Steinhoff Committed $7.4 Billion in Fraud (at least). Here’s How

It’s not often that we get to see the details of how companies commit $7.4 billion worth of fraud. 

Steinhoff International Holdings, a former empire of retailers and other companies in Europe, Africa, Australasia, and the US – including the now bankrupt Mattress Firm – collapsed in December 2017 when it announced that it had found “accounting irregularities,” without mentioning amounts or methods. It then hired PricewaterhouseCoopers (PwC) to investigate.

Now the company has released an 11-page overview of the PwC report about the forensic investigation. The actual PwC report remains under lock and key. I assume it names executives by name, whereas this summary does not. The amount of the accounting fraud detected so far amounts to €6.5 billion, or $7.4 billion.

But they still don’t know the full extent. According to the overview, “there are still a number of unanswered questions, particularly in relation to the identification of the true nature of the counter-parties or the ultimate beneficiaries to various transactions.”

Nevertheless, it’s not often that we’re given some insights in how to commit $7.4 billion worth of fraud.

Here are key nuggets I distilled from the report:

“A small group of Steinhoff Group former executives and other non-Steinhoff executives, led by a senior management executive, structured and implemented various transactions” from 2009 through 2017 “which had the result of substantially inflating the profit and asset values of the Steinhoff Group over an extended period.”

“The PwC investigation found a pattern of communication which shows the senior management executive instructing a small number of other Steinhoff executives to execute those instructions, often with the assistance of a small number of persons not employed by the Steinhoff Group.”

Fictitious and/or irregular transactions were entered into with parties said to be, and made to appear to be, third party entities independent of the Steinhoff Group and its executives but which now appear to be closely related to and/or have strong indications of control by the same small group of people referred to … above.”

Fictitious and/or irregular income was, in many cases, created at an intermediary Steinhoff Group holding company level and then allocated to underperforming Steinhoff operating entities as so called “contributions” that took many different forms and either increased income or reduced expenses in those operating entities.  In most cases, the operating entities received cash for the contributions from another Steinhoff Group or from non-Steinhoff companies (funded by Steinhoff), resulting in intercompany loans and receivables.”

“The transactions identified as being irregular are complex, involved many entities over a number of years and were supported by documents including legal documents and other professional opinions that, in many instances, were created after the fact and backdated.”

“The PwC Report identifies three principal groups of corporate entities [Campion/Fulcrum Group, Talgarth Group, TG Group] that were counterparties to the Steinhoff Group in respect of the transactions that have been investigated. Other corporate entities have also been identified together with a finding that there was a practice of using similar entity names and changing company names resulting in confusion between entities.”

Income creation and asset-value inflation were produced via four categories of transactions, with some transactions being entered into “to obscure the extent of the overstatement of the assets”:

1. Profit and asset creation

“The PwC Report finds that certain Steinhoff Group entities recorded sales to, or received benefits or income from, entities that were purportedly independent of the Steinhoff Group but which now appear to be either closely related to and/or have strong indications of control by the Steinhoff Group or certain of its former employees and/or third parties or former management.”

The “income from fictitious and/or irregular transactions” found during investigation of the years 2009-2017 amounts to €6.5 billion ($7.4 billion), by year:

“The income from these transactions was in many instances not paid by the so-called independent entities to the Steinhoff Group, resulting in loans or other receivables owed to the Steinhoff Group that had little or no economic substance and, which, as such were never settled.”

2. Asset overstatement and reclassification

“The non-recoverable receivables resulting from the fictitious or irregular income created by the transactions described … above were subsequently either settled in set-off arrangements or reclassified into different assets.”

“In a number of instances, the non-recoverable receivables were set-off using intergroup payments and by the assignment of debts. This had the effect that loans were moved between entities both in the Steinhoff Group and around the purportedly independent entities. These set-off arrangements and/or assignments of debt resulted in movement of the loans, which were accounted for as being repayments by the original party.”

“In other instances, often through purportedly independent entities, the nonrecoverable receivables were reclassified into different classes of assets, for example, cash equivalents, increases in the value of fixed properties, increases in the value of trademarks or increases in the value of acquired goodwill. These reclassifications created the impression that the non-recoverable receivable had been settled and resulted in other asset values being inflated.”

3. Asset and entity support

“The resulting inflated asset values were then supported by, for example:

  1. increasing the rental to be paid in terms of intergroup rental contracts for properties based on valuations that may have not been reliable;
  2. increasing the royalties to be paid under intergroup royalty agreements for trademarks; and/or
  3. orchestrating intergroup payments and assignments of debt to demonstrate the settlement of the cash equivalents.”

“These inflated costs were included in the operating companies’ results, increasing the cost bases, and in some cases, adding to the losses made by these entities. This had the following knock-on effects:

  1. the losses made by operating entities could not support the acquired goodwill; and
  2. operating entities did not positively contribute to the Steinhoff Group results.”

4. “Contributions”

“The losses in the operating entities were mitigated by the Steinhoff Group then making an onward distribution of the fictitious or irregular income that had, in some instances, been created at intermediary holding companies in the Steinhoff Group to the various Steinhoff operating entities via contributions.  In many cases, these contributions to operating companies were settled in cash by other Steinhoff Group companies, creating the impression (internally and externally) that they had substance.”

“These contributions had the effect of:

  1. the operating entities potentially appearing more profitable than they actually were (in circumstances where the contributions were greater than the inflated costs allocated to that entity);
  2. enabling forecasts made to support the price paid for acquired entities to be met; and
  3. enabling operating entity budgets to be met (although budgets often included contributions).”

“Contributions from Steinhoff Group entities to the Steinhoff operating entities would typically eliminate on consolidation; but before elimination these contributions supported the profitability, liquidity, solvency and value of acquired goodwill of the operating company.”

“By contrast, the fictitious or irregular income described [above] and recorded at intermediary holding companies did not eliminate on consolidation, as it was recorded as originating from purportedly independent entities, thus inflating the Steinhoff Group profits.”

So, dear reader, this is how a far-flung company can commit fraud on a massive scale, for nine years in a row, for the benefit of its executives, apparently under the dictum that it’s not a problem until it’s a problem.

In the US, the FDIC has released its 2018 performance summary of the 5,000-plus banks it regulates. And there are juicy banking nuggets. Read…  US Banks Report $251 billion of “Unrealized Losses” on Securities Investments in 2018, the Most Since 2008: FDIC

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  88 comments for “Steinhoff Committed $7.4 Billion in Fraud (at least). Here’s How

  1. Petunia says:

    Sounds like the funding rounds of any startup in Silicon Valley.

    • Joan of Arc says:

      I didn’t here any sounds while reading this but my hearing isn’t that good.

      • Petunia says:

        Funding startups requires creating or inflating assets that don’t really exist. It creates fake collateral in the process, which they intend to sell at higher valuations in the next round. The budgets of startups are funded with “contributions” and profits are always projected to infinity.

        This is only some of what I was “hearing” as I read this article. It’s almost like they were pretending to be a startup.

        • I think the FDIC owes Neil Bush an apology for prosecuting him over a land deal at Silverado, inflating the value of worthless property for the purposes of borrowing against that asset. The shame

        • Ed says:

          Startups project future profits, realistic or not.

          These guys were manipulating current profits and cash flow. Sounds more like Enron than a startup to me on that count.

        • Debt Wazoo says:

          Enron? Try Madoff.

          Fraud it up, bitchez.

    • andy says:

      Silicon Valley CEOs dont need to steal. Investors give them $Billions to burn and $Billions to keep. Stocks go up. Everybody wins.

  2. interesting says:

    This is “control fraud” and isn’t this the real the reason for the 2008 financial crisis? I know many like to blame sub prime but that was just a small part of the issue. Michael Hudson has written volumes about this.

    AND i’ll predict, no jail time, small fine, and the perps will get a golden parachute

    • Joan of Arc says:

      And we all thought Charles Ponzi, (born Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi; March 3, 1882 – January 18, 1949) was bad.

    • Paul says:

      2008 was caused by Joe Sixpack not paying his mortgage.

      I have not heard of a single person who took a mortgage based on fraudulent information going to jail.

      Tax payers and shareholders covered the losses.

      • Jessy S says:

        Actually 2008 could be explained in just two words, “Bear Stearns.” What actually jump started the financial crisis was that Bear Stearns ran out of liquidity. This caused banks to tighten wallets and led to the downturn of the housing market nationwide.

        • Setarcos says:

          Jessy, what do you think led to issues of “liquidity”?

          As Paul said above, Joe sixpack wasn’t paying the mortgage. Bankers has a good point as well. It takes bad actors all around to create a mess that large.

        • worldblee says:

          Blaming the crisis on Joe Sixpack is blaming the victim. Joe Sixpack didn’t robo-sign fake loan documents, repeal Glass-Steagall, or create the financial condition that caused the crisis. Joe Sixpack got kicked out of his house while Wall St. got to buy it up for pennies on the dollar.

        • Jessy S says:

          It is simple, Setarcus. Bear Stearns failed the same way a ton of companies failed, “TOO MUCH DEBT and not enough cash existed to pay for that debt!” Bear was a hedge fund and why it existed, I don’t know.

          What I do know is that the death of Bear caused banks to tighten lending habits. Right before Bear Stearns crashed, banks, as well as Fannie May and Freddie Mac, were handing out home loans to people that couldn’t afford them and at variable interest rates. Once the rates went up, it became harder for people to pay their mortgage. As a result, people were foreclosed on their mortgage. The more people defaulted, the more banks were hurt. This led to bank failures among the smaller banks with less liquidity.

          Believe it or not, but this also led to the failure of GM because the company was tied to mortgage industry because every home owner had to have a car loan as well. Those loans likely went under “not talked about as much” and not enough people even leasing cars. It isn’t talked about as much due to the success of other car manufacturers which meant that part of GM’s problem was its product line.

          Getting back on topic, it means complete death for all of Steinhoff international. The liquidity will likely disappear with the company’s future legal troubles in the US. In the grand scheme of things, $7.4 billion doesn’t sound like a big number, but this is a company that can’t be trusted.

      • Bankers says:

        Fraudulent borrowers borrowing from fraudulent lenders using fraudulent money at fraudulent prices set by a fraudulent economy paying fraudulent taxes to a fraudulent government owned by fraudulent shareholders chosen by fraudulent borrowers borrowing from fraudulent lenders using fraudulent money at fraudulent prices set by a fraudulent economy paying fraudulent taxes to a fraudulent government owned by fraudu…. control fraud.

        • Daedalus says:


          I think you have ‘nailed it’, ‘stuck the landing’, or whatever.
          What we see is the breakdown of society as it is currently structured.

          When the society as a whole relaxes control over the outliers, the ‘cheaters’ gain an advantage and can only be matched by those who ‘cheat’ in defense. Think of a professional football game without referees and where the winning team gets a ton of money. This is the world we (in the United States) now live in. New Zealand is looking a bit better, lately.

          I’m reminded of when Kramer , the former hedge guy, talked about ‘moving prices’ to the horror of his interviewer. He went on to say that it happens all the time, and if you don’t do it, you’re a sucker. Kramer never spent a day in jail because he was right… everybody did it.

        • Bankers says:

          “Jumped the shark” sounds more impressive ;-) . It is an aspect of the world we live in I suppose, the point being that there is a certain arbitrariness to interpretation on so many themes that “the truth” becomes flexible and very open to interpretation, and because in some way we almost all rely and are dependent on whatever system is in vogue, even if we do not agree with it we are still implicit in its functioning and vulnerable to hypocrisy, something that those who seek greater dominion will not hesitate to remind us and use in their own defense or to their own purpose. So maybe it is all a battle between the rewards of extravagance and the fairness of simple understandings, no matter what backgrounds or inputs are used. Honesty is a hard discipline because we are on our own with it, the temptation is always to benefit oneself, society can either act as vigilante to that or it can be or become permissive and so eventually corrupt. It gets what it pays for eventually, dragging a lot of innocence with it when wrong.

        • Kentonboy says:

          Did I leave anyone out?

      • McMike says:

        I called them “sign here” mortgages. The originators made up most of the lies and filled out the paperwork, then winked at the borrower and offered them a nice big house and low payments (at least for the first five years of the ARM…)

        Of course the signors are legally liable, but in the great apportioning of blame, the Joe Sixpack was just a sheep waiting to get shorn, a pawn (albeit willing) in games far beyond his awareness.

        Also of course, sometimes the originators didn’t even bother to get Joe Sixpack in the room, and signed on his behalf (I’m looking at you Countrywide and Wells Fargo)

        • alex in san jose AKA digital Detroit says:

          They were called “liar loans” or NINJA (No Income, No Job or Assets) loans.

    • Groucho says:

      Yes it is and yes it was. Bill Black has explained that as well as anyone I know of.

      • interesting says:

        Yep, I’ve seen him testify to congress while they all sat there and ignored him………..and I know why, they are all in on the swindle.

        We are not governed, we are ruled.

  3. 2banana says:

    It used to be bankers and business executives used to go to jail on a fairly regular basis.

    It kept the rest in line and at least made them think twice.

    After “too big to fail” and “too big to jail” – the worst that happens now with fraud and deception, and the worst an executive fears, is a fine. So fraud just becomes a business expense with a ROI.


    “So, dear reader, this is how a far-flung company can commit fraud on a massive scale, for nine years in a row, for the benefit of its executives, apparently under the dictum that it’s not a problem until it’s a problem.”

    • RepubAnon says:

      Funny thing – if one removes the regulations making control fraud illegal, more people engage in control fraud. Classic free market theory* (at the Econ 101 level) assumes that everyone has “perfect knowledge” of all relevant facts. Thus, fraud cannot exist in classic free market theory – one must add real-world corrections to account for lack of knowledge, etc. These real-world corrections are called “laws” and “regulations.” Remove them, and it’s fraud city.

      *For a physics analogy, remember the old joke: “Physics 101 is the study of frictionless elephants whose masses can be ignored.” The idea is to teach basic principles, and introduce the real world complications once students grasp the basics.

      • sierra7 says:

        At the risk of repeating myself I use a simple analogy of: “What will happen just after the kick-off (in American “football”) as the fans and players are focused on the sailing ball, all the referees leave the stadium?” The “KISS” solution.
        Our financial system with few exceptions is becoming more and more a, “criminal financial enterprise” where you can get away with more now than in the past since there are very few rules left. Capitalism is really a “game”….no rules and you have financial chaos.
        And, the eventual degeneration and disintegration of the society itself.

    • van_down_by_river says:

      There have always been, and always will be, those who were to big (wealthy and powerful) to jail. Jack Welch “managed” GE’s earnings to always miraculously beat by one penny. Imagine a giant conglomerate, doing stuff Jack was not even aware of, always able to beat analyst estimates by one penny – wink, wink.

      No, this has always gone on. What’s scary in today’s world is almost any company can now access seemingly limitless funds from the bond market and use those funds to fudge their earnings numbers as they please. This is new and different, the corporate bond market has never been this loose.

      If S&P companies are making massive record profits (analyst now say $180 per S&P share) then tell me why these same companies need to continue to roll existing debt and add to the existing debt with ever increasing sales of corporate bonds – if they are making such fantastic profits why are they unable to stop borrowing larger and larger sums. Seems like a scam to me but the Fed is content to fund the scam so the smart money plays along.

      The world’s central banks have made currencies a dangerous game of hot potato, so scam or not investors are left with no option but to invest in the Ponzi as they are forced to put their hard earned money someplace – if they leave earned income in dollars it is guaranteed to be worthless, just a matter of time.

  4. Howard Fritz says:

    Admittedly this isn’t my area of expertise without revealing too much my area of audit deals with the reporting framework of my particular state with regards government entities e.g. municipalities. All states have their own framework.

    Now, these entities do not have identifiable assets on their “balance sheet” (nonprofits do), however, we have procedures in place to identity theft and related party transactions, evidence of money collected and spent and so on. God, I hate it when they backdate checks and act all innocent when they get caught, or when they fail to complete monthly reconciliations because they got hired with no relevant training when they got hired.

    Therein lies the question of how is it that these type of transactions are not identified when they are committed so brazenly, clearly cash was properly audited?

    Especially considering IFRS is a more principles-based model which gives greater auditor discretion while GAAP is more rule-based.

    Nevermind only the little guys get regulated, I forgot.

    • Bobber says:

      Fraud/malfeasance is everywhere these days, even within audit firms that are supposedly inspecting the books. See the link below for a somewhat comical yet damaging example.

    • McMike says:

      Widespread overt accounting fraud among publicly traded and systematically important companies (like banks) used to be fairly rare (at least since the 1920s), then something changed, and it became commonplace.

      Perhaps if we figured out the factors that changed, we could reverse the pattern? nah.

  5. Ragnard says:

    Stuff like this imo clearly Spoils the whole system,. How can you believe in any company, if you know that this kind of thing can go on: people can make up stuff, have friends on board in third-party entity’s etc?

    who knows what’s real and not real?

    Only hard assets purchased at time tested value ratios, held by yourself are safe.

    And, ultimately, who knows even about that?

    But expectating the wall st gang to play fair all the way till ur retirement begins, and beyond, seems to me,mugs game.

    • Joan of Arc says:

      Pay off your home, cars, everything. Buy some physical gold and silver. Have some extra food in the pantry. Then you are set when the big one hits…unless it’s a 6 mile diameter asteroid or Yellowstone blows up. Ask the dinosaurs how that went.

      • interesting says:

        At this point i’m hoping for the 6 mile or Yellowstone……..I’ve nothing left to lose and I think nature has gone as far as it can with the human race. The insanity going on daily is just to too much to be believed………I just watched a video of a woman who is becoming “trans-racial”…..okay, so slightly off topic I guess but still…..

    • kam says:

      Once you finally understand that the whole system is rigged, all of it, then and only then do you have a chance to survive.

      In a philosophical way, I learned to “cheat” from government employees. By stalling and stopping every step whenever I had to interact with government, I finally decided, that enough is enough.

      I could do more, create jobs, taxable income, etc. but I choose not to. They didn’t win, they lost, but they are too stupid to comprehend.

    • Rg says:

      Unless you have personal knowledge of the ability and ethics of company management, you’re really taking a chance when you invest in any company whether it’s publicly traded or not.

      All the regulations and accounting safeguards in the world can’t stop a determined group of crooks. I think we all understand this when dealing with small privately owned companies, but we tend to forget this with big private and:or publicly traded companies.

    • RD Blakeslee says:

      “Only hard assets purchased at time tested value ratios, held by yourself are safe.

      “And, ultimately, who knows even about that?”

      Who knows? Those of us who purchase hard assets for our own capitalization and use it debt-free for years.

      As the years pass, the purchase price becomes irrelevant and safety is implicit, or at least under our control and our fault if we manage it badly.

  6. fjcruiserdxb says:

    No wonder the report will be never be available to read. The ECB bought Steinhoff bonds as part of its corporate bond purchase program. How many we will never know as no disclosure is required. Nothing has changed since 2008. Corruption and collusion at the highest level.

    • marco says:

      “Whatever it takes” , right ?

      (Got a dumb kid who needs to go to college ….?)

      • Setarcos says:

        Parents that break laws to get their kids into a school are criminals. Parents that break laws and put their kids in harms way to get into a country are not, apparently.

        As a bonus, their kids are eligible for an education paid for by others.

        Rule of law should matter. If it becomes selective, justice is administered by the mob.

        • kam says:

          In a perverse way, Darwin’s Survival of the Fittest, prevails. As parents try to fake the system by getting otherwise lazy, unimaginative kids into better credentials, the more those credentials become worthless.

  7. Javert Chip says:

    The Steinhoff acts are precisely the type activities that corrode public faith in our financial system. Wells Fargo also played in this swamp. The common threads are collusion among a number of parties who KNEW OR SHOULD HAVE KNOWN they were criminal & this size fraud requires executives who KNEW OR SHOULD HAVE KNOWN the essence of what was happening.

    These a prime examples of executives & other parties who should be prosecuted as individuals and sent to prison. Unfortunately, if Wells Fargo is any indication, executives & involved parties will escape jail and financial ruin, and presumably innocent shareholders will be the only ones forced to pay a price (ie corporate fines).

    This is disgusting behavior, but we’ll soon start to hear of executives “retiring” from the company with significant pensions.

  8. Bill from Australia says:

    Name and shame,all the management , all directors all auditors, these are criminals nothing more ,nothing less.

    • Geo says:

      If they had shoplifted from a local grocery store their mugshot would be in the paper.

    • Cynic says:

      But to commit the crimes, they must lack the capacity for shame in the first place. The old problem……

      • Bankers says:

        ….. as in old big balls is back ? Shame is etymologicaly derived from Skem – to cover, and as the approach in the above case was a purposeful covering of activity it seems like it originated from a pre-existing knowledge of sin and/or guilt , the deceit simply being the use of descriptive pretenses that were not to the standard expected, and hence criminal (from Krei – to sieve… sieveable). So we end up in a scenario of honour as judged in comparison to that practiced/imposed by the authority of the day, and quite likely it will be perceived and projected as a form of graft of its method and standing – whether that is actually used by that authority to try to lend credence to its own manners being no small point.

        But what exactly are we talking about !?

  9. Paul says:

    Capital punishment should be more widely used, and applied to white-collar crimes as well.

    It is in other places, like China, Vietnam….why not in the West???

    • Javert Chip says:

      Well, to begin with, those places are communist, and nobody cares if money is stolen. In fact, all the party guys do it. How do you think communists get rich?

      However, step out of line with what the party wants you to think or do, and we’ll double-tap you on the front sidewalk (or drive a tank over you, or shoot you with an anti-aircraft gun).

    • Bankers says:

      In Europe capital is punished with NIRP, but unfortunately white (and red) collar workers generally seem to profit from that approach no matter their moral orientation. I would dare to say that if you were to start questioning their income openly as a group you would find that certain inconvenience would be sent your way – they all know each other and the rules are that conflict remain strictly internecine, you are only supposed to watch and pay for the privilege of doing so.

      If you realy insisted though you would quite possibly find yourself somehow used as first example, which might even explain why you currently feel hard done by.

    • Cynic says:

      I’m something of a fan of capital punishment, mostly in the case of low-life types who terrorise and murder the elderly , vulnerable and peaceful – they are unreformable, and better off gone from society.

      However, in the case of massive fraud involving such vast sums, do you really think any such laws would be fairly and equally applied?

      They are certainly not so applied in China…..

      A greater punishment, far crueller, would be to condemn these crooks to the kind of job they would despise, something useful, like street cleaner, hospital porter. How they would suffer!

  10. Paulo says:

    I suppose the fictitious income and earnings were solely designed to lift stock prices and create executive bonuses?

    Otherwise, what’s the point of Robbing Peter to pay Paul with other Company division assets or phony assets?

    I compare this story with the Trump Org allegations of inflating assets for insurance and loan borrowing purposes, and also deflating assets and earnings to avoid property and income taxes. I don’t see how the Steinhoff scam actually allows money to be siphoned off for the execs?

    • Setarcos says:

      At one time, I owned and spend time at 3 houses. The property tax for one of my automobiles was $500-600 in one county tax jurisdiction and about $150 in another. Guess where I listed that car.

      There is a difference in using the law and breaking the law.

  11. TownNorth says:

    Reminiscent of Enron accounting.

  12. nick kelly says:

    These special purpose accounting ‘entities’ remind me of Skilling and Enron.

    • MD says:

      Ah but I expect they have been given different terminology – to keep pliant regulators willfully ignorant…..nothing to see here. Move along.

    • Petunia says:

      And Lehman Brothers, repo 105.

  13. MCH says:

    Wow, I read this and it basically comes down to this. Throw in enough accounting terms that your ordinary layman wouldn’t quite get, and then hire non-accountants and buy off those in the know to ensure the scam goes on forever.

    It wouldn’t surprise me in the least if the guy who perpetrated this fraud was an accountant of some type who found some type of loophole in the system to explain all this like it was normal.

  14. Bill Williams says:

    The fish rots from the head. This is the only “trickle-down” you can really “bank” on.
    I started an unseemly giggling at “1. Profit and asset creation “. How many times does this sh$t have to happen before it can’t happen?

    • polecat says:

      “How many times does this sh$t have to happen before it can’t happen?”

      When the miscreant parties to fraud and grift take a much needed dirt nap !

    • Leser says:

      Clinical psychopaths make up about 2% of the population and they gravitate towards the top where there are the power and the money they crave so much.

      Scratch enough under the surface of the political or financial elite, and you’ll find an abyss of lies and deceit.

  15. Iamafan says:

    Steinhoff and Madoff rhymes too much.

  16. Unamused says:

    There are far larger frauds, of course, running into the trillions and still ongoing, but those have long since been legalised and institutionalised.

    Q: How deep does the rabbit hole go?

    A: All the way to the bottom.

    Paul said the love of money is the root of all evil, but he was exaggerating for effect. It’s really only about 92% because there are other, minor contributors.

    • Setarcos says:

      Very true. And I would add that if we really venture down the rabbit hole, we find that we are there as well.

      In my youth, two of us were stealing firewood for a camp fire. I told my friend that we needed to stop because we had enough. He laughed at me and said “stealing is stealing”.

      Which also reminds me of the politician who was pointing out his ability to remain humble. I asked what he attributed that virtue to. Effort, he said. Ah hah, Pride!!

      • Unamused says:

        =>And I would add that if we really venture down the rabbit hole, we find that we are there as well.

        No, I’d fill it in.

        =>two of us were stealing

        Thus establishing a life-long pattern, leading to nomination as the Tea Party candidate.

        I’m not your confessor, Setarcos. Have you tried SDNY?

    • GuiriCateto says:

      The other 8% is the interest no ?

      • Unamused says:

        You’d be amazed at what people will brag about at the 19th hole. Or, maybe you wouldn’t.

        • GuiriCateto says:

          I know that place Hoyo Diecinueve, we go there for tapas cause it’s on the walk but I don’t do no golf. But he very friendly the man who own and locals they take it over and sit there all day. On the other side of road is La Morena though, she got nudity oil painting over fireplace and the head of bull is stuffed on the wall watching all day, tst tst.

    • Javert Chip says:


      I disagree and submit “power over other people” is a much more toxic motive than just money.

      Maduro (socialist leader of Venezuela) would be much richer if his country & it’s world’s largest oil reserves were managed properly; instead, he simply tightens control over the population (same phenomena in China).

      Historically, this scenario plays out over & over.

  17. kk says:

    A relative of mine had a business employing around 100 people in a small town, he ran it for over 30 years and he then went bust because he couldn’t compete with some big firms that moved onto his area of expertise. He didn’t lose his large house or luxury car because they were his, not the businesses. The people he employed blamed him for no good reason, as did the bank which lost money. Business is risky and more often than not it fails. The relevance to this very interesting article – yes of course there are crooks everywhere and always have been, but most people are not crooks, most business people are not crooks, most bankers are not crooks, I would even say, most politicians are not crooks either. Capitalism needs constant control like any machine and if it is not delivering, needs adjusting not destroying.

  18. MD says:

    Before malfeasance:

    “don’t regulate us, that’s interfering with profits and it’s communism!”

    after malfeasance:

    “well it’s the state’s fault because its rules allow us to get away with it – we were just maximizing profits as per our duty to our stockholders”

    Add compliant ‘light touch’ accountancy firm (maximizing its own profits). Rinse and repeat ad nauseum.

    • Ed says:

      Fairly accurate.

      Along the same lines, industry lobbying groups build loopholes into complicated laws — some of which they lobbied to make complicated — through which they can drive a truck. Or sue to prevent the rules ever being implemented.

      Better the law be written clearly but broadly and let the judges and juries recognize the fraud and violations when it happens.

      I despair that our system of laws are being directly written by the law-breakers, not by Congress at all. That can’t be working for John Q. Public.

  19. Gorbachev says:

    Same old.We have a crook in charge of

    the world.Do we expect better.

  20. Ed says:

    Jail time is the known solution to control — not saying eliminate — fraud. A giant teaching opportunity was missed during the financial crisis.

    (Also, I sometimes get the impression judges nowadays sometimes pooh pooh this kind of crime. I don’t really understand that. What about all the honest businessmen and investors who these guys are ripping off? Judges should defend the system, if they believe it should be honest.)

  21. Old Engineer says:

    As has been said by various commenters above, the problem is systemic. After all, “You can’t cheat an honest man”. (With apologies to W.C. Fields).

  22. Lion says:

    In my view, a great part of the issue of undisclosed financial fraud is the combination of game playing and lack of experience with the major accounting firms, the PWC’s and others. In my 40year career I worked with several dozens of young auditors. Some of these kids would become good accountants, many should never have entered the field. These auditors are tasked to perform an audit on complex financials, but they lack the skill, time, and experience to do a proper audit (experience cannot be understated in this process). The Auditors take the downloaded data that the company provides and runs it through their audit programs and routines. But as many have said, it’s the other data which was not provided that causes the problems. So they cover the basics, meet their time obligations, but rarely ever give the balance sheet a “Full In-depth” review.

    IMO, the game playing lies in the understanding between the Financial Directors, including the Board, and the Audit firm. Basically don’t dig too deep and if the Audit firm finds something, negotiate on how best to address the issue. If and only if, the Audit Firm believes itself at risk over the findings, then they may decline to sign off the audit.
    The last company I worked for (two plus billion in annual revenues) had four major operating companies. These were the primary companies that provided revenue. The Parent also had twenty plus holding companies with assets and ownership spread back and forth. I would consider our company a simple structure compared to the Big Corps. These holding companies were located in some great places, primarily the Cayman Islands and Bermuda. I always hoped I could do my audits at these locations, but sadly that dream never came to pass. Others have said, and I agree to some extent, that an investor cannot trust the financial integrity of large corporations.

    We are in an age of increasing complexity of corporate structures combined with Audit firms who lack the experienced auditors and the time required to properly address these complexities. AND, the bad guys know it.

    Just my take based on 40 years of experience.

  23. McMike says:

    Its moments like these when I feel sorry for the Controller and CFO. All of the sudden, the other Executives develop memory and chain of command problems, and so everyone looks at the accountants. Who have nowhere to hide.

    The CEO takes his golden parachute and moves on to another company of the Carribean. The accountants go to jail, looking forward to a future as a divorcee in janitorial services.

    Sure, they followed instructions that they knew or should have known to be illegal, but they were middle men at best. The really sad part is they were not getting paid that much extra to put themselves at risk and to be the fall guy.

    They don’t teach that at accounting school, but they should: repeat after me kiddies…. the CEO walks away, the accountants go to jail.

  24. Helmut Beintner says:

    Big Deal,what an amateur! The US Gouvernment is “missing” Over 20 TRILLION Dollars. AND nobody has the faintest Clou where to even look for it.
    NOW THAT IS WHAT I CALL REAL Fraud. My compliments to the CROOKS !

  25. Laughing Eagle says:

    The more I read the more I find the US Economy and th US govenment is built on fraud. Myths or fraud, take your pick, but we are built on those two. Everything is not what you are lead to belive.

  26. Escierto says:

    The guy stealing a loaf of bread will get years in the slammer but the guys stealing billions as outlined above will never serve a day in jail. That’s the American way. Do I feel sorry for the sheeple? Hell no, they get the government they deserve and I hope they get it good and hard (H.L. Mencken).

  27. Apeon says:

    Easy Fix
    1. No ‘corporate’ entities
    2. Sole Propr. or Fully Liable Partnerships only
    3. No ownership of related, or interlocking business
    4. Cannot own more than two business, and they must be totally divergent

  28. Gian says:

    Just another day in the neighborhood. No shock here, corporations following the government’s lead. If we could only be as concerned over theft and fraud via taxation, what a wonderful it would be.

  29. Jeremy says:

    This is closer to Ivar Kreuger ( than to a Ponzi scheme.

  30. Jason says:

    I have numerous questions regarding this article:-

    1. Why were these discrepancies not picked up by the auditors in the preceding nine years?
    2. How much was paid to the auditors AND to PWC to undertake the audits and the forensic investigation?
    3. How much was lost by investors relying on the audited financial statements?
    4. Why do the auditors STILL have a licence to practice?
    5. Why have there been no criminal charges laid on the former directors of the group as well as all other parties implicit in this fraud?

    Me being an accountant and auditor within a small practice, would have a number of serious issues if I had this group as a client. I believe within a number of years, I would not have a practice, I would be in gaol and my professional Insurance would have a serious claim against the policy. However, we ARE talking about one of the big four! it seems they are comprised of Teflon…..

    One final point – I am of the opinion, that there are no financial statements with an unqualified audit report that could EVER be relied upon.

    • McMike says:

      It’s not unlike the bond rating agencies giving AAA to garbage that was deliberately engineered to fail.

      That’s where we have sunk to as a society. Ritual theater. A lot of arm waving and deception/delusion masquerading as rules, but really become farce. Simulacra.

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