What a Tale!

During the boom, Wachovia banker Robert Verrone made money by slicing and dicing billions of dollars in commercial real estate loans. After the crash, he made money by restructuring those loans before they blew up. As Wachovia’s No. 1 underwriter of securitized commercial real estate debt between 2002 and 2007, Verrone resigned just months before Wachovia nearly collapsed and was acquired by Wells Fargo at the fire sale price of $15.1 billion.

 Questions:

 1.  Why is/was he called “Large Loan” Verrone?

2.  What does his company called Iron Hound Management do? What is your opinion of his ethics as portrayed in the article?

3.  In the article, he says “”We sold every penny of cash flow to anybody in the world who wanted to buy it.”  What is he referring to?

 Source:

 Leonard, D. (2010). The Ballad of “Large Loan” Verrone, BusinessWeek, September 9 (Retrievable online at http://www.businessweek.com/magazine/content/10_38/b4195070500566.htm)

Bollywood on a Budget

The world’s movie capital is not Hollywood but Bollywood. Bollywood is the nickname for the Indian film industry located in Bombay. Fourteen million Indians go to the movies on a daily basis (about 1.4% of the population of 1 billion) and pay the equivalent to the average Indian’s day’s wages (US $1-3) to see any of the over 800 films churned out by Bollywood each year. That’s more than double the number of feature films produced in the United States. However, as this video presents, more movie productions in Bollywood will undergo budget cuts due to economic risks and the push for profits.

Questions:

1. The article tells about the 10 most high budget films of Bollywood. Look at the budget for Love Story 2050. If 1 crore rupee = 10,000,000 rupees, use the Currency Converter at http://coinmill.com/INR_USD.html to find out how many U.S. dollars this is. How does this compare to the average budget for a Hollywood movie?

2. In the article, look at the movie “Singh is Kinng.” This film had the title track song sung by Snoop Dogg. Snoop Dogg was paid 7 crores for this. What percent of the movie’s total budget was this?

3. In the article, look at the movie “Ghajini.” What percentage of profits were made on this movie?

 
Source:

Staff (2009). 10 Most High Budget Films of Bollywood. Full Dhamaal, August, 19 (Retrievable online at http://www.fulldhamaal.com/bollywood-critics/10-most-high-budget-films-of-bollywood-21146.htm)
Video (2010). Budget Bollywood Success, September 7. (Retrievable at http://www.cnn.com/video/)

Who are the most trustworthy companies and why?

Who can you trust? 

In a recent examination by Audit Integrity, an independent financial analytics company in Los Angeles, the company assessed the true quality of corporate accounting and management practices by looking at more than 100 factors beyond the balance sheet and income statement. Their aim was to identify the measures most highly associated with fraud and to quantify the risks of drops in stock prices, that could force managers to restate financials or could potentially result in securities lawsuits. Audit Integrity has back-tested its proprietary metrics to 1996 to establish correlations between corporate behavior and negative events. Audit Integrity’s measures have been used over the past seven years by institutional investors, insurers, auditors, regulators and corporations to identify risk.

Questions:

1. How many public companies typically make Audit Integrity’s Most Trustworthy Companies list?

2. What industry or region of the country has a concentration of the most trustworthy companies?

3.  Who are the companies with the most impressive records and why?

4.  Speculate on what metrics are used by Audit Integrity and list at least 10 factors that would be important to include.

Source:

Weinberg, N. (2010). The Most Trustworthy Companies. Forbes.com, August 6 (Retrievable online at http://www.forbes.com/2010/08/05/most-trustworthy-companies-personal-finance-audit-integrity.html?partner=daily_newsletter)

Multi-Million Dollar Swindle of Four Universities

In one of the most recently uncovered Ponzi cases, a former hedge-fund manager has pleaded guilty to criminal charges in an investment scam in which he bilked as much as $900-million from investors, including four university endowments. According to investigators, the Paul R. Greenwood and his partner Stephen Walsh spent at least $160-million on mansions, horses, rare books, and an $80,000 collectible teddy bear. Mr. Walsh has pleaded not guilty, and Mr. Greenwood will testify against him at trial.

Questions:

1. What did the investors find out about their assets?  Explain why this was a bad sign.

2.  What do the articles say could have prevented the university investments in this scheme?

3.  What potential penalties does Mr. Greenwood face?

Sources:

Fain, Paul. (2010). Hedge-Fund Manager Pleads Guilty to Multimillion-Dollar Swindle of Four Universities. The Chronicle of Higher Education, July 29 (Retrievable online at http://chronicle.com/article/Hedge-Fund-Manager-Pleads/123713/?sid=at&utm_source=at&utm_medium=en)

Fain, Paul. (2009). Two Universities Seek Answers After $114-Million Vanishes in an Alleged Swindle. The Chronicle of Higher Education, March 5 (Retrievable online at http://onnidan1.com/forum/index.php?topic=24965.0)

Small Discrepancies Grow Into a Giant Fraud

Satyam Computer Services, a leading Indian outsourcing company that served more than a third of the Fortune 500 companies, was at the heart of a huge 2009 fraud perpetrated through the significant inflation of earnings and falsification of accounts and assets for a number of years.  Chairman, Ramalinga Raju, resigned  in January 2009 after revealing that 94 percent or about $1.04 billion in assets were nonexistent and revenue was actually 20 percent lower than that reported.

Questions:

1. Who were Satyam’s auditors? What are some of the audit procedures that should have helped in the detection of this fraud?

2. What prior incident led to scrutiny of the company in October 2008?  What does this indicate to you about the corporate culture of the company?

3. Is Satyam still in business?  Provide a brief summary of its demise. What happened to the Satyam’s Chairman?

Sources:

Khanzode, R. (2010). Satyam Not out of Woods, Likely to Seek Time for Audited Results. The Financial Express, June 7. (Retrievable online at http://www.financialexpress.com/news/satyam-not-out-of-woods-likely-to-seek-time-for-audited-results/630308/)

Video (January 8, 2009). Satyam Auditor PwC Under Lens. (Retrievable online at http://www.youtube.com/watch?v=c_TvuhOtln0&feature=related)

 Timmons, H. (2009). Satyam Chief Admits Huge Fraud, New York Times, January 7 (Retrievable online at http://www.nytimes.com/2009/01/08/business/worldbusiness/08satyam.html)

Madoff: Freedom in Prison?

In an extended expose, the New York Magazine reported that Bernard Madoff described his scheme as a real nightmare to him, as if he were the real victim, and complained about little old ladies bugging him for money. The article goes on to describe his celebrity in prison among the other inmates and his “freedom” in prison.

Questions:

1.  What kind of scheme did Bernie Madoff use to defraud his investors? What is the estimated amount that he stole from investors?  What was his sentence?

2.  What did Bernie Madoff claim that the SEC failed to do that would have uncovered his scheme? Do you agree?

3. What trait does Bernie Madoff continue to exhibit that is common to fraudsters? Do you think the sentence fits the crime for this case?

Source: 

Fishman, Steve. (2010). Bernie Madoff, Free At Last, New York Magazine, June 6. (Retrievable online at http://nymag.com/news/crimelaw/66468/)

Bond Rating Under Fire

E-mails and other documents were presented as evidence at a hearing examining the causes of the financial crisis on Capitol Hill on April 23, 2010.  This hearing is part of an 18-month investigation by the Senate Permanent Subcommittee on Investigations, led by Senator Carl Levin. Subcommittee assertions are that the rating agencies were well aware of the risks in the housing market and recklessly used rating models that they knew inflated the grades given to securities.

Questions:

1.  Briefly summarize the level of complexity and problems with Congress to regulate the ratings agencies, as noted by Arturo Cifuentes, former V.P of Moody’s (as shown in the video)?

2. What high profile investment firm was implicated as pressuring the ratings agencies? How do you think Congress can prevent this from happening in the future?

3. In 2007, what percentage of AAA-rated mortgage securities were downgraded to junk status?

Source:

Ellis, Blake. (2010). “How credit watchdogs fueled the financial crisis,” CNN Money.com, April 24 (Retrievable online at http://money.cnn.com/2010/04/23/news/economy/credit_rating_agencies_hearing/index.htm?postversion=2010042411)

Corporate Sustainability Can Mean Financial Reward, Despite Extra Costs

Tracking efforts in companies like Wal-Mart, Hewlett-Packard and Clorox, authors Ram Nidumulo, C.K. Prahalad, and M.R. Rangaswami, identified a five-stage process that will benefit companies as they navigate through the adoption of green business models.  In the article, the authors contend that early adopters of this process will develop competencies that will be difficult for their competitors to match. They also submit that adoption of these processes by corporate leaders will be key to real change within our economy.

Required:

1. If consumers will not pay more for eco-friendly products, where do the authors suggest that profitability will come from?

2. Give a specific example of how the authors point to redesigning operations can save money.

3.  How would you define “greenwashing?” Is it a good thing or a bad thing?  Explain.

 Source: Nidumulo, Ram, C.K. Prahalad, and M.R. Rangaswami (2009). Why Sustainability Is Now the Key Driver of Innovation. Harvard Business Review, September, pp. 3-10 (Retrievable at http://graphics8.nytimes.com/images/blogs/greeninc/harvardstudy.pdf)

Getting to the Bottom of Repurchase Agreements (or Repos)

The Securities and Exchange Commission is asking public-company CFOs for better disclosures and additional information about repurchase agreements, or repos, which are the same transactions that Lehman Brothers used to make its balance sheet look healthy before the investment bank collapsed into bankruptcy. Based on company responses, the SEC could ask issuers to amend their filings or modify disclosures in future filings.

Questions:
1. Explain why this article says that Lehman’s Repo 105 transactions are destined to take a prominent place in the annals of accounting scandals.
2. Is this the first time the SEC has questioned companies about the way they apply asset-transfer accounting rules? Explain.
3. What type of ratios do these repos affect? Give an example of how this might work.

Source: Leone, M. (2010). SEC to CFOs: More Repo Disclosure CFO.com, March 31, 2010 (Retrievable at http://www.cfo.com/article.cfm/14487561/1/c_14487542?f=home_todayinfinance)

Fraud at Koss Corporation

Sujata “Sue” Sachdeva, the former vice president of finance and secretary at Koss Corporation, was arrested on December 21, 2009, for allegedly using interstate wire communications to defraud the company. The largest employee theft of 2009 was not detected by the auditors, but in fact resulted when American Express contacted Koss Corp. CEO, Michael J. Koss, and told him that Sachdeva, was paying down her personal American Express balances with large wire transfers from a Koss bank account.

Questions:

1. According to the Business Journal of Milwaukee, Sachdeva embezzled the following amounts:

2005:  $2,195,477
2006:  $2,227,669
2007:  $3,160,310
2008:  $5,040,968
2009:  $8,485,937
2010:  $10,243,310 (first two quarters)

Now access the SEC’s Edgar System for Koss financial statements (at http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000056701&owner=exclude&count=40). What percentage of total revenues were the embezzled funds for each of these years?

2. Sachdeva apparently told the FBI that she doctored the company’s bank balance on the books to cover the alleged theft.  Explain a couple of ways that this could have been done through journal entries?

3. Perform some select financial ratios on the 10-Qs and 10-Ks for the period, based on the journal entry methods you speculated in (2) above.  Does anything look out of line?

Sources:

Anonymous. (2010). Koss: Unauthorized Transactions Increased Over Years, The Business Journal of Milwaukee (Retrievable online at http://milwaukee.bizjournals.com/milwaukee/stories/2010/01/11/daily4.html)

Kirchen, Rich (2010). Koss Embezzlement Highest of ’09, The Business Journal of Miwaukee (Retrievable online at http://milwaukee.bizjournals.com/milwaukee/stories/2010/01/04/story1.html)

Rommell, Rick. (2009). American Express Alerted Koss About Executive’s Spending, The Milwaukee, Wisconsin Journal Sentinel Online (Retrievable online at http://www.jsonline.com/business/79905827.html)

Rommell, Rick. (2009). Koss Executive Accused of Embezzling More Than $4.5 Million, The Milwaukee, Wisconsin Journal Sentinel Online (Retrievable online at http://www.jsonline.com/business/79827392.html)

« Previous Page — Next Page »