METMAN--I suspect that part of the fraud problem has more to do with the cost of legal action to recover damages. Fraud may or may not be covered for LWIN when its independent resellers are creating the problem. This sounds more like a criminal act, which forces LWIN to file a complaint with a local district attorney, and then be available as a witness, should the matter ever come to trial. Meanwhile, restitution is not a certainty--the reseller, faced with a judgment, may simply declare bankruptcy. And even if restitution is possible, it will occur far in the future.
I can easily understand why, given the slow and expensive legal process for prosecuting fraud of this sort, a company, especially a small company, would prefer to write off the damage against future profits. It's sort of like pilfering in supermarkets. Everyone knows it goes on, but it probably gets prosecuted less than 1 percent of the time.
The larger problem for investors is the accuracy of the data on new subscribers. We simply don't know, from the information given in the latest report and at the conference call, whether subscriber growth is really as high as reported, given the impact of fraud. And the accuracy of subscriber projections is not covered by any form of insurance I know of.
Art Bechhoefer |
