According to TechCrunch ("Canopy Financial Turns Into Sad, Comical Game of Hot Potato" by Michael Arrington), nearly $90 million in venture capital money may have done little to thwart alleged fraud at Canopy Financial. If true that this company has been reporting incorrect numbers, why has it taken so long to uncover?
Here is what I've been able to uncover from a quick search of the web (with no guarantees that these website links will remain live much longer, if they even exist now):
- Canopy Financial was listed #12 on Inc. Magazine's 2009 list of fast-growing companies with reported growth of nearly 8,000%, 84 employees and 2008 revenue of $19.8 million. Click to read more.
- Important website links for Canopy Financial except for a single Contact Us page (About Canopy, Learning Center, Solutions, Press Releases, Clients) are broken.
- Red Herring reported that Canopy Financial raised $15 million in a "funding round led by Granite Global Ventures," allowing this health insurance-related service company to "develop and market some of its new products and services." Read "Canopy Financial Banks $15M" by Cassimir Medford (January 10, 2008).
- Healthcare Finance News reported on an acquisition by Canopy Financial about a year ago. See "Canopy Financial buys CareGain" (October 20, 2008).
- PE Hub writes that Canopy Financial's CEO claims "no prior knowledge whatsoever of any fraud..." Click to read "Statement from Canopy Financial's Ex-CEO" by Dan Primack (November 24, 2009).
- The link to Perkins Coie is likewise broken though Google shows text that reads "Represented Canopy Financial in its Series A and Series B Preferred stock financings."
- Crunchbase.com lists financing for Canopy Financial in the amounts of $15 million Series A funding (January 2008), $8 million Series B funding (August 2008), $4 million in debt funding (2009) and $62.5 million in Series C funding (October 2009). Click to read more.
- Health Care IT News reports a partnership between Canopy Financial and Wolters Kluwer Financial Services to "make Canopy's healthcare banking platform available to all banks and credit unions." See "Financial providers integrate HSAs for banks" by Molly Merrill (February 14, 2008).
- Canopy Financial reports the release of its "Mobile Consumer Directed Healthcare (CDH) Software Application." Read the May 13, 2009 press release.
- Canopy Financial sought to recruit a product analyst as recently as November 9, 2009.
- Canopy Financial's November 3, 2009 press release describes a partnership witih A.D.A.M., a "leading provider of healthcare information technology." Click to read more.
- Canopy Financial sends out a March 2009 press release that lauds its successful completion of the "Statement on Auditing Standards No. 70 (SAS 70) Type II audit, which assesses the operational effectiveness of internal controls within service organizations." Read "Canopy Financial Achieves SAS 70 Type II Certification."
The list continues. If true, yet another fraud perpetuated on investors would be shocking. Questions abound, some of which are listed below.
- Who was conducting the due diligence for each funding round?
- What due diligence was done on Canopy as relates to several acquisitions and partnerships?
- What was the role of the auditor?
- What questions were asked of the management team by the Canopy Financial board of directors?
- Did institutional investor limited partners utilize finder firms or contract with the venture capital general partners directly?
- Did any of the investors review the SAS 70 audit report and find it wanting?
Until more facts are uncovered, everyone deserves their day in court and we can't make hasty judgments.
On a general note, the hope is that lessons are learned along the way about who is tasked to do what, on what basis and with what rigor. While I truly believe that there are many, many good players who do their work thoroughly and with high integrity, one is compelled to reflect on why the stigma and shame of dishonesty is discarded by those who rightfully deserve a place in the Financial Hall of Ignominy.