15 ms·

> Lessons to be learned * even a pretty obvious fraud can go on much longer than one would think if the organizers are ruthless enough. My original short posit

by chewz 6y ago

> Lessons to be learned * even a pretty obvious fraud can go on much longer than one would think if the organizers are ruthless enough. My original short position would have gone against me 25x over 12 years and the share price even after today’s disaster would be higher than back in 2008 (just to be clear: the company is worth ZERO in my opinion) * a company that goes against people who write negative articles as aggressively as Wirecard has something to hide * if the profitability of a business can not be explained by its business model, then most likely something is very wrong (greetings Bernie Madoff) * 99% of professional investors and analysts don’t care about these things even if you tell them. A lot of people knew that the company was fishy but hey thought they can make money anyway and a lot of people made a lot of money over the years * Small companies with far flung operations in difficult geographies should be avoided (see Globo Plc) as this makes fraud difficult to detect for auditors * A big 4 Audit firm is no proof of quality.

9nGQluzmnq3M 6y ago
The first one really is key here. Exhibit A is "stablecoin" Tether, which has more red flags than a Kremlin May Day parade and steadfastly refuses to get audited, but has nevertheless been puttering away for several years now. When will the penny drop? https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/
- C1sc0cat 6y ago
  How do you avoid getting audited for several years ?
  - sokoloff 6y ago
    As a cryptocurrency? You just decide not to get audited.
  - lordnacho 6y ago
    I'm no expert, but I think what happens is you shop around for an auditor but you somehow can never find one who will sign off on the audit, because they need you to produce some docs that you don't have.
    - 9nGQluzmnq3M 6y ago
      s/don't have/don't want to give/
  - seanhunter 6y ago
    If you're not a public company then in many/most jurisdictions it's up to the owners/investors to decide whether or not to have audited financials. If they are a 100% legit and have assets to back their tether there really isn't much of a reason not to have that audited and published on a website. For example bullionvault.com publish an audit of physical metal reserves daily.
- chewz 6y ago
  From my experience a fraud is easy to spot with a keen eye. But persuading the public that hot company is a fraud - different matter.
pythonwizz 6y ago
I wrote this here a few days ago: ------------------------- Wirecard has been accused before of fraud by so called "short sellers". The document published (2 years ago?) showed a tremendous, extraordinary complex network of international corporations. Such complex setups have a very limited purpose. It can basically be only tax "optimization", hide fraud or hide ownership (UBO). After having seen this PDF I would not touch the Wirecard stock. By the way, I think Alibaba is opening two new corporations. Per day. You may also want to read at Bronte Capital about Alibaba. ------------------------- "the company is worth ZERO in my opinion)" This IS a possibility. But the stockmarket exaggerates always in both directions, "like a sausage dog on a leash, sometimes walks in front of you, sometimes behind you but always comes back to you" Kostalany If you want to make a gamble there could be buying prices now or soon. But it stays a gamble. "Even a good company can be too expensive" Buffet "Even a shitty company can be cheap" me
blibble 6y ago
amusingly: back in 2019, when journalists pointed out irregularaties in the company's accounts, the German Financial regulator's reaction was to ban short selling of their shares... and then issue legal proceedings against the journalists > On Monday, BaFin banned further short selling of shares in Wirecard, the Dax-listed payments services group. The stock has dropped steeply after FT reports raised questions over the validity of accounts. The German financial regulator said its first ever ban on shorting a single stock was needed to prevent a loss of confidence in financial markets. https://www.ft.com/content/f04793df-43a2-4d69-a39f-e04dac36ce8e https://www.ft.com/content/f04793df-43a2-4d69-a39f-e04dac36c... has the full details (but paywall)
- deleted 6y ago
  [deleted]
- justinclift 6y ago
  Non-paywalled version: https://archive.vn/VAuC7 https://archive.vn/VAuC7
- C1sc0cat 6y ago
  And sadly that attitude is why you got the Bunga Bunga Parties scandal that VW and IG Metal Where involved in.
- Kalium 6y ago
  Governments and regulators don't always act in a clear-headed way when a company seen as a national champion is involved. Often the fear of bringing down political wrath, making a mess of national prestige, and more crop up even when explicit political meddling is absent. A company that understands it's in such a position is, IMO, more likely to misbehave because they know the odds of there being consequences are much lower.
nabla9 6y ago
Another: * They tie big names into the firm to get credibility. Hire them into the board, or pay them good money for short term consulting gigs. Examples: 1) Gen. James Mattis was in Theranos board. So was Henry Kissinger and George Shultz. 2) Enron paid Paul Krugman $50,000 to attend at least two times in advisory board meetings, nothing related to Enron business. What Enron really bought was the ability to say Paul Krugman was in the advisory board. https://www.princeton.edu/~pkrugman/enron.html https://www.princeton.edu/~pkrugman/enron.html
- tnolet 6y ago
  The book on Theranos (Bad Blood) actually makes the argument that no “real” big names were in Theranos: Kissinger, Mattis and Schultz knew nothing about health care or medicin. They are/were career politicians. The book argues investors with actual experience in the industry staid far away.
  - nabla9 6y ago
    Could briefly comment what you think I meant with big name?
    - tnolet 6y ago
      Well known, powerful folks but also experts in the field or respected in the specific industry they are investing in / are board members of.
  - 420codebro 6y ago
    Lots of companies have directors from a wide background. In Theranos' case, the fact that Kissinger, Mattis, and Schultz were on the board was probably more useful to Ms. Holmes than having some reality-center doctor investors.
  - catalogia 6y ago
    None of this went unnoticed as soon as the company came to public attention. One of the first discussions on HN about Theranos had people being impressed with the big names on the board, and other people noting that it lacked connections to the healthcare industry. > That is a pretty stunning board of directors as well. I don't doubt their CEO can get an introduction to, and lunch with, nearly anyone on the planet. > This board seems heavily geared to do deals for defense-related applications. That's fine; getting deals with the Armed Forces and VA is feasible and quite rewarding. What they overtly lack is connections to the healthcare world. I'm surprised they aren't publicly roped into Cleveland Clinic, Mayo Clinic or Kaiser, as they to support novel technologies in this space. I suppose you can argue that the business model is fundamentally incompatible, but I've seen Mayo and Kaiser go in anyway; they can acquire these labs and roll them into operations pretty easily. > That BOD is stunning with heavy national security/ military operations. I almost thought it was a CIA cover company. > So, it's a health testing company that will keep all my blood-related health information and make it "actionable", with the backing of James Mattis, William Perry and none other than Henry Kissinger. There are more soldiers in that board there than doctors. The only way I'd give them my blood would be to infect them with a disease. > Wow. She must be a pretty amazing woman to have collected such strong allies. I'd have lunch with her. [This last one was downvoted, but is probably the sort of reaction Theranos was hoping to engineer.]
yellowstuff 6y ago
Enron is one example of how these things can turn out, but Herbalife (HLF) is another. HLF is a multi-level marketing company; they're a shady company in an inherently shady business; they have far-flung operations; they aggressively went after people expressing negative information; they had questionable accounting; and there were eventually regulatory rulings against them. But they also are a profitable business that sells stuff that people want to buy. They started getting a lot of press over being a fraud in 2012, today the stock is 30% higher than the 2012 peak, and Bill Ackman lost around $1B shorting it before he gave up. "Fake it til you make it" isn't just for tech startups. A lot of companies juice results with a bit of fraud, but eventually get good real results anyway. It's hard to tell the difference between an outright fraud and a healthy company with aggressive accounting.
- paganel 6y ago
  I'm no Bill Ackman but I still do think that Herbalife is a fraud. It's basically just a better marketed MLM company, I first realised about the MLM part 12 or 13 years ago when I went to one of their presentations in my city (got out as soon as I could), which I guess leaves them with the "better marketing" part, which I admit they're pretty good at (if I'm not mistaken at some point they were sponsoring the football team AC Milan and the football player David Beckham).
- Nextgrid 6y ago
  > they also are a profitable business that sells stuff that people want to buy [citation needed] Just like the other MLMs (or rather pyramid schemes, because that's what they really are), they sell a (unprofitable) lifestyle using deceptive marketing. The products are secondary (they're just there to keep regulators at bay) and are always sub-par and inferior to what can be found off-the-shelf.
  - intuitionist 6y ago
    There’s nothing illegal, or inherently unprofitable (for the business), about selling people a lifestyle. Louis Vuitton sells people a lifestyle. Harley-Davidson sells people a lifestyle. Apple sells people a lifestyle. All of these companies have products, sure, but the products aren’t really the point.
newsclues 6y ago
How many times will we need to learn that the audits and auditors are not always doing a good job?
- dr_faustus 6y ago
  substitute "not always" with "almost never". Edit: The problem is that companies get to pick their auditors. Since the auditors sell a homogenous product (it doesnt really matter, who signs off you yearly report), the only way the big four accounting firms can compete is by being cheaper and/or more "favourable" to the customer. Both not that great for the customer (which actually should be the shareholders and in reality its mostly the board).
  - toohotatopic 6y ago
    Shouldn't there be a market for a tough auditor? Now a healthy company has a hard time convincing investors that there are no hidden problems. With a tough auditor, you could gain more trust and thus cheaper interest rates.
    - newsclues 6y ago
      If enough of the market is cheating then it puts you at a disadvantage if if you aren’t cheating (the fake market sees your fair baseline as a threat to future cheating)
    - gruez 6y ago
      That would have to be on the investor's side, otherwise the incentives aren't aligned.
ArmandGrillet 6y ago
You forgot the two last ones including "The German BAFIN is not very smart and German financial regulation is substandard", which is a pretty big lesson for the biggest economy in Europe.
- C1sc0cat 6y ago
  Makes the chances of Frankfurt being a Candidate for big companies moving staff from the City even less. I suspect that Alex in the daily telegraph will be commenting on this shortly.

by chewz 6y ago

9nGQluzmnq3M 6y ago

The first one really is key here. Exhibit A is "stablecoin" Tether, which has more red flags than a Kremlin May Day parade and steadfastly refuses to get audited, but has nevertheless been puttering away for several years now. When will the penny drop? https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/

C1sc0cat 6y ago
How do you avoid getting audited for several years ?
- sokoloff 6y ago
  As a cryptocurrency? You just decide not to get audited.
- lordnacho 6y ago
  I'm no expert, but I think what happens is you shop around for an auditor but you somehow can never find one who will sign off on the audit, because they need you to produce some docs that you don't have.
  - 9nGQluzmnq3M 6y ago
    s/don't have/don't want to give/
- seanhunter 6y ago
  If you're not a public company then in many/most jurisdictions it's up to the owners/investors to decide whether or not to have audited financials. If they are a 100% legit and have assets to back their tether there really isn't much of a reason not to have that audited and published on a website. For example bullionvault.com publish an audit of physical metal reserves daily.
chewz 6y ago
From my experience a fraud is easy to spot with a keen eye. But persuading the public that hot company is a fraud - different matter.

pythonwizz 6y ago

I wrote this here a few days ago: ------------------------- Wirecard has been accused before of fraud by so called "short sellers". The document published (2 years ago?) showed a tremendous, extraordinary complex network of international corporations. Such complex setups have a very limited purpose. It can basically be only tax "optimization", hide fraud or hide ownership (UBO). After having seen this PDF I would not touch the Wirecard stock. By the way, I think Alibaba is opening two new corporations. Per day. You may also want to read at Bronte Capital about Alibaba. ------------------------- "the company is worth ZERO in my opinion)" This IS a possibility. But the stockmarket exaggerates always in both directions, "like a sausage dog on a leash, sometimes walks in front of you, sometimes behind you but always comes back to you" Kostalany If you want to make a gamble there could be buying prices now or soon. But it stays a gamble. "Even a good company can be too expensive" Buffet "Even a shitty company can be cheap" me

blibble 6y ago

amusingly: back in 2019, when journalists pointed out irregularaties in the company's accounts, the German Financial regulator's reaction was to ban short selling of their shares... and then issue legal proceedings against the journalists > On Monday, BaFin banned further short selling of shares in Wirecard, the Dax-listed payments services group. The stock has dropped steeply after FT reports raised questions over the validity of accounts. The German financial regulator said its first ever ban on shorting a single stock was needed to prevent a loss of confidence in financial markets. https://www.ft.com/content/f04793df-43a2-4d69-a39f-e04dac36ce8e https://www.ft.com/content/f04793df-43a2-4d69-a39f-e04dac36c... has the full details (but paywall)

deleted 6y ago
[deleted]
justinclift 6y ago
Non-paywalled version: https://archive.vn/VAuC7 https://archive.vn/VAuC7
C1sc0cat 6y ago
And sadly that attitude is why you got the Bunga Bunga Parties scandal that VW and IG Metal Where involved in.
Kalium 6y ago
Governments and regulators don't always act in a clear-headed way when a company seen as a national champion is involved. Often the fear of bringing down political wrath, making a mess of national prestige, and more crop up even when explicit political meddling is absent. A company that understands it's in such a position is, IMO, more likely to misbehave because they know the odds of there being consequences are much lower.

nabla9 6y ago

Another: * They tie big names into the firm to get credibility. Hire them into the board, or pay them good money for short term consulting gigs. Examples: 1) Gen. James Mattis was in Theranos board. So was Henry Kissinger and George Shultz. 2) Enron paid Paul Krugman $50,000 to attend at least two times in advisory board meetings, nothing related to Enron business. What Enron really bought was the ability to say Paul Krugman was in the advisory board. https://www.princeton.edu/~pkrugman/enron.html https://www.princeton.edu/~pkrugman/enron.html

tnolet 6y ago
The book on Theranos (Bad Blood) actually makes the argument that no “real” big names were in Theranos: Kissinger, Mattis and Schultz knew nothing about health care or medicin. They are/were career politicians. The book argues investors with actual experience in the industry staid far away.
- nabla9 6y ago
  Could briefly comment what you think I meant with big name?
  - tnolet 6y ago
    Well known, powerful folks but also experts in the field or respected in the specific industry they are investing in / are board members of.
- 420codebro 6y ago
  Lots of companies have directors from a wide background. In Theranos' case, the fact that Kissinger, Mattis, and Schultz were on the board was probably more useful to Ms. Holmes than having some reality-center doctor investors.
- catalogia 6y ago
  None of this went unnoticed as soon as the company came to public attention. One of the first discussions on HN about Theranos had people being impressed with the big names on the board, and other people noting that it lacked connections to the healthcare industry. > That is a pretty stunning board of directors as well. I don't doubt their CEO can get an introduction to, and lunch with, nearly anyone on the planet. > This board seems heavily geared to do deals for defense-related applications. That's fine; getting deals with the Armed Forces and VA is feasible and quite rewarding. What they overtly lack is connections to the healthcare world. I'm surprised they aren't publicly roped into Cleveland Clinic, Mayo Clinic or Kaiser, as they to support novel technologies in this space. I suppose you can argue that the business model is fundamentally incompatible, but I've seen Mayo and Kaiser go in anyway; they can acquire these labs and roll them into operations pretty easily. > That BOD is stunning with heavy national security/ military operations. I almost thought it was a CIA cover company. > So, it's a health testing company that will keep all my blood-related health information and make it "actionable", with the backing of James Mattis, William Perry and none other than Henry Kissinger. There are more soldiers in that board there than doctors. The only way I'd give them my blood would be to infect them with a disease. > Wow. She must be a pretty amazing woman to have collected such strong allies. I'd have lunch with her. [This last one was downvoted, but is probably the sort of reaction Theranos was hoping to engineer.]

yellowstuff 6y ago

Enron is one example of how these things can turn out, but Herbalife (HLF) is another. HLF is a multi-level marketing company; they're a shady company in an inherently shady business; they have far-flung operations; they aggressively went after people expressing negative information; they had questionable accounting; and there were eventually regulatory rulings against them. But they also are a profitable business that sells stuff that people want to buy. They started getting a lot of press over being a fraud in 2012, today the stock is 30% higher than the 2012 peak, and Bill Ackman lost around $1B shorting it before he gave up. "Fake it til you make it" isn't just for tech startups. A lot of companies juice results with a bit of fraud, but eventually get good real results anyway. It's hard to tell the difference between an outright fraud and a healthy company with aggressive accounting.

paganel 6y ago
I'm no Bill Ackman but I still do think that Herbalife is a fraud. It's basically just a better marketed MLM company, I first realised about the MLM part 12 or 13 years ago when I went to one of their presentations in my city (got out as soon as I could), which I guess leaves them with the "better marketing" part, which I admit they're pretty good at (if I'm not mistaken at some point they were sponsoring the football team AC Milan and the football player David Beckham).
Nextgrid 6y ago
> they also are a profitable business that sells stuff that people want to buy [citation needed] Just like the other MLMs (or rather pyramid schemes, because that's what they really are), they sell a (unprofitable) lifestyle using deceptive marketing. The products are secondary (they're just there to keep regulators at bay) and are always sub-par and inferior to what can be found off-the-shelf.
- intuitionist 6y ago
  There’s nothing illegal, or inherently unprofitable (for the business), about selling people a lifestyle. Louis Vuitton sells people a lifestyle. Harley-Davidson sells people a lifestyle. Apple sells people a lifestyle. All of these companies have products, sure, but the products aren’t really the point.

newsclues 6y ago

How many times will we need to learn that the audits and auditors are not always doing a good job?

dr_faustus 6y ago
substitute "not always" with "almost never". Edit: The problem is that companies get to pick their auditors. Since the auditors sell a homogenous product (it doesnt really matter, who signs off you yearly report), the only way the big four accounting firms can compete is by being cheaper and/or more "favourable" to the customer. Both not that great for the customer (which actually should be the shareholders and in reality its mostly the board).
- toohotatopic 6y ago
  Shouldn't there be a market for a tough auditor? Now a healthy company has a hard time convincing investors that there are no hidden problems. With a tough auditor, you could gain more trust and thus cheaper interest rates.
  - newsclues 6y ago
    If enough of the market is cheating then it puts you at a disadvantage if if you aren’t cheating (the fake market sees your fair baseline as a threat to future cheating)
  - gruez 6y ago
    That would have to be on the investor's side, otherwise the incentives aren't aligned.

ArmandGrillet 6y ago

You forgot the two last ones including "The German BAFIN is not very smart and German financial regulation is substandard", which is a pretty big lesson for the biggest economy in Europe.

C1sc0cat 6y ago
Makes the chances of Frankfurt being a Candidate for big companies moving staff from the City even less. I suspect that Alex in the daily telegraph will be commenting on this shortly.