and testing their products, and relied solely on sales of their stock to fund business operations. Moreover, despite [the entrepreneur’s] claims of IPO experience and great wealth, he in fact had no such credentials or financial resources.
Similarly, the entrepreneur of TakeOff, a technology venture founded in 2010 to simplify the real-time analysis of traffic data through wireless sensors, engaged in discursive efforts to fabricate stories regarding the venture’s impending financial success. TakeOff’s founder fictionalized stories about the venture’s imminent acquisition as the criminal complaint states: “CISCO had already paid [TakeOff] with a nonrefundable good faith ten percent of $76,000,000.” As the FBI, which led the criminal investigation, went on to describe,
[The entrepreneur] executed his scheme by, among other things, falsely telling victims that [TakeOff] was going to be acquired by a well-known multinational company based in Silicon Valley. [The entrepreneur] falsely told his victims, in sum and substance, that in exchange for providing money to [TakeOff], his victims would share in the massive profits resulting from the acquisition. As [the entrepreneur] knew, however, there was no such purported acquisition planned, and the victims lost the money they provided based on [the entrepreneur’s] false statements.
This entrepreneur’s fictitious stories blurred the lines between “what is” and “what is to come,” conveying to investors that “[TakeOff] might be acquired, [TakeOff] was going to be acquired, and [TakeOff] was in the process of being acquired.” To varying degrees, these fictionalized stories appeared to audiences as actualized, nearly actualized, or soon-to-be-actualized when no evidence supported the claims.
The entrepreneur who founded RapidLauncher, a technology venture using artificial intelligence to develop a gig worker platform, also relied on fictionalized stories, albeit with a focus on the entrepreneur’s financial endowment and personal investment in the venture. As the criminal court case details,
[T]he [entrepreneur] falsely told [RapidLauncher’s] employees that he personally invested over $1 million of seed money into [RapidLauncher] to allow the company to run without generating revenue while the company’s product was being developed. The [entrepreneur’s] purported funding was expected to allow [RapidLauncher] to operate for approximately two years […] none of these funding sources appeared.
Through these misrepresentations, the entrepreneur masked the venture’s lack of resources, achievements, and progress. As the government contended, ‘the defendant’s false and misleading statements created a veneer which enabled his scheme to defraud, resulting in a wide range of victimization, including hiring and retaining employees to continue working at an otherwise failing company’.”
As these data show, entrepreneurs engage in surface façading by generating near-term and past fictions to convince audiences, be they investors or employees. Prosecuted entrepreneurs go beyond simply stretching the truth and crafting exaggerated claims, as previous research has argued, to fully fictionalizing stories that lack any evidentiary basis in the venture’s resources or strategy at the time.
Performing a Façade of Imminent Financial Success and Resourcefulness to Novice Audiences.
Our data show that, through surface façading, entrepreneurs engage in low-level organizing efforts to convince novice audiences of the venture’s imminent financial success and resourcefulness. For instance, from its inception, Speedify’s entrepreneur engaged in organizing efforts to perform the façade before hundreds of inexperienced investors in intimate, private settings. As the SEC complaint explains, more than 100 novices ultimately committed resources to Speedify based on the façade:
In soliciting investments, [the entrepreneur] drove three hours from [Speedify’s] offices in Silicon Valley to hold investor presentations approximately every other week before groups of investors (including a couple who resided in Illinois) at people’s homes near Sacramento, California and/or Stockton, California. Many of the investors were inexperienced in finance and/or investing.
[…]
Among other things, [the entrepreneur] knew that investors pooled together their funds to meet the $25,000 minimum investment because they lacked money. [The entrepreneur] also made comments noting that he wanted to ‘help lower and middle-class families’ by permitting them to invest and that he hoped to be able to hire them as [Speedify] employees.
In performing the façade, Speedify’s entrepreneur engaged in low-level organizing efforts to coordinate a large base of novice investors in Northern California, arranging meetups and facilitating the pooling of small-scale capital to enable resource transfers.
Similarly, the prosecuted entrepreneur who founded TakeOff performed a façade of imminent financial success during the venture’s seed round by projecting the appearance of being on the brink of being “acquired by a well-known company that would make [investors’] investment extremely valuable” (criminal sentencing transcript). The entrepreneur successfully performed the façade before a novice audience of friends and acquaintances with whom he had cultivated long-lasting relationships. A forensic reconstruction of text messages between the entrepreneur and one such friend captures the informal organizing work involved in enticing novice investors. The criminal complaint reads:
On November 27, 2013, [the entrepreneur] sent the following text to [friend] ‘I set aside some shares for you a long time ago but wasn’t sure I could get them to you,’ followed by ‘Are you interested?’ … [Friend] then texted [entrepreneur] asking ‘Do you advise me to?’ to which [entrepreneur] responded ‘Closing is December 13th so yea obviously…’.
The entrepreneur and novice investor engaged in back-and-forth messaging to arrange the deal and facilitate the resource transfer.
In its seed stage, RapidLauncher’s founder similarly projected the appearance that “he had access to significant personal wealth and was investing significant amounts of that money into the company” (criminal complaint). Further, the entrepreneur engaged in low-level organizing efforts to attract and retain employees and to convince them to invest personal resources into the company. The criminal complaint reads as follows:
On multiple occasions [the entrepreneur] induced [RapidLauncher] employees to loan money to or invest in [RapidLauncher] by falsely claiming that the money he intended to invest would shortly be forthcoming. In total [the entrepreneur] collected hundreds of thousands of dollars from his own employees through false representations about the company’s financial health and his own ability to financially support [RapidLauncher] in its early stages of development.
As these examples illustrate, the performative effect of surface façading captures how entrepreneurs leverage discursive work and engage in organizing efforts to subject novice audiences to a desirable, yet illusory, venture appearance that masks an otherwise unattractive operational reality.
Protecting the Façade Through Passing Blame.
Investigative behavior and probing by vested audiences can reveal cracks in a surface façade, which, as the data show, entrepreneurs seek to protect by shifting blame to others. For instance, the Speedify complaint details that “[u]pon receiving several investor inquiries regarding the status of [Speedify]…[the entrepreneur] verbally misrepresented to investors that former employees had misappropriated millions of dollars from [Speedify], and, in that process, irreparably delayed the plan for [Speedify] to go public.” Despite covering up the deceptive scheme, Speedify ran out of operating funds and was forced to shut down within two years of founding. In a subsequent SEC investigation, the entrepreneur settled with the government and has been permanently barred from serving as an officer or director of a public company.
TakeOff’s investors also began probing the venture’s façade shortly after committing resources. The entrepreneur responded with blame-shifting, “including blaming the attorneys, the government shutdown, and the financial institutions for the delay, all while knowing that no acquisition was ever planned” (criminal prosecutor’s sentencing memo). The façade was ultimately exposed by a novice investor and their lawyer in the course of a conventional reference check. Once lawyers became involved, TakeOff released the entrepreneur from his chief executive officer (CEO) role, and a formal investigation was launched. The investigation resulted in a criminal indictment that led to a 24-month prison sentence for the entrepreneur and obligations to restitute $572,039 to defrauded victims.
The prosecuted entrepreneur of RapidLauncher likewise sought to protect the surface façade when employees began to probe the reason for unpaid wages, as evidenced in the criminal complaint:
After certain [RapidLauncher] employees came to learn that [RapidLauncher’s] bank accounts did not contain the capital that [the entrepreneur] claimed to have invested, [the entrepreneur] stated that a significant portion of the money he pledged to invest was tied up overseas and elsewhere, which was why [RapidLauncher] did not have immediate access to the money.
The entrepreneur attempted to conceal the growing cracks in the façade through a combination of discursive and low-level organizing efforts, forging wire transfer confirmations of salaries and emailing those confirmations to employees. However, this protection approach proved short-lived, as ‘[a]n intern quickly realized that the supposed confirmation forms were fakes—apparently, a form had been downloaded from the Internet and then photoshopped’ (criminal defendant’s request for further specification of charges). A former employee’s blog post exposed the façade; the entrepreneur pled guilty to the fraud charges and was sentenced to 9 months in prison and a payment of $91,367.04 in restitution to victims.
As these cases illustrate, surface façading captures a high degree of discursive work and a low degree of organizing work in carrying out criminal deception at the outset of a venture’s life cycle when the expectation-reality gap is comparatively minor and the burden to prove venture performance or progress is low. Through surface façading, entrepreneurs engage in discursive work by fictionalizing stories of imminent success and, through rudimentary organizing efforts, provide novice audiences with desirable, yet illusory, appearances that mask the venture’s under- or nonperformance. Next, we turn to a more sophisticated form of criminal deception.
Reinforced Façading
We find that through reinforced façading, entrepreneurs leverage deceptive discursive and organizing work to backfill widening expectation-reality gaps during later venture life cycle stages, when the burden to produce proof of progress and achievements increases. Through reinforced façading, entrepreneurs engage in discursive work by fictionalizing entrepreneurial stories, akin to the examples of surface façading. Moreover, they reinforce such stories by engaging in organized efforts to produce fake, retrospective evidence (i.e., data, facts, and key information); generating interlocking sets of fabricated evidence to withstand an expert audience’s verification efforts; and centralize and control information to avoid internal and external scrutiny. We illustrate these patterns with salient evidence from four cases: QuickSnap, RevenueBoost, ProfitDash, and Accelify (see Online Appendix C for additional evidence).6
Constructing a Façade Through Fictionalized Stories Reinforced by the Organized Production of Interlocking Sets of Faked Evidence.
We find that entrepreneurs who engage in reinforced façading deceive an expert audience by artificially generating retrospective evidence that aligns with and supports fictitious stories about the venture’s past, present, and future performance. For instance, in the case of QuickSnap, a technology venture offering tools for testing mobile app compatibility with different operating systems, the entrepreneur organized the repeated production of fake customer contracts and invoices and recorded nonexistent revenue to artificially enhance material evidence about past venture performance. In the criminal complaint, the FBI-led investigation details,
[The entrepreneur] created fake invoices regarding former customers in an effort to inflate [QuickSnap’s] revenue. For example, a major technology company based in San Francisco (‘NONCURRENT CUSTOMER 2’) made a single [QuickSnap] purchase for $720,000, in 2018. [The entrepreneur] falsely claimed that NON-CURRENT CUSTOMER 2 agreed to pay [QuickSnap] approximately $1.44 million per year starting in 2018. In order to conceal this fact, [the entrepreneur] created a fake invoice to cover the remaining amount of approximately $720,000, in 2018. And in 2019, [the entrepreneur] created two more fake invoices to represent a supposed renewal of the full $1.44 million deal, which did not exist.
The data show how the entrepreneur edited the material accounting records of venture resources to influence audience perceptions of QuickSnap’s operational reality and performance. Importantly, the entrepreneur did not merely engage in fictionalizing the future through expected revenues or customer figures (the subject of much extant deception research). Instead, the retrospective fictionalization of the past is evident in the FBI’s label “noncurrent customer,” which captures the organizing efforts to create falsified proof of annual recurring revenue from an otherwise one-off customer. In the same fashion, the entrepreneur generated false data by overbooking existing revenue for example, by “adding a ‘3′ to the front of the total dollar amount and changing AUD to USD” (criminal complaint) in order to book $381,600 U.S. dollars instead of $81,600 Australian dollars and generate otherwise nonexistent historical revenue data. Our data show how QuickSnap projected a false appearance of accelerating market traction, masking an altogether different operational reality. The criminal complaint reveals these organizing efforts (emphases added):
The Series B investor deck included a slide addressing [QuickSnap’s] year over year growth. The slide reported that [QuickSnap’s] total 2018 1st quarter revenue was $6,043,369 and net income was $1,758,032. However, the auditor review and financial recast in 2020 determined that the actual 2018 1st quarter revenue was $1,300,381 and that [QuickSnap] actually suffered a net loss of $274,250 for that period.
RevenueBoost’s entrepreneur, who was engaged in developing a social media platform dedicated to young children, similarly engaged in the organized production of a series of interlocking financial statements and contracts to lend credence to stories of revenue growth and an established customer base. For instance, the entrepreneur created “fake contracts with […] forged counterparty signatures to other investors” and “fake bank statements to assure investors that he had money and could repay their investments. And [he] shared falsified profit and loss and ownership documents reflecting investors’ supposed ownership stake in [his] companies” (criminal prosecutor’s sentencing memo). The data thus reveal how prosecuted entrepreneurs engaged in discrete organizing efforts to generate interlocking, retrospective data to support a desirable, yet illusory, appearance of accelerating market traction. The reinforced façade masked the operational reality of an unproven business model and shrinking revenue. During the in-court sentence hearing, RevenueBoost’s entrepreneur explained as follows:
Here’s where I messed up. At that point, as opposed to being honest, I was not. At that point, as opposed to asking for help—I don’t know what to do; our revenue is falling—I did not. At that point, I made horrific decisions to try to buy time because I truly believed in what we were doing, truly believed.
Here, RevenueBoost’s entrepreneur emphasized the key decision to backfill the expectation-reality gap and “buy time” with faked evidence amid the reality of falling revenue.
We observe similar processes in ProfitDash, a venture providing novel solutions to manage employee bonus payments. ProfitDash’s entrepreneur forged a set of specific documents and signatures to reinforce their entrepreneurial story with falsified facts, “designed to make [ProfitDash] look like a much stronger investment than it in fact was” (criminal complaint). As the criminal complaint further reports, “[the entrepreneur] fraudulently placed a signature on a Term Sheet that purported to indicate that a large publicly traded corporation was interested in purchasing [ProfitDash] at a price of $150,000,000…[and] then caused this Term Sheet to be transmitted to persons representing [investor].”
The data also show that the entrepreneur behind Accelify, a venture facilitating secure mobile phone purchases, fabricated financial data to support claims of significant market traction. The SEC complaint explains that “[t]o facilitate [the sale of unauthorized securities], [the entrepreneur] provided investors with financial statements that, among other things, overstated [Accelify’s] revenue by more than ten times through inclusion of revenue that [Accelify] did not earn as well as revenue from a round-trip transaction that had no economic substance” (emphasis added). As the SEC observed, the entrepreneur organized the creation of retrospective evidence using a sophisticated accounting technique known as a “round-trip transaction” to portray nonexistent venture resources as actualized and real. Specifically, the deceptive scheme involved recording “the total amount of processing fees collected by the Payment Processor—instead of the 10% [Accelify] earned—as [Accelify’s] revenue. [The entrepreneur] also omitted certain expenses associated with [Accelify’s] commissions from the financial statements, thus overstating [Accelify’s] profitability” (civil complaint). The reinforced façade projected the illusory appearance of a profitable venture with established market traction on an accelerating trajectory, as revealed in the civil complaint (emphases added):
[Accelify’s] 2013 financial statements represented: [Accelify’s] gross revenue was $101 million, when in fact it was $9.5 million; that its gross margin was $23 million, when in fact it was $9.2 million; and that it had a net profit of $1.3 million, when in fact it had a net loss of $10 million…. [Accelify’s] 2014 financial statements represented: that [Accelify’s] gross revenue would be $150 million, when in fact it was $7.7 million; that gross margin would be $26 million, when in fact it was $3 million; and that the company would have a net loss of $11 million, when in fact it had a net loss of $26 million.
These data demonstrate how reinforced façading involved a higher level of organizing efforts to manipulate the records of the venture’s resources. In this case, the entrepreneur falsified realized revenues as well as existing and recurring customers to generate proof in support of fictionalized stories of growing revenue and profitability, thereby masking the venture’s actual deceleration. Through such tactics, entrepreneurs met their audiences’ demand for evidence and backfilled a widening expectation-reality gap. Specifically, entrepreneurs projected an illusory image of accelerating traction, which appeared to close the expectation-reality gap in the eyes of audiences while sustaining such a gap in actuality.
Performing a Façade of Accelerating Market Traction to an Expert Audience.
In addition to illustrating façade construction, our data also show how entrepreneurs perform a reinforced façade of accelerating market traction to expert audiences of venture capital investors. For instance, the entrepreneur who founded QuickSnap gave Series C venture capital investors the illusion of a drastically accelerating venture that impacted the company’s valuation, as the civil complaint captures:
The company’s impressive (but false) financials fueled a valuation of approximately $1.1 billion, a milestone that earned the startup “unicorn” status – a status touted by [the entrepreneur] and noticed by investors. Ultimately, 29 investors purchased [QuickSnap] stock at prices based on that inflated valuation.
Through this façade, the entrepreneur met risk capital investors’ expectations of high growth performance during the later stages of the venture’s life cycle and falsely acquired the coveted unicorn status despite experiencing deceleration and financial losses. The criminal complaint reveals how the entrepreneur further leveraged manipulated startup metrics, such as annual recurring revenue (ARR), to project dramatic realized and expected revenue growth to investors:
INVESTOR 3’s General Partner emailed [the entrepreneur] the following question, “Hey [entrepreneur’s first name], Hope you’re doing well. I’m giving our LPs our mid-year fund update in a couple days. Can you let me know roughly what you think we’ll end Q2 and 2019 at in terms of ARR?” In response, [the entrepreneur] emailed INVESTOR 3’s General Partner a snippet of a chart which falsely claimed that [QuickSnap’s] 2019 second quarter ARR was $51,937,845. In addition, attached to the email was a [venture] Investor Deck which falsely claimed [QuickSnap’s] 2019 second quarter ARR was $51,979, 665.
Similarly, following several successful funding rounds, the ProfitDash entrepreneur performed a façade of accelerating traction to “a long-time, wealthy and sophisticated investor participating in both large and small-scale investments across multiple industries over the last 50 years” (defendant sentencing memo). This entrepreneur organized the production of manipulated legal startup documents, as the prosecution’s sentencing memo asserts:
[The entrepreneur] also fraudulently created or altered documents designed to make [ProfitDash] look like a much stronger investment than it in fact was. [The entrepreneur] created a false Term Sheet that purported to indicate that a large publicly-traded corporation was interested in purchasing [the venture] for $150,000,000, and then forged the signature of a corporate executive on that document. [The entrepreneur] then caused this document to be transmitted to [investor].
The data further reveal that entrepreneurs engage in lengthy, detailed discussions with sophisticated investors in which they perform the façade for extended periods of time. In the Accelify case, for example, after successfully raising Series A and B funding, the entrepreneur engaged in reinforced façading by placing false financial statements into “data rooms for investors” and intensively performing the façade before investors, as the civil complaint reveals:
[The entrepreneur] also personally discussed [Accelify’s] financial results with several of the investors, in person and in phone calls. Many of the secondary market investors would not have bought the shares if they had known that [Accelify’s] revenue was less than 10% of what they had been told, and that the company did not have a net profit.
We find that performing a façade of accelerating traction is key to investors’ decisions to commit resources. In later venture life cycle stages, when pressure to produce evidence of performance increases, reinforced façading reveals more sophisticated organizing efforts to meet audience expectations by masking the reality of the venture’s unproven business model and slower-than-expected revenue growth.
Protecting the Façade by Centralizing and Controlling Information.
Our data indicate that entrepreneurs may leverage elaborate organizing efforts to protect the reinforced façade from scrutiny and probing. Specifically, entrepreneurs in QuickSnap, RevenueBoost, ProfitDash, and Accelify engaged in centralizing and controlling information flows to prevent detection of fraudulent activities. For instance, as the civil complaint of QuickSnap reveals,
The CEO had sole ownership of the [Annual Recurring Revenue] Spreadsheet and used it to personally calculate the company’s quarterly and yearly ARR. [The entrepreneur] rebuffed repeated requests from late 2017 into 2020 from [QuickSnap’s] board to hire a CFO to manage [QuickSnap’s] day-to-day finances.
In our study, entrepreneurs leverage their position of power in the venture’s hierarchy to centralize key information flows, prevent key hires that would enhance governance oversight, and deflect potential probes into their deception. Indeed, this protection approach allowed the QuickSnap façade to remain intact for over two years. The criminal complaint summarizes how deception was sustained (emphases added):
[The entrepreneur] accomplished this by maintaining tight and close control over significant aspects of operations, sales, and record-keeping at [QuickSnap], including operational decisions, customer interactions, sales efforts, invoicing, and major and minor company expenditures. [The entrepreneur] siloed information, including financial figures, sales and customer information, and routinely restricted employees from speaking with each other or customers about the company’s finances.
Despite these elaborate organizing practices to protect the venture’s reinforced façade, the scheme was eventually revealed by an employee who, in reviewing the company’s financial records, detected nonexistent customers. The employee’s probing ultimately led to the formation of a special investigative committee, the hiring of an audit firm to verify QuickSnap’s financial records, the CEO’s resignation, and a severe devaluation of the company. The entrepreneur pled guilty to the charges and was sentenced to 18 months in prison.
Similarly, the Accelify entrepreneur protected the façade for nearly two years before the serendipitous hiring of an external chief financial officer (CFO) led to its unmasking. As the civil complaint reveals,
[Accelify] hired a CFO, who quit after just a few days on the job. He told [Accelify’s] board that [Accelify’s] revenue numbers were inaccurate, pointing out the Round-Trip Transaction in particular. [Accelify’s] board then hired external accountants to assess [Accelify’s] books, leading to a restatement of [Accelify’s] 2013 and 2014 financial statements.
In this case, the entrepreneur managed to assuage stakeholder concerns for a few years. The criminal deception was only exposed by a new hire, and a dedicated internal investigation and external audit led the entrepreneur to resign, and the venture to file for bankruptcy in 2016.7 Having since fled the United States, the entrepreneur agreed to settle with the SEC in 2019 for repayment of $16.67 million in fraudulently obtained resources in addition to penalties.8
Through reinforced façading, entrepreneurs engage in elaborate discursive and organizing efforts to produce interlocking sets of false, retrospective evidence in support of fictionalized stories. In doing so, they materially manipulate the venture’s resources and begin to generate a fictitious, alternative version of the venture designed to address a wide expectation-reality gap amid the venture’s subpar performance.
Deep Façading
In the scale-up stage of a venture’s life cycle, when pressures to produce highly specific evidence of technological achievements and exponential growth are high and an extreme expectation-reality gap may develop, we find that the prosecuted entrepreneurs in our study engaged in highly sophisticated discursive and organizing efforts to carry out a form of criminal deception we term deep façading. Our data show that, under these conditions, entrepreneurs not only fictionalize stories and evidence but also engage in sophisticated organizing efforts, namely by faking experiential performances (e.g., product demos), co-opting audience verification processes (e.g., due diligence), and manipulating regulatory compliance. In doing so, entrepreneurs apply façading to an expansive array of venture facets—notably those pertaining to the venture’s core technological capabilities, financial resources, and commercial viability. The resulting façade generates the illusory appearance of a rapidly scaling venture that has achieved product-market fit, masking the operational reality of slow (or nonexistent) scaling from multiple expert audiences (e.g., institutional investors, customers, regulators). Moreover, to protect such a comprehensive and far-reaching façade, entrepreneurs entrench organized secrecy into their ventures. We illustrate these patterns with salient empirical evidence from five ventures: ScaleX, Tracton, UnicornHealth, HyperJet, and GrowthHacker (see Online Appendix D for additional evidence).9
Constructing a Façade Through Fictionalized Stories and Fabricated Evidence Enhanced by Faking Experiential Performances, Co-Opting Verification Processes, and Manipulating Regulatory Compliance.
First, we find that entrepreneurs construct a deep façade through the additional, sophisticated organizing efforts of faking experiential performances, which are known in the startup world as “product demos.” An example is ScaleX, a medical device and biotechnology venture that faked its technological capabilities, as the civil complaint explicates:
This initial [investor] meeting was often followed by a purported demonstration of [ScaleX’s core technology]…. Based on what they saw, potential investors believed that [ScaleX] had tested their [specimen] on either an earlier-generation [technology] or [ScaleX’s new technology]. As [the entrepreneur] knew, or was reckless in not knowing, however, [ScaleX] often actually tested their [specimen] on third-party [technology], because [ScaleX] could not conduct all of the tests it offered prospective investors on its proprietary [technology].
We find that entrepreneurs staged experiential performances in front of audiences to showcase nonexistent technological achievements. Such performances were organized to make audiences experience the technology as if it were actualized and operational and to align with fictionalized stories communicated via “presentations and other written materials to [customers] representing that [ScaleX] had the ability to conduct a broad range of tests on its proprietary [technology]” (civil complaint).
Similarly, the entrepreneur of Tracton, a machine learning venture purporting to develop advanced artificial intelligence (AI) software tools to derive customer insights from vast online video content, faked its AI capabilities, as the criminal complaint reveals (emphasis added):
[The entrepreneur] had not developed AI that could perform all of the functions [they] represented to potential investors, investors, and to potential clients. It appeared to investors that some of the product that was generated by [its tools] and purported to be the product of AI software was, in fact, the product of paid workers in India watching videos and then recording their impressions…. There did not appear to be any IP or patents.
Beyond reinforcing fictionalized stories with fabricated evidence, we find that, through deep façading, entrepreneurs mask deficient technological capabilities—in this case, by organizing workers in India to produce the output ostensibly created by Tracton’s AI.
Second, we find that entrepreneurs who engaged in deep façading deployed discrete organizing efforts to co-opt audiences’ verification processes. For instance, the entrepreneur in HyperJet, a venture offering payment processing and administrative tools for bank and healthcare payers, artificially staged and then self-authored a financial audit to validate the venture’s financial viability and dramatic growth to investors. As described in the court’s final opinion in the entrepreneur’s appeal case (emphases added),
For starters, there never was a KPMG audit. Instead, [the entrepreneur] concocted financial statements out of thin air and put them on fake KPMG letterhead. These counterfeits suggested—falsely—that [the venture’s] revenue exceeded its expenses. [The co-founder] played a part, too; he reviewed the phony papers to make sure they looked like real KPMG documents. [The co-founder] also sent emails, drafted by [the entrepreneur], that falsely suggested [HyperJet] was in contact with KPMG auditors.
Importantly, the auditor’s report, which falsely represented HyperJet’s current financial situation and future prospects, was “material to [a Series D investor’s] decision to invest in HyperJet.” In self-authoring an audit report by a high-status, internationally recognized firm, HyperJet’s entrepreneur thwarted investors’ verification (i.e., due diligence) efforts. Additional organizing efforts were utilized to recruit a HyperJet employee to impersonate an employee of the venture’s customer during a due diligence call. The impersonating employee provided the Series D investor with “false information about the number of end users of HyperJet’s products,” as well as “false statements related to the potential for millions of revenue-generating client accounts to be added to the HyperJet system” (plea agreement). Producing such an elaborate deception scheme further involved coordinating with the cofounder and connecting various layers of deceit to mask the venture’s slow scaling trajectory.
Similarly, GrowthHacker, an e-commerce venture offering novel advertisement services, co-opted verification processes by impersonating customers and investors in reference-check calls. The FBI agent leading the investigation against GrowthHacker’s entrepreneur explains the organizing efforts (emphases added):
The Nike contact [the entrepreneur] provided VC Firm E was [name of Nike representative] with phone number [XXX-XXX-4825]. [Investor] spoke to who he thought was [the Nike representative]. On the call, [the Nike representative] told [investor] that he would increase the amount of business Nike did with [GrowthHacker] if he could and overall gave a positive reference. The FBI reached out to Nike and interviewed the real [Nike representative], Senior Director of Sustainability Marketing. [The real Nike representative] had never heard of [GrowthHacker or the entrepreneur], never used the phone number [XXX-XXX-4825], and never spoke on the phone to [investor]. Based on database records, [XXX-XXX-4825] is a wireless number registered to an individual determined to have been an employee of [GrowthHacker].
Recruiting a venture employee to impersonate a senior member of a high-status customer reflects a high degree of sophistication in organizing to co-opt audiences’ verification processes. In so doing, these entrepreneurs ensured that audiences interested in verifying the venture’s operational reality unknowingly interacted solely with the constructed façade of a rapidly scaling venture, masking the actuality of slow or no scale.
A third element of façade construction in deep façading involved manipulating regulatory evidence, as shown in the case of UnicornHealth, a biotechnology venture offering proprietary technology to perform novel diagnostics. In highly regulated markets such as healthcare, obtaining or being exempt from regulatory approval is a key achievement that provides evidence of a venture’s growth and scaling prospects. The criminal complaint showcases the manipulation of regulatory approval (emphasis added):
However, [the entrepreneurs] caused [UnicornHealth] to submit numerous reimbursement claims to insurance providers…to show investors that [it] could earn significant revenue through clinical billings. [The entrepreneurs] did so despite knowing that [UnicornHealth] had neither validated that particular [technology] pursuant to [government regulations] nor issued any patient test results, and despite knowing of concerns raised by certain [UnicornHealth] personnel about the propriety of billing health insurance providers under such circumstances.
UnicornHealth demonstrated astute awareness of insurance billing systems by faking compliance and fit with insurance providers’ coding practices, on which the venture’s revenue stream depended. By simultaneously ignoring and feigning regulatory compliance, the entrepreneurs fraudulently generated revenue and masked the venture’s noncompliance. The civil complaint captures how the façade was reinforced by forged financial statements claiming “[r]evenue growth of almost 900% since June 2017.” In actuality, UnicornHealth had covertly engaged in organizing efforts to “dup[e] doctors into ordering unnecessary tests…which, once discovered, led insurers to claw back their previous reimbursement payments to [UnicornHealth].”
ScaleX similarly manipulated its regulatory compliance, as the civil complaint reports (emphases added):
By the time of [ScaleX’s] financing round in 2014, [the regulatory agency] told [ScaleX] that clearance or approval would be necessary for [its technologies]…. However, [ScaleX] continued to raise additional funds while telling potential investors [ScaleX] was seeking [regulatory] approval voluntarily. But [ScaleX’s executive] knew, or was reckless in not knowing, that [regulatory] approval was necessary for [its] technologies.
Manipulating regulatory compliance assured investors that the startup met industry norms and expectations by following the “industry’s gold standard.” Projecting regulatory compliance was central to convincing audiences of ScaleX’s scaling trajectory because regulatory “approval or clearance would have been an obstacle in the company’s path to realizing full commercialization,” as the criminal complaint stipulates.
The above examples show how entrepreneurs engaging in deep façading skillfully organize elaborate, interlinking acts of deception to convince audiences of the soundness of their businesses’ core technology, third-party validation, regulatory compliance, and scaling trajectory.
Performing a Façade of Rapid Scaling to Multiple, Expert Audiences.
Through deep façading, entrepreneurs seek to meet the expectations of multiple expert audiences (including investors, banks, partners, and customers) by projecting an illusory appearance of a venture that has achieved product-market fit and is rapidly scaling, masking the lackluster operational reality. For example, seven years after founding the biotechnology venture ScaleX, the entrepreneur performed fake product demos of its technological capabilities before a large-scale, nationwide customer that, if successful, would provide a pathway to achieve rapid scale. The civil complaint reads as follows:
[The entrepreneur] also instructed [ScaleX] employees to place numerous [proprietary products] – which could only be used for research and development purposes and could not be used for clinical testing – in a room in [ScaleX’s] clinical laboratory. This made it appear as if [ScaleX] used its [proprietary technology] for clinical purposes. [The entrepreneur] then led a group of [customer company] executives on a tour of that room, and those…executives saw rows of [ScaleX’s proprietary technology] in [the venture’s] clinical laboratory. Based on [the entrepreneur’s] presentation…executives understood that the [specimen] from their demonstration samples would be tested on [ScaleX proprietary technology]. [The entrepreneur] never told the executives that [ScaleX] was actually testing some of their [samples] on modified third-party analyzers. At the end of 2013, [customer company] agreed to accelerate a portion of a $100 million ‘innovation fee’ to help [ScaleX] broaden its roll-out of services to [customer company retail] stores. Unbeknownst to [customer company], [ScaleX] was scaling its retail offering by relying on third-party analyzers.
The data show how the entrepreneur faked product demos before an expert audience, which convinced the partner to extend a quasi-investment into ScaleX to further accelerate the diffusion of the technology and service within their retailer network. ScaleX then leveraged this relationship to support the narrative that it “would be rolling out to 800 or 900 stores by year-end 2015” (civil complaint), thereby convincing other late-stage equity capital investors to commit resources.
The data also illustrate how HyperJet, Tracton, and UnicornHealth performed façades of rapid scaling to expert audiences, many of them follow-on investors, including foundations, venture capitalists, angel investors, and corporate venture capitalists who provided debt and equity financing. For example, for its Series D funding of USD 74 million, HyperJet performed a façade of dramatic customer growth by manipulating operating reports. The civil complaint shows the following:
[HyperJet] Operating Reports provided to investors show an increase in the number of client accounts, increasing from 214,735 in February 2009, to 1,012,002 in May 2009. [The entrepreneur] knew or should have known that [HyperJet] Operating Report entries showing the number of client accounts were false. As of June 2009, [HyperJet’s] internal records show that it only had 81,618 client accounts.
Throughout the data, we find that entrepreneurs generated material evidence to perform illusory appearances of rapid scale, which the FBI pointedly connected to the role of the institutional environment, stating “because tech startups are expected to show rapid growth, [the entrepreneur] had to falsely claim even more revenue…[the entrepreneur] continued to show investors an ever-growing list of customers” (criminal prosecutor’s sentencing memorandum).
In the e-commerce venture GrowthHacker, the entrepreneur engaged in deep façading after the venture relocated its headquarters to Silicon Valley. GrowthHacker sought to convince not only risk capital investors but also banks when seeking both initial and additional lines of credit that ultimately totaled $5,000,000. As the criminal felony charge reads,
To secure the lines of credit, [the entrepreneur] provided materially false financial information to [bank]. For example, [the entrepreneur] fabricated millions in revenue and account receivables from companies that never had contracts with [GrowthHacker]. Once the bank approved and issued the lines of credit, [the entrepreneur] used the money to pay off other creditors and investors, and to settle personal expenses.
Collectively, these data show how entrepreneurs perform deep façades to make their ventures appear to be rapidly scaling before multiple, expert audiences. The data reveal that these façades were generally sustained for extended time periods before being unmasked, the subject to which we next turn.
Protecting the Façade Through Entrenching Organized Secrecy.
We find that in deep façading, entrepreneurs protect the façade not only by shifting blame and controlling information flows but also by entrenching organized secrecy in their ventures. Organized secrecy is designed to normalize secrecy within a venture, notably by introducing and legitimating concealing processes (Costas and Grey 2014, p. 1426). For example, court data detail how ScaleX utilized code words to normalize its use of third-party devices in order to conceal the venture’s lack of operational proprietary technology from its employees. The civil complaint reports the following:
[ScaleX’s] executive also instructed [ScaleX] laboratory employees to use code names to refer to third-party [technology] in its laboratory information systems, ensuring that even other [ScaleX] employees would not know that [ScaleX] was using third-party [technology] to conduct a portion of its patient testing.
By entrenching secrecy through the use of code words, the entrepreneur further contributed to generating a fictionalized, parallel reality of rapid venture scaling and unfaltering success. ScaleX’s parallel reality was unmasked after five years, when employees leaked information to regulators and the press. A grand jury convicted the entrepreneur and a C-suite executive of fraud, leading to prison sentences of 135 and 155 months, respectively, in addition to $425,047,268 in restitution payments. The venture filed for bankruptcy.
UnicornHealth went a step further, infusing improper business practices with startup “flair” by referring to them internally as a “growth hack.” The criminal complaint demonstrates this tactic:
At the direction of [the entrepreneurs] [UnicornHealth] developed a practice referred to by various names, including ‘re-sequencing’ and ‘upgrading’ (hereafter referred to as ‘upgrades’). Upgrades were internally referred to at [UnicornHealth] as a ‘growth hack’, through which [the entrepreneurs] intended to increase numbers of billable claims by marketing to customers who had previously submitted [medical] samples to [UnicornHealth] to have those archived samples reprocessed through newer versions of [UnicornHealth’s] tests.
Infusing improper business practices with technical and entrepreneurial jargon highlights the combination of discursive and organizing work that contributes to normalizing secrecy within a venture and enlisting employees in the deception. The civil complaint further show that the entrepreneurs concealed information about fraudulent venture practices from “[UnicornHealth’s] general counsel, [UnicornHealth’s] board, and insurers,” including by “directing [UnicornHealth] employees to provide insurers with backdated and misleading medical records to substantiate the company’s prior claims for reimbursement” to avoid detection. Moreover, the entrepreneurs leveraged employees to protect the façade internally and externally. Yet despite protecting the façade for four years, the criminal deception eventually came to light when insurance companies probed, leading the venture’s board to launch an internal investigation that “brought [UnicornHealth’s] improper billing practices to light and made clear that [UnicornHealth’s] business model was untenable” (civil complaint). The entrepreneurs were fired and fled the country. The venture went into liquidation proceedings in late 2019, and the criminal and civil cases are ongoing.
As shown in these examples, entrepreneurs entrenched organized secrecy by bringing others into the fold, including by enlisting cofounders, venture executives, or employees in the deceptive schemes. Consider the payment processing venture HyperJet, in which the entrepreneur leveraged his cofounder to send a ghost-written email to a potential investor regarding a staged audit. In the criminal complaint the FBI investigation reveals the following:
On April 13, 2009, [the entrepreneur] sent an email with the subject line ‘Ghost write’ to [co-founder]. The email stated, ‘Inn [sic] going to ghost write a note for you to send to [investor] and I re: KPMG today. Remember you’re supposed to be spending time with them today…cool?’
Later in the same day, [the entrepreneur] sent a second email to [co-founder] with the subject line ‘Ghost Written Notes’ which stated: Send to [investor] and [me].
Guys, I spent the day with the auditors and we still have a list of things that are outstanding and we are in the way.
The prosecution notes the complicit nature of the criminal deception in that the cofounding entrepreneurs “jointly devised the scheme.” The façade was unmasked by happenstance when the venture’s general counsel contacted an acquaintance at the audit firm KPMG to scout a new CFO and, in the process, learned that KPMG had never conducted the purported HyperJet audit. The entrepreneurs pled guilty to the charges and were each sentenced to 180 months in prison and $93,125,915.12 in restitution payments. HyperJet filed for bankruptcy. Similar patterns of involving employees in façade protection occurred in the Tracton and GrowthHacker10 cases, where organizational actors were leveraged to protect the façades from probing, thereby contributing to normalizing and organizing secrecy.
Overall, we find that when faced with a high burden of proof to showcase rapid scaling and an extreme expectation-reality gap, prosecuted entrepreneurs employed elaborate discursive and organizing efforts to accomplish deep façading, generating a sophisticated façade akin to a parallel reality that blurred the lines between fictitious representations and operational reality.
Discussion
In pursuit of a theoretical framework to advance our understanding of entrepreneurs’ criminal deception, we inductively studied Silicon Valley technology ventures and their founders who were charged with securities-related fraud. Based on these data, we theorize criminal deception as a three-part process of façading through which entrepreneurs construct, perform, and protect an illusory venture appearance—the façade—before diverse audiences. A façade projects a desirable illusion of a high-performing venture designed to meet institutionally conditioned audience expectations and to mask a venture’s operational reality of underperformance. Figure 1 presents our theoretical framework, with which we make four key theoretical arguments.
Toward a Theory of Criminal Deception
First, as Figure 1 illustrates, entrepreneurs can backfill the gap between expected and actual venture performance (indicated by the light grey to dark grey shaded areas) through façading. Extending actor-centric arguments that assume entrepreneurs self-set expectations through aspirational narratives, we follow an institutional line of argumentation to suggest that audience expectations are conditioned by the institutional context—in our case, Silicon Valley—and anchored in the collective pursuit of the ideal venture type (a unicorn). As ventures progress, they must convincingly meet institutionally conditioned expectations of audiences hoping for exponential growth during a venture’s life cycle. In the process, they produce not just stories but also increasingly elaborate evidence of progress to acquire resources. When venture performance fails to meet such expectations, façading provides an avenue to alter what audiences perceive as the venture’s operational reality, making it appear as if no expectation-reality gap exists.
Second, we argue that the form of façading (surface, reinforced, or deep) is contingent on the degree of expectation-reality gap, commensurate with discrete phases in a venture’s life cycle. Under conditions of a minor expectation-reality gap early in the venture’s life cycle, when audiences typically expect to see ideation, testing, and research and development (R&D), and the burden of proof is low, we argue that entrepreneurs engage in surface façading. Here, entrepreneurs transgress from dramatized stories to criminal deception (whether intentionally or not) when their entrepreneurial narratives become wholly detached from the venture realities and strategies, serving only to influence audience perceptions and elicit support. During subsequent stages in the venture’s life cycle, audiences expect to see evidence of revenue generation and customer growth, and the burden of proof grows. Here, a wider expectation-reality gap may emerge, which entrepreneurs can backfill through reinforced façading. In this case, fictionalized stories are reinforced through the organized production of interlocking sets of faked evidence (i.e., data, facts, and information) of retrospective venture performance, which further supports optimistic future projections of accelerating venture traction. Finally, during the scale-up phase, when the burden of proof is high and audiences expect evidence of technological readiness and a rapidly expanding customer base, an extreme expectation-reality gap may emerge, which entrepreneurs can backfill through deep façading. This involves an expansive set of organizing processes that include faking experiential performances, co-opting audience verification processes, and manipulating regulatory compliance. In our theoretical framework, we theorize façading as a discontinuous process with varying entry points (represented by the dotted lines between façading forms in Figure 1). Although linear progression across forms of façading is hypothetically possible, we did not observe this pattern in our data. Future research could investigate the possible transitions between forms of façading as well as how entrepreneurs may eventually shift “out of” façading by reducing the expectation-reality gap through means other than deception.
Third, our framework theorizes criminal deception at the discourse-organizing interface. We argue that façading sophistication is contingent on a widening expectation-reality gap, requiring more integrated discursive and organizing efforts to shoulder the increasing burden of proof and to secure audience support. As such, we suggest that entrepreneurs may slip into criminal deception as they fictionalize their stories, seamlessly shifting from making aspirational claims in their projective storytelling to conveying fabricated narratives wholly detached from the venture’s operational reality. Entrepreneurs who solely engage in fictionalizing stories deploy considerable discursive strategies yet minimal organizing efforts. With widening expectation-reality gaps, organizing efforts intensify, and the deception scheme becomes increasingly elaborate. Indeed, protecting façades from detection involves extraordinary organizing efforts toward controlling and siloing information as well as entrenching organized secrecy within the venture. This organized secrecy requires remarkable levels of organizational skill on the part of entrepreneurs; it also demands that regulatory and governance approaches be reconfigured to effectively prevent and unmask criminal deception.
Fourth, our framework theorizes how façading involves an increasing detachment of the venture’s projected appearance from its actual, operational reality. Through surface façading, entrepreneurs generate an illusory appearance akin to a cultural veneer that aestheticizes and simultaneously masks elements of the venture’s undesirable operational reality. Reinforced façading generates more of a standalone façade—a cultural artifact derived from, but independent of, the venture—with which audiences interact. Through deep façading, entrepreneurs generate an illusory, Truman Show–like parallel reality in which audiences interact with a fully fictionalized, desirable venture twin that bears little resemblance to the actual venture. Much as Truman, the movie’s protagonist, experiences a scripted, staged world as genuine and real, audiences interact with a venture’s carefully fabricated performance data, faked product demos, nonexistent technologies, and more as if they were engaging with the real venture.
Taken together, our arguments underscore the need to theorize criminal deception more comprehensively by specifically analyzing the intersection of discursive and organizing work. We next discuss our work’s contributions to the literatures on cultural entrepreneurship, organizational wrongdoing, and the societal effects of entrepreneurship.
Contributions to Research on Cultural Entrepreneurship
Cultural entrepreneurship research has provided an important starting point to begin to understand deception. Extant scholarship foregrounds the discursive work involved in deceiving audiences through the dramatization of stories, narratives, symbols, and framing (Martens et al. 2007; Garud et al. 2014, 2025; Piazza et al. 2023; Bureau et al. 2026). We extend this line of work by studying deception at the interface of discursive and organizing work. Through façading, entrepreneurs engage in discursive work as they fictionalize stories of progress and imminent success to convince their audiences. Yet when faced with a widening expectation-reality gap and an increasing burden to demonstrate progress, entrepreneurs use discrete organizing efforts to produce and perform false evidence, stage faked performances of technological capabilities, and co-opt audiences’ verification processes through elaborate schemes (e.g., impersonating investors or customers, manipulating venture resources, incorporating employees in the deception, and protecting the façade). By broadening the scope of theorizing beyond discursive work, we highlight the hidden dimension of organizing that is involved in fabricating the false evidence that shores up deceptive stories. A future research agenda for criminal deception must further develop our understanding of how discursive and organizing work intersect to produce façades.
Furthermore, in building on research that depicts deception as part of aspirational future-making (Garud et al. 2014, 2025; Wood et al. 2022), we highlight how criminal deception also hinges on fictionalizations of the past to portray nonexistent technologies and venture performance as though they had been actualized. Faked revenue, falsified bank statements, fabricated recurring customer contracts, and made-up product demos represent the organized production and performance of retrospective evidence, which entrepreneurs use as raw materials in crafting deceptive stories of the past, present, and future. Fictional stories reinforced by fabricated historical data are hallmarks of criminal deception, and they are markedly distinct from future-oriented entrepreneurial visions that may or may not materialize.
In accordance with extant research, we confirm that evidence of venture performance is essential in meeting audience expectations. Logue and Grimes (2022) argue that audiences expect entrepreneurial stories to be bolstered by evidence, such as “proofs of concept, hard data, or even convincing prototypes” (p. 1059). We argue that the organized production and performance of evidence can itself be completely fabricated, often rendering audiences’ standard verification processes ineffective. As such, we suggest that entrepreneurs not only act to narrow and close the expectation-reality gap by, for instance, revising stories (Garud et al. 2014, 2025; Chapple et al. 2022; Knight et al. 2025), recalibrating expectations (McDonald and Gao 2019, Karp and O’Mahony 2025), or pivoting (Hampel et al. 2020), but that they can also sustain the gap over time by focusing their attention and skill on influencing audiences’ perceptions, creating the illusion that no gap exists. We see much value in future research on deception that further explores the dynamics and motivations of entrepreneurs who engage in façading, with a specific analytical focus on misrepresenting ventures’ past performances.
Extant research theorizes how entrepreneurs create entrepreneurial identities; fit within, extend, or create market categories; and achieve legitimacy (Martens et al. 2007, Überbacher 2014, Lounsbury and Glynn 2019, Lockwood and Soublière 2022). We add the argument that façades enable entrepreneurs to project and maintain illusory identities that bear little to no resemblance to the actual venture. Although research on façades has explained how organizations may engage in ceremonial compliance with institutional pressures (Nystrom and Starbuck 1984, Abrahamson and Beaumard 2008), more work is needed to foster our still rudimentary understanding of how entrepreneurs first engage in façading, how they learn and acquire the skills of façading, how they manage the frictions and tensions resulting from façading, and how—in some cases—they may abandon façading for more legitimate practices.
Emerging conversations on constructing guardrails against deception have foregrounded entrepreneurial authenticity (Martens et al. 2007, Gehman and Wry 2022) as a way to curb deceptive practices. We posit that a focus on verifiability is better suited to detecting and preventing criminal deception. Authenticity judgments tend to focus on assessing consistency between the entrepreneur’s/venture’s internal values and their external expression, their conformity to an established market category, or the venture’s connection to a person, place, or time (Lehman et al. 2019) rather than on verifying the relationship between entrepreneurial stories and operational realities in the context of fraud. Further, authenticity judgments in the entrepreneurial domain can be counterproductive, as entrepreneurial authenticity thrives on rule-breaking, deviance, hubris, and aspirational stories (Hampel and Dalpiaz 2025, Wadhwani and Lubinski 2025). Hence, we argue that future work ought to inform our understanding of the verifiability of entrepreneurial claims and of how entrepreneurs can be encouraged to craft not just convincing stories but also verifiable ones. An analytical focus on verifiability also highlights the role of investors. More research is needed to critically examine investors’ verification processes by studying how investors (fail to) make sense of entrepreneurs’ stories, evidence, and organizing processes, and how (willingly or not) investors may be implicated in coproducing criminal deception.
Contributions to Research on Wrongdoing
Recent work on misconduct and wrongdoing has begun to reconnect with its historical roots and emphasize the hidden acts and processes—the how-to of wrongdoing (Gabbioneta et al. 2013, Mohliver et al. 2022, Zhang et al. 2023, Lodge et al. 2025, Eaglin 2026). We build on this stream of work to more systematically analyze and theorize the acts, repertoires, and organizing work that individuals and organizations engage in to further wrongdoing in and by organizations. Specifically, a new focus in the literature on entrepreneurial wrongdoing (Scheaf and Wood 2022, Mohliver et al. 2022, Palmer and Weiss 2022, Wood et al. 2022) goes beyond mature, large-scale, public organizations to theorize misconduct in comparatively small, young, private, and thinly organized firms that lack the routines, formalization, and structures of large organizations. Strikingly, the data showcase how deception can become fully entrenched in startups.
Misconduct research typically adopts a realist-structural understanding of culture as involving systems of beliefs, norms, and understandings that potentially endorse misconduct (Palmer 2013)—such as the “fake it ‘til you make it” trope (Palmer and Weiss 2022). We balance this view by proposing a Swidlerian understanding of how entrepreneurs skillfully leverage and mobilize culture (Swidler 1986, Lounsbury and Glynn 2019), which we see as particularly germane to the study of entrepreneurial wrongdoing. By viewing culture as a resource, wrongdoing researchers can transcend macro descriptions of culture to analytically show how discourse becomes enacted in organizations and how features of organizational design can facilitate deception. Our research shows how entrepreneurs leverage façading to comply with audience expectations, buffer against external strain, and protect against internal and external scrutiny so that illegality can manifest and prosper. Here, linguistic and symbolic actions in the form of stories are tightly coupled to discrete organizing efforts. We see the discourse-organizing interface as a pathway to go beyond the traditional focus on the antecedents and consequences of wrongdoing to analytically disentangle how wrongdoing in startups is carried out.
Given our focus on detected and prosecuted cases of entrepreneurial fraud, we draw inspiration from criminology research that focuses on actors’ “modus operandi” to better understand the systematic nature of wrongdoing and identify prevention strategies. Research on modus operandi investigates “the method criminals use to commit a crime that they find both practical and successful over a period of time” (Levinson 2002, p. 1071). Focusing on the criminal acts and processes across cases creates a deeper understanding of the hidden organizing methods, frameworks, and repertoires involved in organizational wrongdoing (Fosdick 1915). In our context, court data offer particularly promising opportunities for both qualitative and quantitative researchers to study pathways of criminal deception that can serve as blueprints in alerting entrepreneurs to potential dangers, educating them on how to stay in the clear, and developing preventative measures to curb entrepreneurial fraud. Given the broader frame of wrongdoing research, we see great potential in examining the full spectrum of criminal acts and offenses carried out in (and by) entrepreneurial ventures and beyond. For example, our understanding of sexual misconduct, discrimination, and other forms of harm in the entrepreneurial context is in its infancy. We encourage future researchers to examine this spectrum of wrongdoing.
Contributions to Research on the Social Effects of Entrepreneurship
Research on the social effects of entrepreneurship focuses on how entrepreneurship affects society (Eberhart et al. 2022b, Weiss et al. 2023), capturing how entrepreneurship has become a major cultural theme and ideology (Bromley et al. 2022, Caliskan and Lounsbury 2022, Eberhart et al. 2022b, Lubinski and Tucker 2025) and reckoning with its adverse effects (Jones and Spicer 2005, 2009, Essers et al. 2017, Kwon and Sorenson 2023, Gagliardi and Sorenson 2026). Too often, conventional wisdom is quick to oust prosecuted entrepreneurs as lone outliers (Hoffman 2018) without interrogating the broader dynamics that facilitate harmful entrepreneurial acts. That is, entrepreneurs are often cast as the sole perpetrators of criminal deception, sidelining the role of other actors, such as investors. Investors are institutionally embedded, act as important gatekeepers (Suchman 2000), coach and mentor entrepreneurs, and culturally promote rapid scaling approaches (Hoffman and Yeh 2018). Our 2022bfindings hint at coproduction dynamics between entrepreneurs and investors, such as when façading becomes more sophisticated with increasing expectations to prove rapid venture scaling in exchange for resources. This avenue deserves further scrutiny.
Entrepreneurs’ co-optation of audiences’ verification processes and entrepreneurs’ façade protection approaches suggest several institutional failures in how stakeholders neglect their fiduciary responsibilities as investors and board members. More research is needed to understand these entrepreneur-investor dynamics to balance the overemphasis on the entrepreneur as the sole perpetrator of wrongdoing.
Further, deception can become valorized and misunderstood as deviance in entrepreneurship (Wadhwani and Lubinski 2025), suggesting that virtuous ends can justify dubious methods. We confront such arguments with a clear view of the costs of criminal deception. Prosecuted and sentenced entrepreneurs experience a drastic, comprehensive loss of agency when they bring their ventures to ruin and lose their entrepreneurial identity, in addition to relinquishing their personal freedom via incarceration. Similarly, criminal deception can destroy substantial amounts of financial capital, which is often sourced from limited partners such as pension and insurance funds, as well as causing significant harm to consumers. More broadly, and as some of the judges adjudicating the analyzed cases argue, criminal deception can undermine trust in the very ecosystem that sustains entrepreneurship. We argue that it is important to distinguish between productive deviance and harmful, criminal deception.
Our work highlights Silicon Valley’s peculiar institutional context in valorizing the pursuit of unicorn ventures and a “growth at all costs” mantra (Zankl and Grimes 2024, Hampel and Dalpiaz 2025). We argue that institutionally conditioned audience expectations of extraordinary growth facilitate criminal deception, which can extend to other geographies where the Silicon Valley scaling paradigm of high-growth, equity-backed entrepreneurship flourishes (Kim and Kim 2022). More research is needed to examine the dynamics of criminal deception in other jurisdictions.
Additional research could help illuminate façading and criminal deception in relation to other forms of entrepreneurial harm. For instance, Uber, Lyft, and others have faced prosecution for misclassifying employees as independent contract workers. Seemingly, these ventures construct, perform, and protect illusory identity labels to mask the increasing precarity of their gig workers (Eberhart et al. 2022a, Vogel 2022, Bathini et al. 2026). As such, the playbook of criminal deception may expand beyond typical audiences, such as investors, to capture how ventures relate (deceptively) to their employees, customers, partners, the judiciary, and society more broadly.
Practical Implications
Current debates among legal scholars center on the SEC’s engagement in secondary capital markets to provide oversight and expand enforcement over investments in private ventures (Pollman 2020, 2022b; Carlson 2023; Platt 2023; Wansley and Weinstein 2023). Our findings present a novel database of securities fraud by prosecuted Silicon Valley entrepreneurs and showcase the important role that the SEC plays in prosecution and in bringing such cases to the attention of the DOJ. Given that the redistribution of resources within the SEC toward more private market enforcement is contested (Platt 2023), we concur with legal scholars such as Pollman (2020, p. 399) that venture employees and board members can serve as important allies in detecting criminal deception. Specifically, we suggest that the barriers for whistleblowing be substantially lowered, such as by increasing SEC resources for existing whistleblower protection schemes and specifically incorporating startup ventures in the latter to facilitate both detection and deterence of criminal deception. Further, we suggest that institutionalizing formal audits of ventures by the SEC, particularly later in the venture life cycle, could provide important corrective and detection measures for criminal deception.
Relatedly, investors’ role in corporate governance as board members is central, yet rarely scrutinized. Within current legislation, investors are protected and thus qualify as “victims” when criminal deception is prosecuted. As our data suggest, however, investors play a key role in defining venture performance and return expectations (Canales et al. 2025). Although investors with board seats have oversight obligations, criminal deception and other forms of entrepreneurial fraud are rarely considered a corporate governance failure, and investors are not typically held liable for the consequences. We propose that more accountability and responsibility should fall on investors to reduce entrepreneurs’ vulnerabilities to criminal deception and improve the chances of detecting deception. We also recommend that investors upgrade their due diligence processes to minimize opportunities for deceit by adequately verifying entrepreneurial claims and scrutinizing supporting evidence through multiple data sources.
Finally, entrepreneurial education tends to rely on ethics and morality as a counterforce to deception (Byers 2020). These efforts notwithstanding, we see particular promise in clearly delineating between permissible—and perhaps even expected—forms of deception (such as dramatization) and criminal forms of deception, such as, façading. We argue that entrepreneurship education needs to demarcate the boundaries for students to enhance the chances of detecting and preventing criminal deception rather than inadvertently contributing to its normalization. Hence, we propose that educational efforts need to directly incorporate topics of entrepreneurial misconduct and law violations into their curricula, regarding how to legally manage all stakeholders (e.g., board of directors, prospective and current investors, employees, and partners).
Conclusion
Criminal deception knows no geographical or institutional boundaries. Given the dramatic increase in the financialization of private capital markets and the pressure for entrepreneurs to generate quick financial returns and address societal problems ranging from climate change to poverty to healthcare, we see an increasing opportunity structure for criminal deception to prosper. Accordingly, researchers and regulators alike should explore how to curb the unfettered, and often unrealistic, scaling expectations that audiences place on entrepreneurs and that entrepreneurs place on themselves (Zankl and Grimes 2024). Organization and management researchers have an important role to play in this regard. By developing a more nuanced understanding of how entrepreneurial ventures become enmeshed in criminal activity, we can illuminate our current blind spots that allow entrepreneurial stories to evolve into criminal conduct.
Acknowledgments
The authors thank Inka Luhrs, Anne Mokhtari, Manuel Peichl, Afrooz Shafiei, Doron Tadmor, and Jaimie Zheng for research assistance; Salem Alsanousi, Joel Bothello, Chris Eaglin, Don Palmer, and Hatim Rahman for feedback on earlier drafts of the paper; colleagues at seminars and conferences at IE University, IESEG, KTO-SKEMA, LBS Ghoshal conference, McGill Montreal, Rethinking Entrepreneurship at CBS, and STORM-emlyon for generous feedback; Sarah O’Brien, Michelle Darlington, and Catie Phares for editorial support; and senior editor, Grace Augustine, and three anonymous reviewers for thoughtful guidance and feedback. Both authors contributed equally.
Endnotes 1 Our conceptualization builds on similar distinctions and interfaces, such as tangible-intangible resources (Lounsbury and Glynn 2001) and symbolic-substantive actions (Karp and O’Mahony 2025), as well as empirical research that analyzes both discourse and organizing as inextricably linked (Zott and Huy 2007, Delmestri and Greenwood 2016, Massa et al. 2017). 2 Although numerous definitions of “startup venture” exist in the literature—including 6, 8, or 10 years of age and up to 20 years of age or less at the time of the IPO—we chose a 10-year cutoff from when criminal deception was reported as occurring, although the legal prosecutions could extend beyond this period. 3 Even though the court data are publicly available, we intentionally chose to anonymize entrepreneurs and ventures. We seek to facilitate a process of identifying patterns across cases as opposed to singling out individual cases or entrepreneurs as deviant outliers (as is dominant in public discourse), which we argue hinders a more substantive engagement with criminal deception. 4 In this step of the analysis, we combined both civil and criminal charges into a single case summary per venture, given that the underlying facts of the allegations tended to be similar, with cases often starting as civil prosecutions and escalating to criminal investigations. We nevertheless coded documents in all cases. 5 The SEC filed a single complaint for securities fraud pertaining to these two ventures, given that “substantially similar misrepresentations” occurred in both ventures at the same time. 6 We focus the findings of reinforced façading on the novel aspects of the organized production of interlocking sets of fictionalized evidence and relegate evidence of the fictionalization of stories to Online Appendix C. 7 The venture filed for Chapter 11 bankruptcy but ultimately survived the entrepreneur’s criminal deception, was acquired by a venture capital company, and remains operational. 8 The data regarding ProfitDash’s and RevenueBoost’s protection approaches were limited. ProfitDash’s entrepreneur was sentenced to 36 months in prison and restitution payments of $1.5 million. RevenueBoost’s entrepreneur was sentenced to 88 months in prison and $8,058,476.4 in restitution payments. 9 We focus the findings of deep façading on the novel aspects of faking experiential performances, manipulating regulatory compliance, and co-opting verification processes and include evidence of the fictionalization of stories as well as the organized production of fictionalized evidence in Online Appendix D. 10 Tracton’s entrepreneur was sentenced to 30 months in prison, and restitution payments have not yet been determined. GrowthHacker’s entrepreneur was sentenced to 36 months in prison and $8,069,900 in restitution payments.
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Tim Weiss is an assistant professor of entrepreneurship and innovation at Imperial College London. His research program advances our understanding of how entrepreneurship can effectively contribute to socioeconomic development: the value generating and capturing dynamics of entrepreneurship in frontier markets and social effects of entrepreneurship on society. He is a founding member of the Interdisciplinary Network for Technology and Entrepreneurship Research in Africa.
Nevena Radoynovska is an associate professor of strategy, organizations and social innovation at emlyon business school. Her research examines the role of entrepreneurship in social change, particularly in marginalized communities in France. More broadly, her work sits at the intersection of organizations, entrepreneurship, and social problems and has explored such settings as emergency services for the homeless, hybridizing social enterprises, and multistakeholder cooperatives.