Reminds me of one startup I worked at, the boss even went as far as putting on funny accents on the phone to make it sound like there were more people. He would even pretend to be someone else and tell whoever was on the line that he was in fact in a meeting/on the other line/with a customer.

And that sort of thing, while a little weird, doesn't really harm anyone. It was when he started putting in ads in the trade press that we did things or had things that we blatantly didn't (and couldn't) that things started to get a bit dodgy. I left shortly afterwards.