Darren Robbins, Robbins Geller Rudman & Dowd.

Once upon a time, private companies with market valuations of more than $1 billion were so rare that they were dubbed Unicorns.

Unicorns are much less exotic today. In the United States, there are more than 100 such companies with a collective value of $360 billion, according to CB Insights. They have collectively raised over $73 billion.

Some of these Unicorns occupy the vanguard of technological advancement, exemplifying American ingenuity at its best by driving innovation and economic growth.

But as we’ve learned the hard way, being a Unicorn does not necessarily equate to being a model corporate citizen. Sometimes, Unicorns really are the stuff of fairy tales, using make-believe promises to raise billions of dollars from unsuspecting investors. And, equally unsurprising, when the truth about such companies is revealed, the value of those investments often evaporates.

Holding perpetrators of such frauds accountable is critical. This is not just about protecting sophisticated venture capital firms that choose to invest in Unicorns. It’s about protecting the hard-earned retirement savings of public employees, teachers, firefighters and law enforcement officers.

How is that, you ask? Because many of the venture capital firms that invest in these startups often do so using workers’ retirement savings. For example, one active investor in Unicorns, Union Square Ventures, has on its roster of investors public pension funds in California, Oregon and Wyoming.

The bottom line: far too often, imploding Unicorns scorch the retirement savings of workers who watch while their life savings go down in flames.

Damaging Disclosures

The poster child for Unicorn hype is blood diagnostic company Theranos, Inc. Once fawned over and feted by the media, the company’s story proved too good to be true after a 2015 Wall Street Journal investigation exposed its claims about proprietary blood-testing technology. At one point the company’s market value reached a whopping $9 billion.

The Securities and Exchange Commission has since charged the company, its CEO Elizabeth Holmes, and former President Ramesh “Sunny” Balwani with an “elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.” (Theranos and Holmes settled the charges.) A related criminal investigation is reportedly ongoing.

Ride-sharing company Uber Technologies Inc., once valued at nearly $70 billion—more than Ford Motor Company, General Motors, Twenty-First Century Fox, and eBay—also tried its best to keep the darker side of its business from investors. However, it has now been widely reported that the ethical, progressive and socially responsible corporate citizen that Uber portrayed itself to be was sheer fantasy.

This romanticized image has been replaced by one stained with tales of executives fostering a toxic culture defined by sexual harassment and gender discrimination; of pilfered driver and rider data from its main competitor; of a covert “Greyball” program to evade law enforcement where it was operating illegally or facing opposition; and of renting recalled, unsafe vehicles to its drivers in Singapore.

No one expects that Theranos or Uber will be the last Unicorn conflagration. A recent paper by two business school professors studied legal filings from 135 Unicorns in the United States and concluded that on average, after each new valuation, they are worth half what is advertised. The paper did not accuse the companies of intentionally seeking to manipulate investors, but rather characterized the valuation of these Unicorns as a “black box,” owing to the increasing complexity of their financial structures.

Investor Remedies

Shareholder class actions have long served as the most effective and efficient vehicle for investors in publicly traded companies who seek recourse when they are damaged by misstatements, omissions and other forms of corporate fraud. Just since the Global Financial Crisis of 2007-2009, courts have approved more than $29 billion of recoveries obtained for defrauded investors via shareholder class actions, according to Cornerstone Research.

But privately held companies, which do not list shares on public exchanges and do not have to regularly file financial information with the SEC, have not historically been held accountable for misconduct via investor class action lawsuits. With some companies now raising hundreds of millions of dollars or even billions of dollars before they even complete an IPO, it is no wonder that investors in these companies have started to rely on shareholder actions to hold corporate fraudsters accountable.

Investment fraud is not just bad for investors. It is a menace to honestly innovative entrepreneurs because fraud undermines the integrity of our capital markets—the life blood of any startup. For these reasons, it is important to hold fraudsters accountable. I agree with former Securities and Exchange Commission Chair Mary Jo White who noted in a 2016 speech that “being a private company comes with serious obligations to investors and the markets.” Defrauded investors deserve their day in court, regardless of whether the company in which they invest is publicly traded or not. Otherwise, pensioners and entrepreneurs alike will be relegated to living unhappily ever after.

Darren J. Robbins is a founding partner of Robbins Geller Rudman & Dowd. Over the last two decades, he has served as lead counsel in dozens of securities class actions and has recovered billions of dollars for injured investors.