People come and go. Structures last.
The cases of Theranos and the Frank/JP Morgan aren't isolated stories about bad actors. They're examples of the same failure, repeated: institutions choosing to trust a narrative instead of verifying the facts underneath it.
Banks and investment firms charge fees partly to perform due diligence on your behalf. But Theranos and the Frank acquisition both show that even sophisticated institutions can prioritize a compelling story over actually checking the numbers. When JP Morgan paid 175 million dollars for Frank, the failure wasn't a lack of resources. It was a willingness to move fast on a growth story instead of slowing down to verify it. And if the top decision makers of one of the biggest investment banks in the world failed to see the storm that was coming, what does it say about the common investor?
What These Cases Actually Teach
Elizabeth Holmes built Theranos around a technology that never worked, and surrounded herself with a board of politically powerful people who made it socially costly to question her. That's the real mechanism: not that she hid the lack of technology, but that she made asking about it expensive. When your board includes former secretaries of state, junior staff don't push back.
Charlie Javice, in the Frank acquisition, allegedly fabricated a user database, claiming close to 4 million users when the real number was closer to 300,000. A basic sampling check, calling a few hundred of those "users" directly, would have caught it within days. Nobody did the check because the fear of missing the deal outweighed the cost of confirming it was real.
Moving From Trust to Verification
The fix isn't more trust in better people. It's a structure that doesn't depend on trust in the first place:
● Require more than one signature - Never let a single person, however senior, move meaningful capital alone. If it takes two or three separate approvals to release funds, a single urgent phone call can't trigger a transfer.
● Release capital in stages, tied to real proof - Rather than funding a deal in one lump sum, release money in tranches, each one tied to independently verified milestones. If Theranos had needed a third-party lab to confirm its test results before releasing the next round of funding, the fraud would collapse on contact with reality.
● Audit before you fund, with someone who has no stake in the outcome - A basic independent check, not one selected or paid directly by the party being checked, would have caught the Frank numbers in under a week.
● Spread your legal exposure - Don't hold everything in one jurisdiction's legal system. If part of a structure is compromised, whether by fraud or by a hostile local actor, the rest of the architecture should still hold.
● Know what can't be faked - In every deal, there's usually one data point that's genuinely hard to fabricate: a lab result, a verified transaction log or physical occupancy of a property. Build your verification around that anchor, not around whatever the other side is offering to show you.
The Bottom Line
None of this is about assuming bad faith or becoming paranoid in every deal. It's about not needing to guess.
A verification structure doesn't care how impressive someone's résumé is or how urgent their story sounds. It only checks whether the underlying facts hold up. The founders and operators who get caught almost never hide what they're doing. They just make it socially or logistically expensive for anyone to check.
Build the kind of structure where checking is cheap, fast and doesn't require anyone to be brave enough to ask an uncomfortable question in a room full of important people.
If you're structuring a deal and want a second opinion on where the real verification gaps are, reach out. Happy to walk through it.