I do diligence for a living. It's just not economical to do a full diligence on every investment when you're investment thesis is a portfolio approach.
Those are usually covered under "reps and warranties". From what I understand, even if you do "lie" (no one really lies, they just bend the truth...if you do legitimately lie, it's fraud and it's a big deal) there's basically insurance against it (formerly called "representations and warranties"). No VC I know of ever purchases it, but PE do from time to time.
It can depending on how much capital or assets are still around.
Jail is also a pretty decent incentive to make people avoid overtly lying. Unfortunately its disproportional used on the poor and minorities instead of on professionals.
