At 9 a.m., the Nova Capital office in New York was buzzing with activity. Traders were shouting quotes into their phones, analysts were gathered in heated discussions about the latest market trends, and the air was thick with the aroma of coffee and the tension of the workday. As soon as it hit 9:30, the office fell silent with the supervisor's command: "Alright, everyone, back to it!" Some were frantically finishing reports for morning meetings, while others were grabbing a quick bite of breakfast—bagels and coffee from the deli down the street, the quintessential New York breakfast.
Grace Li was preparing for a board meeting later in the afternoon with a tech startup she had invested in. She was focused on reviewing the materials sent over by the company, which was based in the downtown Manhattan startup hub, specializing in AI applications in the healthcare field.
Suddenly, the quiet office was pierced by Ryan shouting, "You've got to be kidding me!"
Olivia, who had been engrossed in making a PowerPoint presentation, jumped in surprise, her face turning pale. "Ryan, can you tone it down for once? You're gonna blow the roof off this place!"
"Breaking news!" Ryan stood up, eyes glued to his phone screen as he read, "The Moonlit Sip has been fined $3.2 million for financial fraud and tax evasion. It's all over the front pages of The New York Times, The Wall Street Journal, and The New York Post. Social media is blowing up with consumers boycotting their products." The Moonlit Sip, a popular Brooklyn brewery, had gained popularity among New York's young crowd with its unique flavors and artistic packaging.
Grace Li was stunned by the news. Although she hadn't been following the project recently, she remembered that the company had just made its first $5 million investment in The Moonlit Sip earlier this month. To have a scandal break so soon was undoubtedly a major failure in the investment.
The person looking the worst was Mike, who had worked closely with Scarlett Harris to secure the project. "Ryan, are you sure it's the one we invested in?" he asked.
"Absolutely! You better check out the top news sites—this thing is causing a stir in the New York business world."
Everyone quickly grabbed their phones, checking The New York Times, The Wall Street Journal, and popular social media platforms among New York's young crowd, and sure enough, the reports were true. The comment sections were flooded with angry consumers, accusing The Moonlit Sip of unethical behavior. In a city like New York, where business reputation is everything, such a scandal was a devastating blow to the company's image.
Olivia, who had high hopes for the project, hadn't kept up with it after Scarlett Harris took over. Now, she couldn't believe what was happening. "Mike, didn't anyone catch a hint of this during the financial due diligence?"
Mike awkwardly responded, "I was in charge of the market research and business analysis... the financial stuff was..."
He trailed off, but everyone knew what he meant—Scarlett Harris was the one responsible for the financial due diligence.
At Nova Capital, each team member brought a different set of skills. Some were graduates of the Wharton School of Business, others had backgrounds from Columbia Law School, and some were financial experts who had come from the Big Four accounting firms. When Grace Li assigned projects, she made sure to combine people with different expertise to ensure thorough due diligence.
For larger investments, the company often hired top third-party firms like Deloitte and PwC for financial and legal due diligence. But The Moonlit Sip was only a $10 million investment, which wasn't huge for the firm, so the internal team handled the due diligence, including financial, business, and legal checks.
Among the three people responsible for this project, Mike had extensive experience in market research and business analysis, while Scarlett Harris, with a degree in financial management from NYU, was naturally in charge of the financial due diligence.
No one expected this kind of scandal to erupt so soon after the initial investment.
In the venture capital world, it's normal for many investments to fail, but this one could have been avoided with more thorough due diligence. The firm's limited partners (LPs) would surely hold them accountable, and they might even lose confidence in the company. This would have a serious impact on the firm's reputation and future fundraising efforts. In the fiercely competitive financial market of New York, once your reputation is damaged, earning back the trust of LPs and the market is no easy feat.
However, Scarlett Harris was Benjamin Harris's daughter. Considering how big the mistake was, Benjamin's definitely going to find a way to cover for her. The real question is, what measures will he take?
Soon, Mike and Drew Owens were called into Benjamin Harris's office on the top floor. The office was decorated with modern art, and the view of the Manhattan skyline through the windows was breathtaking.
Mike and Drew walked into the spacious, bright office. Half an hour later, Drew Owens returned alone.
Seeing his downcast expression, Olivia asked with concern, "Drew, how'd it go? Did he really lose it?"
Drew Owens sighed, "Pretty much, yeah. But Mr. Harris didn't exactly blow up."
Ryan chimed in, "Well, no surprise there, since the one responsible for the project is..." He glanced around, hesitated, and bit his tongue.
Ryan then asked, "What about Mike?"
"The legal team's in talks with The Moonlit Sip about canceling the investment agreement. Mike's with them. They're probably at The Moonlit Sip's headquarters in Brooklyn right now. Word is, this negotiation is crucial—not just to get the investment back, but also to minimize the damage to the company's reputation."
Olivia asked again, "Seriously, during the financial due diligence, didn't you guys spot anything off?"
Drew Owens shook his head, "I mainly handled some supporting work, didn't catch anything unusual."
Ryan took a sip of his Starbucks coffee. "Some startups really do it to themselves. I remember last year, we evaluated Grill & Glory for an investment, and they were caught faking data. Thankfully, Aiden was sharp enough to catch their cost reports, and it turned out their so-called huge foot traffic was just paid actors. I heard the owner of that place tried switching careers later, but no one in New York would touch him." Grill & Glory was a BBQ chain in Queens that tried to attract investment with fake data.
Drew Owens said, "You guys caught it early and pulled out in time. As for us, the first chunk of the money's already invested. Not sure if we'll even get it back."
Grace Li calmly assessed the situation. "As long as The Moonlit Sip doesn't go bankrupt, there's a good chance we can recover the investment. Under U.S. laws like the Foreign Corrupt Practices Act and the Sarbanes-Oxley Act, their financial fraud and tax evasion are clear violations of the investment agreement. We have every right to withdraw, and if necessary, we can take legal action to protect the company's interests. We could even join forces with other investors and file a lawsuit to increase our chances of getting our money back."
Olivia sighed in disappointment, "I loved The Moonlit Sip's drinks. I really thought if they played their cards right, they had a huge future ahead. How could they just throw away their reputation like this? I heard they were planning to open a flagship store in Manhattan, but now that's definitely out the window."
Ryan said, "There are plenty of companies like that—they just haven't been exposed. In this cutthroat business environment in New York, some people will do whatever it takes to succeed, even if it means cutting corners. I heard about this tech company recently—faked user numbers to get investment, and when the investors caught on, they got kicked out of the startup accelerator."
Ryan then added with a bit of gossip, "Honestly, with all this financial fraud and tax evasion, do you think the pretty CFO's gonna end up in jail? I've heard she's got a pretty big name in New York's social circles, always showing up at fancy parties."
Olivia shuddered. "Thank God I didn't go into accounting. Whenever a company gets caught for financial fraud, it's always the accountants who end up getting burned. Under New York state law, financial fraud can lead to up to 15 years in prison, and tax evasion carries huge fines and years behind bars. I hear a lot of accountants in Rikers are serving time for financial crimes."
Soon, the conversation in the office shifted to discussions about financial crimes and business ethics. Everyone had their say, expressing regret and condemnation for The Moonlit Sip's scandal. Some suggested tighter regulations for startups, while others complained about the current business environment being too shallow and impatient.
But Grace Li remained deep in thought. Scarlett Harris had taken The Moonlit Sip project from her to prove her worth to the firm's partners and LPs. But now, with such a massive mistake, she was bound to become the laughingstock of the industry. In the face of such an embarrassing situation, what steps would Benjamin Harris and his daughter take next to fix things?