So many companies do this shit, that I would say when investors dont check these things out its kinda their fault.
They should have their people (or consultants) doing decent due diligence and going through all the numbers and they should be able to get something like this out…but maybe thats why they go to a single unsophisticated investor rather companies that do this for a living.
It’s a standard scam and definitely unethical, but it falls short of being illegal enough to get prosecuted.
Another common scam is:
“private equity” buying controlling shares in a publicly traded business with a strong brand and really loyal customer base.
Taking out as big a loan as possible with the company as collateral.
“private equity” paying itself with the loan.
“private equity” dumping the business and letting it die when it can’t pay back the loan, because they just got everything they were trying to get from it.
If some company you loved is suddenly going bankrupt, it’s usually because of this second scam.
Wall Street is supposed to be respectable. Unfortunately, top tier scammers realize they can scam more money through these tricks than they can from cold calling little old ladies and trying to get their credit card numbers.
Also, with these common business and investment scams, you don’t risk going to prison.