As I write this, protestors in Oakland, California are battling with police over their right to occupy the public square in front of city hall. For all its lack of definition, the global "Occupy" movement has at least one clarion call: the percentage of disenfranchised Americans who feel that they are powerless in a society dominated by the interests of the moneyed elite. That percentage, ninety-nine, would seem as high as it could possibly be. But as Lawrence Lessig of Harvard Law School points out, only one in twenty of the remaining one percent actually reach the federal maximum for annual political campaign contributions, and those who contribute as much as they possibly can are those who really have the full attention of elected officials. Therefore, as Professor Lessig also notes, the elite are actually 0.05% of the population. The rest of us are "the 99.95%."
Where do these elite 0.05% come from, and how do they get there? Everybody knows. Harvard and Yale. Princeton and Cornell. Stanford and MIT. Penn and Duke. Not everyone who is rich is from a top school, but it's not a bad proxy if you have to guess. An enormous percentage (well into the double digits) of my graduating class, Harvard's Class of 2005, went to work on Wall Street. Many of those who were working at Lehman Brothers, Bear Stearns, Credit Suisse and Goldman Sachs back then have since enrolled in only-slightly more credible institutions: business and law schools. And why shouldn't they? Though clearly not every single employee of every investment bank was responsible for the global financial collapse three years ago, we've utterly failed to hold anyone to account. When everyone on a crowded interstate hits and runs at once, it's hard to tell who was actually driving; all that's left is casualties and twisted metal.
It is my own view that the lack of consequences for criminal activity—whether you call it gross negligence, conflicts of interest, shareholder betrayal, fraud on an epic scale, or something more to your pleasing—is the most terrifying specter of all of the many terrifying specters that the crisis unleashed, the latest of which is still unfolding tonight in Europe. Without an offsetting entry in the ledger books of history, there is absolutely no reason why the same thing shouldn't happen again. We shall remain stuck in a sub-optimal equilibrium of greed and corruption, so far from the efficient frontier that it now seems virtually impossible that we'll ever get back.
If you agree that Wall Street criminals should be held to account for their actions in 2008 no matter whether they attended Princeton or Harvard (more than Rajat Gupta alone, who is being prosecuted for different reasons anyhow), then you should also agree that Silicon Valley criminals should be held to account for their actions. I happen to be a Harvard alum in Silicon Valley, and I know at least a few such individuals. I've kept quiet about certain facts for a long while; after all, I feel as though I already have a lifetime supply of enemies.
On the other hand, I'm not the one being beaten by police in the streets just because I want to rightly express my indignation with society. I'm not the one who has to go to a food bank to survive after being laid off for having done nothing wrong. I'm not the one with six figures of student loan debt thanks to a system conceived by irresponsible bureaucrats. If we are going to begin repairing the many problems with our society, full disclosure would be a good start.
When I wrote Authoritas a few years ago, Ross Douthat (who now writes as a conservative columnist for The New York Times) had recently published his own memoir, Privilege. To avoid tainting my own recollections, I didn't read his work until after I was done writing mine, but when I did, I noticed that he had decided to use pseudonyms to describe others. Some of his anecdotes described actual financial crimes that transpired during his years at Harvard, and presumably he wanted to protect the innocent. Unfortunately, these pseudonyms were quickly decoded in rapid succession in public reviews of the book on Amazon.com. As a result, for my book, I decided to simply use people's real first names.
The first name of one of my freshman-year roomates was Nathan. Nathan's last name was Blecharczyk. Nathan is now the Chief Technology Officer of Airbnb, Inc., a company that raised $112 million from Andreesen-Horowitz, a prominent venture capital firm, and was recently valued at over $1 billion. Just after the company announced this enormous round of funding in mid-2011, news broke that Airbnb had been sending fraudulent, misleading e-mail spam via Craigslist, in violation of the CAN-SPAM Act, to thousands of individuals, and possibly many more. The company effectively denied responsibility, blaming a contractor. Nonetheless, the press releases from Andreesen-Horowitz citing Airbnb's amazing traffic already sounded suspect. Gawker's Ryan Tate asked, "Did Airbnb Scam Its Way To $1 Billion?", as did other major news publications.
The answer is most likely yes. What most people don't know is that during our freshman and sophomore years of college, Nathan was one of the top 100 spammers in the world. This key fact, which I'm guessing was not disclosed to Airbnb's investors, does not appear on Google or any major search engine because of ROKSO's good behavior de-listing policy, but if you know where to look, it's crystal clear. While we were roommates, Nathan ran a sort of enterprise called Data Miners out of Grays M-54 in Harvard Yard using a variety of aliases for himself. Data Miners would hop from service provider to service provider each week, sending millions of messages at a time. Nathan was clearly brilliant—he had designed both custom hardware and software to send these messages in bulk as efficiently as possible—and he paid his way through college thanks to these endeavors, but what he possessed in engineering skill he obviously lacked in morals. Though our desks were only a few feet away, I refused to have anything to do with his business, which was disappointing because he was just about the only other Harvard student I knew at the time who could appreciate what I was trying to do with mine.
By our junior year, I remember learning that Data Miners had been shut down. Nathan told me that he had received threatening letters from the FTC, which made sense, because he had often been using insecure government servers (meaning taxpayer dollars) to route his illicit payloads.
When I initially read about Airbnb's spam scandal, I could and could not believe it. I thought that Nathan had learned his lesson—even if he wasn't directly responsible for writing the code behind the messages, he clearly should have known better than to allow them. Apparently he did not.
Now, despite the initial scandal, Airbnb appears to be a successful business. It has a beautiful web site, a well-designed mobile application, and a sophisticated payment system. That system operates in the United States and several other countries by taking money from renters up-front, holding it in Airbnb's bank account until hosts are confirmed to have provided agreed-upon services, and then sending the funds to hosts later on.
In other words, Airbnb's model is identical to the model I've been fighting for since June 14th on behalf of FaceCash, the mobile payment system I designed (and that Andreesen-Horowitz refused to invest in due to regulatory concerns). Ironically enough, Airbnb is an unlicensed money transmitter under California law, and as the Department of Financial Institutions has made abundantly clear, violation of any state money transmission statute is a federal crime under 18 U.S.C. 1960. Violators, including directors, investors, and executives, are subject to five years in prison, "whether or not the defendant knew that the operation was required to be licensed or that the operation was so punishable."
Airbnb isn't the only darling of Silicon Valley violating state money transmission law, however. If you've ever played Farmville, you know how tempting it is to buy items that will keep your farm going strong. Facebook has recently decreed that all games must use its Facebook Credits system, which allows customers to—you guessed it—pre-fund accounts that are denominated in credits, rather than dollars, so that those funds can be distributed to companies other than Facebook. Those accounts can be used now at third-party web sites (including international sites) and have long been used to compensate third-party game developers, who presumably convert the credits back into dollars on their end. This, too, is money transmission. Like Airbnb, Facebook doesn't have a license, and that's a shame, because Mark Zuckerberg, his directors, and investors could all find themselves in federal prison for violating forty-seven money transmission statutes, including California's.
However unlikely—and to be clear, it's "unlikely" because no State would bother prosecuting wealthy campaign donors and job providers, so for both companies the licenses are effectively optional, leaving your money at risk—this fate would be fitting given Mark's actions around the same time that Nathan was considering what to do about the FTC. As I've noted in the past, the scene that you didn't see in The Social Network was the one where he broke into Crimson reporters' e-mail accounts using failed Facebook sign in attempts, in violation of 18 U.S.C. § 1030, the Computer Fraud and Abuse Act, and common sense.
To be fair, it's true that kids sometimes do stupid things, and it's also true that not all laws are reasonable. By the time I was eighteen, however, I and all of my friends were responsible enough to know the difference between right and wrong, and none of us took any action that betrayed the trust of others on even a small scale. What Nathan and Mark started doing then, and have continued doing since, merits serious concern, if not serious federal investigation. Over the years, both have exhibited a pattern of callousness, and as a result, both have become quite rich to the point where they are above the law, which is why to them, violating federal statutes doesn't mean a thing.
I've been told that I complain too much, but if anything I fault myself for complaining too little and too late. However disorganized, and however ragged in appearance, those people protesting in the streets, exercising their right to the ultimate form of complaint, have a point. It's time we listened.
The moneyed elite in this country have abused their power for far too long. But there are plenty of non-moneyed elite, too. We're the ones with the fancy degrees and the connections to the 0.05%. We're the West Coast equivalents of the East Coast entry-level investment bankers we love to hate. And through our silence, whether out of self-interest or a simple desire not to rock the boat, we have let the country decay around us. Whether young or old, the criminals destroying the United States of America are above the law because our silence holds them aloft.
Though I can't do much about what happened years ago, I am filing formal complaints against Facebook and Airbnb, both to implicate each company for its willful ignorance of the law, and to implicate the State for its deliberately arbitrary enforcement of it. I've had enough.
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October 27, 2011 at 8:16 PM EDT
Stop complaining. The worlds not fair, and you look like an entitled brat who is mad that the other kids aren't playing fair.
October 27, 2011 at 8:39 PM EDT
Don't publish this. It's a message for you.
You want to be successful? Stop writing books. Stop writing blog posts. Stop complaining. Stop doing everything EXCEPT WORK ON YOUR OWN COMPANY. You know why I KNOW Think Computer won't be successful? Because you are not obsessed. You may think otherwise, but your actions certainly don't show it. But this can change. I want you to succeed. If you have a vision, go for it. Shut everything else down and go for it. Shut down this blog. Stop going onto social networks or reading worthless shit on the web.
October 28, 2011 at 3:29 AM EDT
Great post! It is ridiculous how these so called prominent Venture Firms based there investment decisions on. These are cold hearted blood sucking cash driven enterprises that jump from start up hype, pump and dump schemes. These people with lack of souls should not run the country!
Thanks for posting this!
October 28, 2011 at 10:43 AM EDT
Well written, and all too true.
The comment from John below almost perfectly illustrates the willful ignorance of our society with respect to white collar crime.
"The worlds not fair." Actually, by design, it is. It's called the law. Whether of not we choose to apply it correctly is the author's main point.
The fact that no one has been held accountable for the recent economic meltdown is likely related to the cultural shift that occurred when no one was held accountable for the recent foreign policy meltdown (the two wars). Our society has become one of "too big to blame", and the author is just pointing out that the same thing is happening in the world of startups.
Personal vitriol aside, he's right, and he should continue yelling from the mountaintops as long as other, larger companies are getting special dispensation.
Jesse, I hope you know the author personally and your message has the best intentions, but from a neutral third party observer I say "keep it up." Aaron's previous post about FaceCash being unfairly given the runaround by the financial authorities in CA was fascinating, and if it takes him burning personal bridges and calling out some of Silicon Valley's hottest startups and their founders to bring attention to this issue, then anyone willing to pursue that path has both the guts and determination to see through his own venture. He's putting it all on the line.
Oh, and Twz, your hippy dippy writing style isn't helping the author's point. You may have good intentions, but you are lacking realism w.r.t. the way business actually runs.
October 28, 2011 at 12:57 PM EDT
That's for this essay, it was informative.
I'm sure you already know this, but I wouldn't read too much into people complaining about your writing.
Do what makes you happy, and what you know is right and just.
October 28, 2011 at 1:08 PM EDT
I don't think I would compare the criminality of the architects of the global financial meltdown to people who send SPAM or don't follow the laws of financial transactions.
October 28, 2011 at 1:22 PM EDT
Thank you for taking the personal risk to speak out. It's time more people started rejecting the status quo. We're capable of building a great tomorrow, but we need to take care of the mess around us first. That isn't going to happen if we follow the advice of John & James
October 28, 2011 at 1:32 PM EDT
I'm starting to wake up to the fact that we can't just have morals, but have to be willing to act on them as well.
We've put up with this shit too long.
This line sums it up: http://www.youtube.com/watch?v=pSKVQsMW_pM
"We must all fear evil men. But there is another kind of evil which we must fear most, and that is the indifference of good men."
I thank you for standing up and speaking out. It's a model for what more of us need to be doing.
October 28, 2011 at 1:56 PM EDT
I've just taken a look at the California money transmission law, and it seems pretty clear that AirBNB is not in violation of it.
October 28, 2011 at 2:50 PM EDT
From the first part of your article, I expected a more broadly-based analysis of how elitism generates behavior that hurts others. I stopped enjoying the article when it became personal.
There are many ways to influence change - are there no ways you can attack the root cause? is it hopeless to work to evolve the system itself rather than attacking a couple instances of wrong-doing?
Also, I would have liked a more explicit articulation of how the silicon valley companies are breaking the money transmission law (18 U.S.C. 1960). You basically leave it to the reader to trust your assertion - which is hard when I have to weight the implicit bias of a personal attack on another individual.
October 28, 2011 at 5:20 PM EDT
You were on HN front page today for 30 minutes, then the submission was flagged.
Shame on you HN