There is a version of this story where a promising software company, backed by almost $100M dollars from one of Silicon Valley’s most prominent venture capital firms, builds something real and exits cleanly. The engineers were talented. The technology was genuinely innovative. The founding team had vision.
That is not what happened.
What happened instead was $3 million spent at an offsite hot tub rental facility. Fifty-two corporate credit cards for sixty employees. Employees paying personal expenses on company cards as claimed comp. And an external bookkeeper who printed everything on paper and didn’t want anyone looking too closely.
David Johnson, Co-Founder and Director of Rooled, was brought in to figure out what was going wrong. What he found was one of the most brazen examples of startup expense fraud he has encountered in his career, and a case study in exactly what happens when financial oversight is treated as an afterthought.
The Call
The company had raised approximately $90 million. By the time the partner at the VC firm called David Johnson, nearly $60 million of that was already gone. The board had flagged that something didn’t look right. They needed financial acumen, fast.
David drove to the company’s offices for a scheduled meeting with the CEO.
The CEO was unavailable.
He waited an hour in the lobby. Eventually, the office manager came out and told him the CEO had a last-minute conflict. The office manager said she could help instead — she had access to the company’s accounting software and could answer whatever questions David needed.
This was the first sign that something was wrong.
The Numbers That Didn’t Add Up
David started with the basics. Sixty employees. A burn rate of nearly $2.5 million per month. Standard questions about bank accounts and how bills were paid. Note the company was pre- revenue.
Then he looked at the credit cards.
Fifty-two corporate cards for sixty employees. This was before modern spend management platforms like Brex and Ramp existed — each card had to be reviewed individually. Having more than three or four company cards was already a red flag. Fifty-two was something else entirely.
The entertainment expense line ran into the millions. So did travel. So did miscellaneous!
Miscellaneous expenses should never be significant. Miscellaneous expenses in the millions — for a sixty-person software startup — are not a bookkeeping quirk. They are a warning.
The Wall
Getting to the actual records was its own battle.
The company used an external bookkeeper — a sole operator, not a firm — who was not forthcoming about the records, not forthcoming about access, and who worked almost entirely on paper: physical, printed credit card statements, kept offline. This was less than 10 years ago. Odd to only have paper files, in the digital age.
David could not get access to the accounting software for weeks. Every time he needed something, he hit resistance. The CEO, who had still not taken a single meeting with him, remained unavailable. David had to go back to the VC firm and ask them to intervene — to essentially force the CEO to cooperate.
He visited the office five separate times. In total, across those five visits, he got fifteen minutes with the CEO. The CEO spent that time deflecting — pointing fingers at the office manager, pointing fingers at the bookkeeper.
It was only after the VC firm applied direct pressure that David was finally given access to the accounting software. He downloaded everything into a spreadsheet and started going through it line by line.
Five visits. Fifteen minutes with the CEO. Total.
The Hot Tubs
One vendor kept appearing. A hot tub by the hour rental facility, located in a strip mall in Palo Alto CA.
Three million dollars. Over three years. Categorized as expenses for company offsite meetings.
Out of pure curiosity, David drove to the address.
It was exactly what it sounded like: a commercial hot tub rental operation in a strip mall. He spoke with employees who confirmed it — yes, they held meetings there, yes, it was a company thing, yes, everyone went.
Three million dollars.
What Was Actually Happening
The hot tubs were strange, but they were not the whole story.
When David brought in a colleague to help recount the expenses — stacks of printed paper, highlighted by hand — they found what was really going on. Personal landscaping. Personal purchases. Personal expenses of every description, run through corporate cards, month after month, year after year.
Forty of the fifty-two cards were being used for personal spend. Only twelve reflected solely legitimate business expenses.
One employee (VP of Operations) had a single charge of nearly $20,000 to a landscaping company. David’s first instinct was to wonder if the company had hosted an outdoor event. It hadn’t. When asked, she flatly told him that it was to relandscape her backyard — and that she had done nothing wrong, because the personal expense was part of her salary. She wasn’t confused about what she’d done. She had been told this was acceptable. She believed it. Others had done the same, justified it the same way: This was an upgrade for my personal home. It’s part of my salary. I did nothing that everyone else hasn’t been doing.This had not happened accidentally. Employees apparently had been told, by the CEO, that they could use the corporate cards for personal expenses. The tone had been set from the top, and it had filtered through the entire organization.
That last line was the point. Everyone else had been doing it…because the person at the top had said they could.
The office manager knew something was wrong and had chosen not to look. The bookkeeper, who kept everything on paper and resisted every request for transparency, knew exactly what was happening.
The tone had been set from the top, and it had filtered through the entire organization.
The Math
By the time David had worked through three weeks of investigation — three weeks that could have been completed in a few days if anyone had been willing to cooperate — the picture was clear.
Of the roughly $60 million the company had spent, approximately $20 million appeared to be fraudulent or improper personal expenses. Millions in entertainment. Millions in miscellaneous charges. Three million dollars in hot tub rentals. Landscaping. Personal purchases. All of it run through a company with no expense policy, no approval process, and no internal controls.
The Outcome
David compiled everything and sent a detailed report to the VC firm.
Ten days passed. No response.
Then he got a call. The VC firm had made a decision: they would not investigate the matter further or press charges for that matter. They would wind the company down quietly, recover what capital remained, and walk away. Taking the matter to court would mean public attention, and public attention was not something they wanted. They brought in an outside firm to manage the wind-down. They wanted nothing further to do with it.
The company was shuttered. The technology — which was, by every account, genuinely impressive — disappeared with it. The engineers scattered. The founding team walked away without facing criminal charges, because the people with the most to lose from publicity decided that a quiet ending was preferable to a public one.
What This Actually Means for Your Company
David Johnson is one of the more experienced fractional CFOs working with venture-backed startups. He has seen a lot. This case still stands out, not because fraud is unusual, but because of how preventable it was.
The failure here was not the fraud itself. Fraud happens when people decide to commit it, and no system can fully prevent that. The failure was that there was no system at all. No expense policy. No approval workflows. No third-party financial oversight. No one asking basic questions. And a toxic culture that was set from the top.
By the time the board noticed something was wrong, $20 million in improper spending had already occurred — over multiple years, across fifty-two credit cards, documented in stacks of paper that no one was reviewing.
Here is what should have existed:
- A spend policy — even a basic one — that required documentation and approval for anything beyond routine purchases.
- A limit on the number of corporate cards in circulation, with regular reconciliation.
- An independent financial function — fractional CFO or outsourced finance team — reporting to both the board and the CEO.
- Regular reporting that surfaced anomalies before they became a $20 million problem.
None of that was in place. The company had a bookkeeper who answered to the CEO, a CEO who looked the other way, and a board receiving whatever information the CEO chose to share.
That is not a finance function. That is a liability.
The Lesson That Doesn’t Get Talked About Enough
The founders of this company were not incompetent. They were not building something fake. The engineers were excellent. The technology was real. These were talented people who built something genuinely interesting — and who also committed significant financial fraud.
Those two things are not in conflict. Talent and integrity are different qualities. Being exceptional at building a product does not make someone trustworthy with other people’s money.
This matters, because the startup world tends to extend enormous trust to founders based on their vision and their technical ability. That trust needs to be paired with oversight. Not because founders are inherently untrustworthy — most are not — but because oversight is what makes trust verifiable.
A third-party financial function is not an insult to a founding team. It is the mechanism by which a founding team demonstrates that the trust placed in them is warranted.
Rooled is a fractional CFO, outsourced accounting, and startup tax firm serving venture-backed startups. All identifying details in this case study have been anonymized to protect confidentiality obligations.