Tag Archives: Corporate Law

Citizens of Jahannam

Yes, the bulk of us transgressed to a new village, a new town, optionally a city. We all moved to the city of Jahannam, we enabled the politicians who diverted the laws that enabled the corporations. And as Eve spoke to the guy on her needs of an apple product, she stated, yes that would be nice. So he got her a iPhone 7 SE (Swedish edition) and to make sure that it would last longer, the maker of Apple products slowed the battery down, to enable it to be older. Does it sound familiar? The story (at https://www.bbc.com/news/technology-54996601), give us ‘Apple to pay $113m to settle iPhone ‘batterygate’’, basically it took 76,000 victims to break even. Yet the news gives us “Millions of people were affected when the models of iPhone 6 and 7 and SE were slowed down in 2016 in a scandal that was dubbed batterygate”, and as such we see the first part, the second part is seen in the Verge who gave us “11 million customers that didn’t need to buy a new iPhone”, you still think that crime does not pay? Yes, there will be all kinds of noise that there wee more cases, more settlements, but all that money is TAX DEDUCTIBLE, as such we get to see a larger stage and it is high time that the people involved get the limelight. When we consider “Any legal fees or court costs incurred will be deductible as well as the cost of resolving the suit, whether the company pays damages to the plaintiff or agrees to settle the dispute”, So this is how you get to become a trillion dollar company, you set the stage in one direction, and as long as it cannot be proven, you tell the people something fitting, take the profit and pay the fee which is a tax option, so can we come to the conclusion that in this world criminals are better protected than the victims ever will be?

That consideration comes (in part) from “Two fatal crashes of Boeing 737 Max aircraft were partly due to the plane-maker’s unwillingness to share technical details, a congressional investigation has found” (at https://www.bbc.com/news/business-54174223), with the additional ““Boeing failed in its design and development of the Max, and the FAA failed in its oversight of Boeing and its certification of the aircraft,” the 18-month investigation concluded”, even as we suspect t the there is something wrong with the statement ‘the FAA failed in its oversight of Boeing’, yet could that ever be proven? What does matter the the lives of people are optionally ignored when the bottom line of a corporation is under fire, just like the USS Zumwalt that cannot fire any of their smart bullets (at $1,000,000 per shot). As such, when we read the “The nearly 250-page report found a series of failures in the plane’s design, combined with “regulatory capture”, an overly close relationship between Boeing and the federal regulator, which compromised the process of gaining safety certification”, I wonder what the optional price was of ‘an overly close relationship between Boeing and the federal regulator, several ideas come to mind, none of them really proper for vocation, yet the setting is there. Again corporate needs are protected as the courts seem to be in a stage of protecting those who do not deserve it and fail to protect those who were in need of protection. And the people wonder why we do have become so distrustful of governments, really?

We might have a few questions on the unrealistic minimum-cost estimates of the USS Zumwalt, yet will those who heralded the unrealistic minimum-cost estimates the inside of a court having to explain their actions, I doubt it, as such is the thought that we have become Citizens of Jahannam.
Too much of a leap? 

Consider the issues that we face, the political egos we allow for and ask yourself, how much more will we have to accept before the law does what it showed do and protect victims? As such, we need to ask the questions we at times fear to ask. And even as we accept the pragmatism is at times the safest course of action, yet the acts of Apple and Boeing give us a very different story, the story of pragmatism being the death of far too many people, yet that is a side we are seldom to see, is it?

I merely wonder what corporations are saved from facing next, I wonder if my choices to be slightly selfish were so bad in the end. If Apple can become a trillion dollar company the way it did, could I not become slightly less rich without dec option and by keeping my (slightly stubborn) disposition of fair play?

Leave a comment

Filed under Finance, Law, Politics

Price Waterfall Blooper

I am sad to say, I am sorry to report
we have not seen any fraud of this sort
not a win or a gain, but just sadness and pain
are the man plainly vain, they do not travel by train
it will not go to court, yet the profits fall short

as my profits progress to the basement below
as executives go, with no exit fee show
we will wonder awhile, what results they proclaim
as we now still decide, should we name, should we shame
where is the pee double you sea and its dough

So, yes, is this the beginning of arts, the limericks and the consequences of non-accountability?

You see, there is no doubt in my mind that the initial investigation is only the beginning for both Tesco and PwC. Whatever we may think, we can be certain that if Dave Lewis had NOT rung the bell, the mess would be a lot larger then it is at present. I think we should also ring the bell of honour for the whistle blower, because without it Christmas would have been the grimmest of experiences in the UK.

Let’s take a look to the last two days, when Deloitte got its report out (to some extent) as reported (at http://www.theguardian.com/business/2014/oct/23/tesco-profits-black-hole-bigger), we see a few things that do not add up.

  1. He dismissed the idea that fraud may have been involved in the accounting blunder: “Nobody gained financially as a consequence of the overstatement of performance.”“, is that so? You see, there are a few issues that we have; I will step over one of them because I prefer to tackle that part a little further down.
  2. Laurie McIlwee (former CFO) as well as Mike Iddon require closer scrutiny. Mike was a group finance director, planning, treasury and tax. When we see tax, we see a person who will dig, trying to find any cent that is deductible, as a good FD should be, and in 13 years at Tesco, he had not seen anything? Seems rather clumsy doesn’t it? The fact that the accounting hole is a little bigger (15 million is not much when you say it fast), also came with the knowledge from Deloitte that the hole was there for a longer while, so basically, the inflated 265 million, means an inflated payment of taxation, how is that ever a good idea?
  3. So consider Tesco, the size and scope of it. They lose a CFO and a FD, and all along NO ONE at Tesco, I state again, NO ONE seemed to offer to pick up the baton for those months? Even if it was at no extra pay and only for 3-4 months, 99% of the financial industry would be chomping at the bit to pick up the baton, so that they can add this to their resume, it gets even better. It is a win won for whomever picks it up, because if that person does well, then the value of that person goes up by a lot and his/her future, whether within or not with Tesco would be a few steps on the large corporate ladder, even with nothing to gain it ends up being a win/win.

Let’s just face it, I am nowhere near next in line to take command of the 591 Signals Unit at Digby, but if I get the chance because the current commander was on the list to become Air vice-marshal, I would get there running, even if I was still in my pyjamas and was holding only a toothbrush. No matter how well my performance would be, if I made it I would be eligible for a nice challenge at GCHQ, a seriously cool way to skip half a dozen steps on that ladder, now consider that NO ONE had these levels of ambition at Tesco? I truly believe that beside the whistle blower a few more had a clear picture that taking that seat from within would turn out to be nothing less than poisoning their career.

  1. He dismissed the idea that fraud may have been involved in the accounting blunder: “Nobody gained financially as a consequence of the overstatement of performance.”“, now we get to the issue that I have had since day 1.
  2. Consider that PwC had (a reported by the Guardian in an earlier blog) last year; PwC was paid £10.4m by Tesco for its auditing services and a further £3.6m for other consultancy work (a newer version at http://www.theguardian.com/commentisfree/2014/oct/23/guardian-view-tesco-auditing-debacle-pwc-systemic-shambles). This article now shows the following quote: “At the very least, this is a very cosy and lucrative relationship“, which slightly debunks the statement of Dave Lewis via Deloitte regarding ‘Nobody gained financially’; it depends on ‘how’ we regard ‘gain’, when the alternative is losing revenue, remaining at status quo is clearly a gain.
  3. So as we see these two numbers, let’s do a little math, let’s say an auditor makes £65,000 a year (a little less usually), so we now see that the annual fee gives us 153 auditors for a year and an additional 46 auditors for the consultancy for a year, that gives us 199 people going over the books, checking it all. No one saw anything? Now, the reality is not exactly like this, but considering that PwC is one of the big 4, we now have a clear case for some serious questions for 25% of all the large audited companies in the UK, how much taxation was not collected, how many large bonuses and incomes were honoured in such a symbiotic incestuous relationship? No wonder George Osborne has such a hard time, the deck seems to be seriously stacked against him.
  4. There is one more thought that comes to mind, but this one is, as I will happily admit, based on shallow grounds. This was all found by Deloitte in a little over a month, mainly because they knew WHERE to look. But, it is entirely plausible that the whistle-blower just knew about that one thing, what else is there and what has not been found yet?

This is important for two reasons. The first is that it then debunks the statement from Lewis, likely via Deloitte who said ‘He dismissed the idea that fraud may have been involved’, I am not convinced! It took Deloitte to find the obvious over the period of a month. We can consider that the fact brought by a whistle-blower gives weight to intently hiding, if not than this person would have stepped forward internally and the old crowd would have solved it, that did not happen. It is not unlikely that those involved hoped for a quick brush under the carpet, this circus was unlikely anything they ever desired. What was signed off on, by the equivalent of 199 auditors remains a serious issue.

This part we can see in the Guardian quote “The making up of the profits figures was not in a report signed off by PwC. That happened in August – three months after PwC had given the supermarket chain’s figures a clean bill of health. Even then, it noted that there was something potentially funny with the numbers, and expressly warned about “the risk of manipulation” – but allowed them to pass anyway“, so something potentially funny does not warrant digging? Let’s not forget they had the equivalent of 199 people for the year, so plenty of digging resources. If we add the following “It is one of the primary ways in which investors, business partners and regulators can tell the true state of the company they are dealing with“, so not only is there a link to possible fraud, the implied length of this gives reason to suspect intentional misdirection towards investors, which makes the news releases all over the papers on class actions against Tesco a plausible worry for some time to come.

It becomes a much finer point of debate when we consider the following abstract ‘Misreporting in our model covers all actions, whether legal or illegal, that enable managers of firms with low value to make statements that mimic those made by firms with high value. We show that even managers who cannot sell their shares in the short-term might misreport in order to improve the terms under which their company would be able to raise capital for new projects or acquisitions‘ (at http://www.law.harvard.edu/faculty/bebchuk/pdfs/2003.Bebchuk-Bargill.Misreporting.pdf). It comes from a paper by Oren Bar-Gill and Lucian Bebchuk, published at Harvard in 2003.

Now we add what they wrote on page 21 “3.4 Creating Opportunities to Misreport, at T=1 managers decide how much to invest in creating opportunities to misreport earnings. The equilibrium level of this investment decision is characterized in the following proposition“. after that it becomes increasingly mathematical, but behold, the initial text ‘whether legal or illegal’, so if the old Tesco gang focussed on ‘legal’, was that the reason they needed to pay an additional 3 million in consultancy (a clear and admitted assumption on my side), yet is that really too weird a thought? Let’s face it PwC signed off on books containing an additional quarter of a billion, which took some time to create.

I know that incestuous is all about keeping it in the family, but the fact that this could possible all be legal is just a little too hard to swallow.

Could it be that both Corporate Law and Taxation Law within the Commonwealth are in dire need of an overhaul? Some might say that it could be an idea to do this before Christmas, to them I say “Bah! Humbug!“, Monday the 5th of January 2015 will be soon enough. It will give Lord Blackwell, Lord Goodhart, Baroness Goudie and Lord Haskel something to look forward to as some might be enjoying a large roast with potatoes, Yorkshire pudding and thick gravy. The Rt Hon Lord Millett has done more than his share in his long career and his Lordship, as right honourably retired can enjoy a second helping of Christmas plum pudding with custard (unless his lordship prefers the challenge of making corporations a little more accountable then the currently seem to be). I would, as blogger Lawlordtobe be happy to lend a helping hand, but I never studied economy or taxation laws, so I would only get in the way, yet I remain available for assistance if need be. I do reckon that the members of the House of Lords who are members of the Joint Committee on Tax Law Rewrite Bills should consider their calendars, especially if the investigation turns out that the Financial Reporting Council (FRC) will be unable to press any criminal charges, to me and likely to all it should be clear that such levels of orchestration must be addressed!

 

Leave a comment

Filed under Finance, Law, Media, Politics