--- title: "VC-Funded Startups Linked to Persistent Fraud" description: "A new study found that venture capital-backed tech startups commit three various types of fraud to justify their valuations." date: "2026-08-08" modified: "2026-08-08" authors: - name: "Joe Wilkins" job_title: "Correspondent" link: "https://futurism.com/authors/jwilkins" url: "https://futurism.com/future-society/vc-funded-tech-startups-fraud-research-ai" categories: - "Artificial Intelligence" - "Ethics" - "Finance" - "Future Society" --- # VC-Funded Startups Linked to Persistent Fraud ![A color-treated photo of a hand reaching through the screen of a laptop.]() *Shutterstock / Futurism* It turns out the venture capital industry doesn't just merely *fund* junky AI startups — it also systematically breeds the conditions for fraud. A new [joint study]() from researchers at the UK's Imperial College and France's Emlyon Business School analyzed 12 companies involved in 27 court cases related to civil or criminal cases related to securities fraud. The cases totaled around $688 million in financial losses, and resulted in 73 years of cumulative prison sentences. After analyzing the individual cases, the researchers identified a persistent pattern of "façading," in which startup entrepreneurs hide their flailing businesses from scrutiny through an assorted mix of fraudulent behavior. The research, first [reported by *TechCrunch*](), identified three various types of façading: surface, reinforced, and deep façading, which are "contingent on the severity of the gap that entrepreneurs face between audiences' performance expectations and ventures' performance reality," the paper explains. The first form, surface façading, happens when startup founders create fictional stories of "imminent venture success," like the kind of [AI-washing]() that hit its stride in 2024, embodied by companies like [Builder.ai]() that went on to collapse like a billion-dollar houses of cards. This escalates into "reinforced façading" when founders begin to cook up things like bank statements or customer contracts to sell the surface story, and take pains to centralize the flow of information around the startup's performance. One example of this might be the company iLearning Engines, a $1.5 billion AI startup which was found to be faking "virtually all its customer relationships and revenues" by a [Department of Justice probe]() earlier this year. Deep façading, the final and most severe form, encompasses broad forms of market manipulation, like faking product demonstrations, sabotaging internal efforts at due diligence, and manipulating regulation. This last form, one could argue, is embodied by the current front-runners of the tech industry's AI boom, which have engaged in [significant political lobbying](), sabotaged their own [internal research]() on AI safety, and routinely [dress up human labor]() to appear like autonomous AI. Ultimately, the line between criminality and free market innovation is thin, especially where seemingly-magical and proprietary new technologies like AI are involved (a technology which currently represents a [$1.6 trillion gap]() between investor expectations and practical reality.) "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," reads the paper. "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." **More on startups:** *[We Are Mildly Horrified by This AI Startup That Coerced People Into Getting Tattoos of Its Logo in Exchange for a Job Interview]()* ## Author At Futurism, I focus on the intersection of technology and power — examining the economics, history, and politics behind today’s dystopian headlines. As a writer, I’m interested in topics ranging from AI’s impact on labor to startups nobody asked for. My prior work includes bylines in Jacobin, Verso, and Blue Labyrinths. My work for Futurism has been cited by publications including Forbes, The Guardian, MIT Technology Review, Time, The Nation, Mother Jones, The Verge, and Wired. I grew up in Michigan, attending Central Michigan University as well as Ball State University, where I earned a master of music. I now live in Brooklyn with my girlfriend and our cat Ziti. On weekends, you can find me hunched over a cold pint arguing geopolitics with the other transplants. ### Author social links [Bluesky]()