Brazen Startup Behavior Undermines The Marketplace

Posted: Feb 01, 2019 10:12 AM
Brazen Startup Behavior Undermines The Marketplace

It used to be that people knew there was no such thing as a quick buck. The advent of the Internet start-up changed that. The lure of easy money put investors – some savvy, some not – on a hunt for big returns that have been a bonanza for scammers of all kinds.

This isn’t how it’s supposed to work, but it does. The possibility of hitting it big shouldn’t give license to anyone to play hard and fast with long-established rules. Some people, though, think it does. Consider San Francisco-based real estate valuation start-up HouseCanary, which recently launched a beta listing portal aiming to offer insight into how home values are established.

The portal relies on multiple listing services data, which are private real estate databases maintained by industry professionals. Nothing wrong with that conceptually. It’s a neat idea. The problem is two different MLS owners found their private information on HouseCanary’s portal despite the lack of any agreement licensing that type of public disclosure. And that’s a no-no.

When asked to explain how the company had apparently misappropriated proprietary information belonging to other companies, the best they could come up with was that they didn’t know. According to Inman, a site that provides real estate news for real estate brokers, one of the MLS executives involved “was still trying to figure out what exactly was going on.”

“We will be looking into it because obviously, we want to make sure whatever information is displayed is licensed and authorized.” She then added, “Most who deal with the MLS world understand that they need to go through proper licensing and provisions.” Another executive said he’s in the process of asking for the listings to be taken down.

Whether HouseCanary doesn’t know or isn’t totally sure how this happened, its position might attract more sympathy were it not for the startup sector being so mired in behaviors exemplified by what the Securities and Exchange Commission called the “massive fraud” that resulted in the loss of nearly $1 billion of investor money when medical start-up Theranos Inc., went in the tank.

As for HouseCanary, this is not the first time it has been caught deceptively passing off the property of others as its own. Last year, former company executives revealed that the company’s automated valuation model “was actually an overlay on top of a functioning AVM from Black Knight, presented to look like a newly developed product from HouseCanary.” The whistleblower, HouseCanary’s director of appraiser experience, summed it up, writing, “HouseCanary never had any proprietary anything,” and that it was “all a lie.”

The revelations from that whistleblower and three others emerged during a legal conflict in which HouseCanary won a staggering $706 million verdict after accusing its former client, Amrock, of misappropriating its purported trade secrets. The award – which dwarfs the value of the startup by several orders of magnitude – is headed to a Texas appellate court where HouseCanary’s conduct faces additional scrutiny.

Pleading ignorance, while not endemic, seems to be a consistent problem. Last week newly released deposition tapes showed Theranos’ founder and CEO Elizabeth Holmes invoked the three not so magic words “I don’t know” more than 600 times in response to questions from federal officials about her business operations that defrauded countless patients, doctors, and investors. Multiple investors lost $100 million or more each and she’s facing a maximum sentence of 20 years in prison.

There’s an incentive in Silicon Valley to cut corners in the pursuit of being the next Apple, Google, or Microsoft. Unless the firms that dot the landscape around San Jose, California commence an effort to set rules and make everyone play by them, they face a greater regulatory backlash than what may already be imminent. The folks talking now about taking the top marginal rate to 70 percent or higher and imposing “a wealth tax” on total holdings won’t think twice about making every new company heavily capitalized by outside investors submit to all kinds of government scrutiny. No one who wants to see the nation’s economy grow and to see prosperity spread through the creation of new jobs paying good wages should be for that. The lies told by pitchmen selling patent medicine kicked off a regulatory craze that continues as regulators seek to expand their authority and justify their continued existence. History doesn’t need to repeat itself, and it shouldn’t be allowed to.

Peter Roff is a senior fellow at Frontiers of Freedom and a former U.S. News and World Report contributing editor who appears regularly as a commentator on the One America News network.

He can be reached by email at Follow him on Twitter @PeterRoff.