Three of the most sophisticated buyers in the world were fooled by sellers who looked ready. The lesson for an honest owner runs the opposite direction.

The largest bank in the country put a small army of people on the diligence for a $175 million acquisition. They still paid full price for a customer list that turned out to be roughly 93% fiction. If a buyer that sophisticated can be fooled, the tempting conclusion is that diligence is theater, and that nobody is going to look very hard at your numbers either. That conclusion will cost you more than almost anything else you do on your way out the door.

In the last piece, I argued that diligence only gets harder for mid-market sellers, and I promised a second half. This is it: the same scrutiny that breaks an unprepared seller is the greatest leverage a prepared one has. I want to tell you about three deals that went badly wrong for the buyer. One was a fraud that ended in a federal conviction. One was a fraud that became a cautionary tale taught in business schools. And one was never proven to be a fraud at all, though it cost the buyer close to $9 billion to find that out.

I work the other side of the table. I spend my days with owners getting ready to sell, and I have sat in the room while a buyer’s team takes a business apart one assumption at a time. From that seat, these three stories are not really about the people who got caught. They are about what the failures reveal, and what they should change about how you prepare.

The Buyers Who Should Have Known Better

Start with a company called Frank. Charlie Javice built it to help students file for federal financial aid, and in 2021 she sold it to JPMorgan Chase for $175 million. The bank was not buying software. It was buying customers, a young audience it could grow into Chase account holders. Javice represented that Frank had more than 4 million of them. The real number was under 300,000.

When JPMorgan asked to verify the user list, Javice objected on privacy grounds, and the two sides compromised on a third-party validator instead of a direct look at the data. So she hired a data scientist to manufacture a synthetic list, roughly 4 million fabricated records that looked real enough to clear the check. The fiction held right up until the bank tried to market to those millions of customers and the campaign landed on people who did not exist. Javice was convicted on all four fraud counts and sentenced to more than 7 years.

Now Theranos. Elizabeth Holmes had something Javice did not, which was a halo. A Stanford dropout, a board stacked with statesmen, a magazine-cover story about a young woman who would change medicine. What that board did not include was a single member who could judge whether the blood-testing technology actually worked. Walgreens, the retail partner with the most at stake, hired its own consultant to assess the science, and when that consultant raised alarms, Walgreens pressed ahead and put the devices in its stores anyway. Holmes was later convicted of fraud. The tell, in hindsight, is that almost no one with the right expertise was ever allowed near the one thing that mattered.

Then there is Autonomy, and this one is different, so I want to be careful with it. In 2011 Hewlett-Packard bought the British software company for about $11 billion. A year later HP wrote the value down by $8.8 billion and accused Autonomy’s founder, Mike Lynch, of inflating revenues ahead of the sale. Lynch spent more than a decade fighting that accusation, and in 2024 a San Francisco jury acquitted him on every count. He maintained to the end that the loss was HP’s own mismanagement, not his deception. The fraud was alleged, litigated for years, and never proven. And HP still lost close to $9 billion on a company it had every resource in the world to evaluate before it signed.

Three buyers who should have known better. A bank, a pharmacy giant, a technology titan. If the story stops there, the lesson an owner carries away is simple and comforting: the people checking your numbers are not as sharp as they look, and the whole diligence ritual is mostly for show.

That is exactly the wrong thing to learn.

Why You’re Reading These Stories Backwards

These are not stories about lazy buyers. They are stories about verification, and each one exposes a mechanism that will be turned on you in diligence, whether or not you have ever shaded the truth.

Look again at what Javice actually did. She did not simply lie about a number. She blocked the buyer from checking it, using a reasonable-sounding objection about privacy, and then offered a substitute the buyer was willing to accept in place of the real thing. A buyer cannot easily tell the difference between a seller who is hiding something and a seller whose records just cannot stand up to a direct look. The “you’ll have to trust me on that” reflex reads the same either way. Most honest owners trip that wire by accident, with numbers they can assert but not prove. They get met with the same suspicion as the person who actually had something to hide, and suspicion always comes out of the price.

Theranos teaches the second mechanism. The halo gets you in the room, and it does not get you through diligence. Holmes had reputation and relationships at the highest levels, and none of it survived the moment someone tried to verify the technology. Your version of the halo is gentler and just as fragile. It is the loyal customers, the decades of reputation, the handshake history with everyone who matters in your market. All of that opens the door. None of it answers the question a buyer’s analyst is asking at 11 p.m. while staring at your customer concentration. When verification starts, the story stops counting.

Autonomy teaches the third, and it is the one owners underestimate most. Even where fraud was never proven, ambiguity in the numbers became more than a decade of litigation and an $8.8 billion fight. You do not have to lie to get badly hurt here. You only have to leave enough ambiguity in your financials that a buyer, months or years after closing, can build a damaging story around it. Every soft spot you fail to resolve before the sale becomes the buyer’s leverage during the deal, and your exposure long after it.

Put the three together and the misread comes into focus. Owners treat diligence as something done to them, an ordeal to be endured. It is not. It is the test your readiness either passes or fails, and the grade is priced into your deal. The buyers in these stories did not fail because they stopped paying attention. They failed because they accepted a substitute for verification, and the owner who learns from that is the one who makes verification easy.

Your Numbers Are Either Your Leverage or the Buyer’s Weapon

Here is the reversal I promised you.

If a buyer with JPMorgan’s resources can be fooled by manufactured readiness, then verifiable readiness is rarer than anyone admits. And rare things carry a premium. The owner who can hand a buyer’s team clean, documented, independently auditable records, then step out of the room and let those records do the talking, is offering something most sellers cannot. That is not a compliance exercise… it is leverage.

I have sat on the advisor’s side of a sell-side transaction that stalled in diligence, a deal both sides genuinely wanted to do. Nothing dishonest happened anywhere in it. The problem was quieter than that. The distance between what the owner knew about his own business and what he could prove to a buyer’s team turned months of momentum into a standstill. The records had been built the way most owners build them, to run the company day to day. The founder himself was not much interested in his own numbers, and his accountant prepared only compilation-level statements (the most basic tier, where the accountant arranges what you give him and tests none of it). Over the years, too many people had touched the accounting system. No one meant harm, and each new hand added complexity that was hard to trace. The financial story of a genuinely successful company had become something a stranger could not easily follow. The deal did not stall because of dishonesty. It stalled because of friction.

That friction has a name every owner who has lived through it remembers. Deal fatigue. Diligence grinds harder and longer than people expect, and the thing that makes it grind is exactly this gap between what you know and what you can show. Every question you can answer with a document moves the deal forward. Every question you can only answer with “trust me” sends the buyer’s team back for another pass, another request, another week of delay. Stack enough of those up, and both sides start to wonder whether the whole thing is worth the misery. That is how deals both sides wanted slip away.

The owner who has done the work ahead of time feels almost none of that. His readiness is the reason the buyer’s team relaxes, the diligence keeps moving, and the price holds.

Build for the Stranger Who Verifies Everything

So what do you do with this, well before a buyer ever knocks on your door?

Start by looking at your own numbers the way a buyer will. Have your accountant begin preparing review-level statements (a step up from the compilation most owners have, where the accountant actually tests some of the numbers instead of just presenting them). Audited financials are stronger still, and for most sales under $20 million they cost more than the deal requires. Then commission a quality-of-earnings review (an independent scrub of how real and how repeatable your profits actually are) on your own timeline, so the surprises surface for you first instead of for the buyer in the middle of the deal. The facts that set your price are usually the same short list: how durable your earnings really are, how concentrated your customers are, how much of your revenue recurs, and how much of the whole operation still runs through you personally. Make every one of those provable with documents rather than assertions.

Then invite the scrutiny early. A sell-side readiness review, done a year or two before you go to market, is the cheapest diligence you will ever pay for, because it is the only round where the findings come to you privately while you still have time to fix them. Investment bankers call this a Red Team Exercise: an analysis of your numbers and your operations from the point of view of the buyer’s diligence team. The owner who waits for the buyer’s team to find the gaps has handed away both the timing and the leverage.

The reframe is the whole point. Every fact you can prove is leverage. Every fact you can only assert is a discount waiting to happen. The diligence you have been dreading is the same diligence that becomes the strongest argument you have for your number.

The sellers in these three stories tried to manufacture the look of readiness. You have the chance to build the real thing instead. It is harder, it takes longer, and it is worth more than almost anything else you will do before you sell.

Where a buyer’s diligence actually goes, and where most deals quietly die, is the subject of The Stage Where Deals Go to Die.

Key Takeaways

• The most sophisticated buyers on earth have been fooled by manufactured readiness, which means genuine, verifiable readiness is rarer and more valuable than most owners assume.
• Diligence is not done to you. It is the test your readiness passes or fails, and the result is priced into your deal.
• A buyer cannot easily tell a seller who is hiding something from one whose records simply cannot withstand a direct look. Both get discounted.
• Your reputation, your relationships, and your story get you in the room. Only what you can prove survives diligence.
• You do not have to lie to get hurt. Ambiguity you leave in your numbers becomes the buyer’s leverage before closing and your liability after it.
• Build your records for a stranger who assumes nothing and verifies everything, 12 to 36 months before you go to market. That is not compliance. It is leverage.

Where to Start

Becoming verifiably ready starts long before a buyer is at your table, and it begins with seeing your business the way a buyer will. The CEOIQ® Renaissance Executive Briefing walks through the readiness framework that turns diligence from an ordeal into an advantage, and shows you where the gaps in your current position actually sit. You can register at ceoiq.us.

If you are already in a deal, or already feeling the grind of a diligence process that is testing your patience, the time for a briefing has probably passed. In that case, reach out to me directly at [email protected] with the subject line “Ready to Start.” No pitch. Just a conversation between two people who take this seriously.

The buyers in these stories accepted a substitute for the truth. Your task, long before you ever sell, is to make sure you never have to offer one.

… Ben

Author: Ben Griffin

Facilitator - CEO Peer Advisory Group; Executive Coach; Photographer