Am I suffering from delusions of grandeur or am I a whistle-blower with an amazing story?
Knowing human limitations and the incredible story below I believe is reality, I can’t be 100% confident when I answer NO to the first question and YES to the second one.
I’m an Israeli entrepreneur with 17 years of relevant professional experience as a lawyer and a partner in a large Israeli law firm.
I’m also an SEC whistle blower responsible for exposing a still nonpublic novel and unfamiliar type of securities fraud which occurred on Wall Street late 2015. The investors have lost billions and meanwhile the public is clueless and there is severe risk of recurrence of the same type of fraud by others.
The fraud I’ve exposed, which caused LinkedIn’s Feb 2016 stock tanking, is novel and concerns the fudging of reported users’ engagement metrics by an Internet giant operating a social network. These crucial metrics reported quarterly by many companies (Facebook, Google, Twitter etc) are oddly not regulated or audited by third parties and so are susceptible to manipulation, as I proved was the case with LinkedIn.
What led me to investigate and expose this fraud was a question Mark Mahaney from RBC Capital asked on LinkedIn’s Q3 2015 earnings call (link).
Mahaney asked what was driving the very promising “20% year-over-year growth in page views per unique visiting member” claimed by LinkedIn and also inquired about the puzzling discrepancy between such accelerated growth and an actual slowdown in revenues from marketing solutions.
The answer Jeff Weiner the CEO provided was completely vague and in my eyes full of BS and so my professional instincts screamed this is actually a smoking gun to something big and hidden.
It took me a couple of days of work to uncover a technical change introduced by LinkedIn during the first half of 2015 which I was sure was responsible for falsely bumping the engagement metrics of LinkedIn’s users and for the false claims of accelerated growth it presented to its shareholders.
On January 7, 2016 I wrote a detailed article (Link) explaining and proving my outrageous claim and had short correspondence on this matter, during January 2016, with several Wall Street analysts covering LinkedIn who read my article, including with Mark Mahaney who thanked me for sending him my revelations.
I’ve also sent my article to Weiner and other senior managers in LinkedIn as I knew they were closely following my articles on LinkedIn (for instance, 24 hours after proving in a November 2015 article (link) that LinkedIn made outright false and misleading statements to its users, LinkedIn made a global change to its platform amending the statements I proved as false).
On February 4, 2016, 3 weeks after the analysts read my claims, LinkedIn filed its full year results and guidance and the stock tanked by almost 50% vaporizing about 11 billion $ of value. Several months later Linkedin was wholly acquired by Microsoft.
No one really knew what caused the analysts to behead Linkedin so severely although Mark Mahaney, after slashing LinkedIn’s target price from 300$ to 156$, provided an important tell:
“We do not believe that this alone can account for all of the downside to guidance, implying to us material deceleration in the core business,”
This quote deserves a careful look because it validates my claims. A senior Wall Street analyst killing LinkedIn by slashing it in half, 3 weeks after he read my claims, goes on record to say he does not believe the statements made by the company and thinks that, contrary to LinkedIn’s statements there is actually a material deceleration in its core business.
It’s a no brainer to assume that the analysts who read my claims waited for the February 4, 2016 filings in order to make a determination if I was onto something or not and obviously they concluded that I was right and so completely lost faith in LinkedIn’s management and prospects.
The only way for Linkedin to go forward was to seek a deal that would take it off Wall Street and that was the main drive behind the deal it struck with Microsoft.
There was no public mention of an SEC inquiry into the surprising tanking and huge loss for investors and nothing came out from the claims and data I provided the SEC. I have no clue why the SEC allowed LinkedIn and its management to avoid the severe consequences of a much needed SEC inquiry into one of the largest and most puzzling Wall Street crashes in the last 20 years.
I fear the next occurrence of this type of fraud may not “only” evaporate 11 billion dollars but hundreds of billions. I have read with despair the SEC Office of Inspector General’s comprehensive investigation report on SEC’s failure to uncover Madoff’s Ponzi scheme and I don’t wish to be the next “Markopolos”, completely ignored until it was too late.
Thanks for reading this, would appreciate your questions, comments or suggestions and of course sharing this article with others.