In Silicon Valley, hyperbole is becoming a problem, according to prominent short-seller Jim Chanos. The billionaire who predicted the fall of Enron is warning investors to be skeptical of young, optimistic leaders of companies that he says could end up like disgraced start-up Theranos.
"There seems to be a culture where you're allowed to say things that in any other time people would say is illegal. You can't lie to investors" Chanos, the founder of Kynikos Associates, told CNBC's "Closing Bell" Wednesday. "You're going to see an increase of these kinds of revelations as time goes on, particularly out in Silicon Valley."
Chanos, who teaches a course on the history of financial fraud at Yale University, said the field is "fertile" for companies like Theranos to mislead investors, especially in a bull market.
"People's sense of disbelief is reduced and they begin to believe things that are too good to be true, and bad people take advantage of that," said Chanos, whose firm has more than $2 billion in assets under management spread across a short-only fund and a hedge fund.