Friday, February 1, 2019

Billion Dollar Whale

Con men are all over the place. Often, they only get so far before they are discovered. But under the right (wrong?) set of circumstances, they can unleash a financial fury. Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World is the story of one such man, who bilked entire countries, top brokers, and investors for billions of dollars.

The story is so fantastic that it could pass for fiction. An ambitious, upper-class outsider from a developing country BS'es his way into his nation's top offices, where he garners the support of political powers to basically raise whatever money he wants in the name of a sovereign wealth fund. He gets cover from the Prime Minster of Malaysia and top leaders in Abu Dhabi (who also benefit personally from this fraud), and raises capital through the discerning (lol) bankers at Goldman Sachs, all the while being audited by a number of Big 4 accounting firms.

Such corruption and graft is not uncommon, especially in countries lacking checks and balances on power. But what was uncommon here was the scale of not only the theft but of the spending. Most people who stumble onto a money machine keep it quiet in order to keep the jig going for as long as possible. This guy literally spent billions of dollars on parties, jewels and celebrities, inviting scrutiny where he didn't need to.

There's a lot about human nature in here. The desire of people to appear successful can override common sense.

The uselessness of auditors is also a key lesson. Big 4 auditors ignored key red flags; for example, a large cash balance on a balance sheet was repatriated as proof of its existence...but it was repatriated in small amounts at a time, and moved out just as quickly; in effect it was the same small amount that re-circulated through a bunch of accounts making it look like a large amount had come in! When Big 4 accountants didn't want to sign off on accounts, they would quit rather than issue a negative opinion; this highlights a major problem with the current system, where the client being audited is also the one who controls who the auditor is.

The importance of a free media is also illustrated. Governments like to sweep bad news under the rug, preventing changes that would stop problems from reoccurring as well as making accountability difficult.

This was an amazing book.

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