Earlier today we reported on massive fraud at Canopy Financial, a San Francisco-based company that had raised over $88 million in VC funding. Company founder Vikram Kashyap has just issued the following statement, via his attorney:
Vik Kashyap had no prior knowledge whatsoever of any fraud regarding Canopy’s financial statements. He is as surprised as anyone about these allegations. He relied on financial and legal professionals in accepting the authenticity of the company’s financials. Going forward, he will leave his role as CEO of Canopy, but will remain as Chairman of the Board of Directors, helping to ensure that anyone who committed fraud is held fully accountable.
This statement already has met with some derision, with one blog commenter likening it to O.J. looking for the real killer. My comp would be the situation a few years back with Bill Weld, who tried running for Governor of New York after having served as interim CEO of a PE-backed college that had been accused of fraud. Either Kashyap/Weld knew what was going on (which makes them thieves), or they were ignorant of what was going on (which makes them terrible chief executives). Heads they lose, tails they lose.
Then there is the issue of Spectrum and Foundation, and whether or not their due diligence was faulty. Same for Financial Technology Partners, the investment bank which marketed Canopy Financial’s last two VC rounds and worked on one of the company’s add-on acquisitions (FTP’s Steve McLaughlin emailed to say the firm was “utterly shocked” to learn of the fraud allegations).
TechCrunch wrote yesterday that the firms perhaps could have uncovered the fraud with a simple phone call to KPMG, prior to cutting their checks. Perhaps, although my sense is that the Canopy crooks could have had contingencies in place (this was very sophisticated). After all, who exactly were the “clients” that Spectrum called?
Moreover, I spoke to a number of VCs yesterday who said that they would never think to verify the veracity of a KPMG audit. Seems they follow the mantra of Big Tom Callaghan: “I can get a good look at a T-bone by sticking my head up a bull’s ass, but I’d rather take a butcher’s word for it.”
Perhaps that industry standard is about to change…