Search Results for: Fraud

Hess AG (DEDE000A0N3EJ6) busted German IPO stock – Could the fraud have been easily detected ?

Just yesterday, Hess AG, a company which IPOed on the German stock exchange on October 25th 2012, announced that they fired both, their CEO and CFO because of alleged balance sheet manipulations.

The stock price directly crashed some 60% to 6 EUR (IPO price 15,50 EUR):

In some follow up news, the company reported that sales might have been inflated and the financial position might not be as good as stated in the IPO prospectus.

As a value investor, one wouldn’t invest in IPOs anyway.

The Hess AG IPO was priced at levels which one could only assume as “optimistic”, with a trailing P/E ratio of ~50. The price was justified with the supposed “growth” the company was showing in the past and the “story” of the “LED” based business model.

As usual, all parties involved in the IPO (Banks: Landesbank BaWü, Kempen, MM Warburg) will claim that they knew nothing and that you cannot protect against fraudulent management.

The auditors of course will claim the same, in the IPO prospectus they stated explicitly (in German) the follow:

Nicht Gegenstand unseres Auftrags ist die Pr¨ufung der Ausgangszahlen, einschließlich ihrer Anpassung an die Rechnungslegungsgrunds¨atze, Ausweis-,
Bilanzierungs- und Bewertungsmethoden der Gesellschaft sowie der in den Pro-Forma-Erl¨auterungen dargestellten Pro-Forma-Annahmen.

This says they explicitly didn’t check the underlying figures.

The big question of course is: Were there any red flags in the presented numbers ?

How do you “fake” sales anyway ? Well, this is quite simple. You have to organize some kind of “strawman” first, then sell the stuff to him/her and book the proceeds against receivebales. So whenever one sees a large increase in receivables, one should be extremely cautious.

In the case of Hess AG, one does not need to be a Rocket scientist to “smell the rat”. I have extracted the following working capital items from the balance sheet (page 64):

6M 2012 2011 2010 2009
Inventories 17.3 14.8 11.7 9.6
receivables 24.1 22 11.5 8.5
Payables 9.8 4 2.2 1.3
Net Working cap   32.8 21 16.8
“Sales”   68.3 55.7 52.4
Inv/sales   21.7% 21.0% 18.3%
Rec/Sales   32.2% 20.6% 16.2%
Payables/Sales   5.9% 3.9% 2.5%
NetWC/Sales   48.0% 37.7% 32.1%

So it is pretty easy to see, that receivables compared to sales almost doubled over 2 years. The increase in receivables almost exactly mirrors the actual increase in sales. It looks like that almost all the sales increase were actually generated by sales against receivables.

The next item to check is of course the cash flow statement. Here however we see something strange:

6M 2012 2011 2010 2009 Total
Op CF 3.4 -4.6 -1.4 3.6 1.0
inv CF -7.3 -7.9 -1.5 -6.9 -23.6
Fin CF 6.2 14.2 2.3 2.6 25.3

At first it looks that in total, operating CF over the last 3 1/2 years was positive and the company did just invest a lot. But how did they manage the Turnaround ?

In the IPO prospectus they say the following (page 89) about the operating cashflow:

Operativer Cashflow
Vergleich der Halbjahre endend zum 30. Juni 2012 und 2011
Der operative Cashflow erh¨ohte sich von TEUR -3.133 im ersten Halbjahr 2011 um TEUR 6.494 auf TEUR 3.361 im ersten Halbjahr 2012. Wesentliche den operativen Cashflow bestimmende Faktoren waren ein erheblicher Mittelzufluss aus der Position „Veränderungen der Forderungen aus Lieferungen und Leistungen und sonstigen Forderungen und Vermögenswerte’’ in Höhe von TEUR 8.130 gegenüber einem Mittelabfluss im ersten Halbjahr 2011 in Höhe von TEUR 638, der Rückgang des Mittelabflusses aus der Veränderung der Vorräte in Höhe von nur TEUR -652 gegen¨uber TEUR -3.043 im ersten Halbjahr 2011 sowie eine deutliche Erhöhung der Position Abschreibungen in Höhe von TEUR 2.086 gegen¨uber TEUR 1.255 im ersten Halbjahr 2011. Gegenl¨aufig verhielt sich die die Position „Veränderungen der Verbindlichkeiten aus Lieferungen und Leistungen und sonstiger Verbindlichkeiten’’, die zu einem deutlich erh¨ohten Mittelabfluss in Höhe von TEUR -7.976 im ersten Halbjahr 2012 gegen¨uber TEUR -1.719 im ersten Halbjahr 2011 f¨uhrte.

This statement clearly shows that there is something very fishy going on. In the table I extracted above, we can clearly see that there was a NEGATIVE effect from receivables and inventories in the first half year and an unexplained very POSITIVE effect from payable. So why do they state the exact OPPOSITE in their explanation of the cash flow statement ?

Explanation 1: They just mixed up the vocabulary (which would be already a reason to fire the CFO)

Explanation 2: They included other balance sheet item here in order to obscure the fact that they have inflated sales.

Explanation 3: The 6m 2012 cashflow statement is just fabricated and does not fit together with the (fabricated balance sheet)

Just for fun, let’s compare the balance sheet positions with the entries in the operating cashflow statement:

OP CF statement Balance sheet   calculated Op CF Delta stated
  6 M 2012 30.06.2012 31.12.2011    
Change in inventory -0.7 17.3 14.8 -2.5 -1.8
Change in receivables 8.1 24.1 22 -2.1 -10.2
Change in short term payables -8.0 9.8 4 5.8 13.8

We can clearly see that the 6m “flow” numbers have absolutely nothing to do with the delta of the respective balance sheet numbers.

At that point in time one could already stop and conclude that there is either total incompetency or already fraud. Even taking into account all the other short term balance sheet figures, one never gets to the stated cash flow numbers.

In my experience, strongly rising receivables combined with an incomprehensible or even wrong operating cashflow calculation are a very reliable “red flag”.


Although it sounds like “Monday morning quarterbacking”, a relatively superficial analysis of HEss AG’s IPO prospectus would have discovered some serious issues with receivables and operating cash flows. Whe someone starts to doctor around with fake sales, one usually gets negative operating cashflows. If the cashflow statement then looks incomprehensible or wrong, actual fraud is quite likely.

In cases like Hess, “red flags” in that magnitude could even be a very good indicator for an interesting short opportunity. In cases like Reply, where the inconsistencies are on a smaller scale, it is rather a hint to stay away from investing.

Edit: If someone thinks that Hess is now a good investment, because it is so “cheap”, then forget it. Eevn if there is some “sound” business left in the company, first of all there is no proof that they ever earned money and secondly I will assume that there will be quite some legal action on that one.

China Frauds – “Best of” der letzten Tage

Die letzten Tage gab es ja einige Breitseiten gegen dubiose China Werte.

Zum Muddy Waters Report über Sino Forest hatten wir ja schon berichtet, mittlerweile hat sich FT Alphaville des Themas angenommen und 3 sehr interessante Artikel veröffentlicht: Teil 1, Teil 2 und Teil 3. Dazu noch ein möglicher Downgrade von Moody’s und vorbei ist es mit Rebound Hoffnungen.

Citron Research hat sich dagegen auf Harbin Electric eingeschossen und zwar hier und hier. Interessant ist der Fall, weil angeblich der CEO die Firma zurückkaufen will, der Ankündigung aber bislang wenig Taten gefolgt sind. Diese Taktik wird man in Zukunft vmtl. öfter sehen.

Bei einem anderen China Agrarwert, Chaoda gab es schon vor knapp 2 Wochen ähnliche Vorwürfe in einem Chinesisch sprachigen Magazin.

“Alfred Little” dagegen soll u.a. von Deer verklagt werden, ebenso wie Geoinvesting, die einen kritischen Beitrag zu Sino Clean Energy verfasst haben. Die Erfolgsaussichten dieser Klagen scheinen relativ gering zu sein (siehe Zitat) und wohl eher auf kurzfristige Kursrallys gerichtet zu sein.

Suits against short sellers, who sell borrowed shares with the hope of profiting when they fall, are rare, difficult to win and can backfire on companies that bring them, said Adam Pritchard, a professor at the University of Michigan Law School in Ann Arbor.

“I’ve seen it before, people complaining about the short sellers — the Chinese are just the flavor du jour,” said Pritchard, who specializes in corporate and securities law. “They bring these suits and then quietly let them drop. You would look hard to find a verdict in favor of the company.”

Eine Google Such für “China Stock Fraud” wirft schon 8,5 Mio Ergebnisse aus und es gibt schon eine eigene Wikipedia Seite.

Kaum erklärbar ist dafür, warum China Internet Aktien trotz fehlender Geschäftsmodelle momentan der IPO Renner sind. Vielleicht liegts daran, das “social Media” aktien ohnhin keine Gewinne zeigen müssen und deshalb auch nichts fälschen müssen.

Damit dürfte auch in den nächsten Tagen für Spannung in diesem Bereich gesorgt sein.

Performance Review 2011-2020 – Lessons learned, Outlook 2030

After the 2020 Performance review a few days ago, this time a more “in depth” look into the 10 year performance of the portfolio. For the record: The Performance page of the blog is now fully updated 😉

As this has become a very long post, these are the main sections:

  1. Numbers & Stats for the Portfolio (plus Benchmark discussion)
  2. Flop 15 & Top 15 positions
  3. 2011-2020 Macro events
  4. Style /Process /System
  5. Main lessons learned
  6. Outlook 2021-2030

1. Numbers & Statistics

The hard numbers: Over the 10 years from 12/31/2010 to 12/31/2020, the portfolio gained +270,3% against +122,7% against the Benchmark (Eurostoxx50(25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%), all performance indices including Dividends).. In CAGR numbers this translates into 14,0% p.a. for the portfolio vs. 8,3% p.a. for the Benchmark. As a graph this looks as follows:

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10 Years of Value & Opportunity – 10 Highlights, 10 LESSONS & 10 Books

Again, time flies. Exactly 10 (!!) years ago on December 15th, 2010, I started this blog


As every year a very special “Thank You” goes  to all readers, especially those who actively contribute either by comments or mails. I need to keep on mentioning that the interaction with readers is really driving the motivation to continue the blog in this format.

In this post I will reflect mostly on writing the blog, highlights and lessons over the last 10 years plus my 10 all time favorite book reviews. There will be a 10 Year investment/performance review in the beginning of January 2021. 

Some numbers: 

10 year stat        
Year Visits % Germany Posts Comments
2011 93,811 na 411 694
2012 178,485 49.82% 266 1,368
2013 325,240 43.14% 168 1,243
2014 430,794 32.26% 121 1,068
2015 459,992 25.94% 110 1,105
2016 521,197 28.52% 113 1,645
2017 635,741 28.79% 114 1,580
2018 452,267 28.57% 92 784
2019 325,169 31.56% 84 563
2020 YTD 483,824 39.03% 107 1,211
Total 3,906,520   1,586 11,261

All in all, I managed to post ~1600 posts over these 10 years which created close to 4 mn visits. The drop of visits (and comments)  in 2018 & 2019 was clearly the result of posting less due to a lack of time from my side.

So why I am still doing this ?

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Travel Series: AIrBnB – “Baller IPO” or Desperate Hail Mary (including a 3.5 bn USD accounting time bomb) ?


Long term readers know that I have covered the (online) travel industry intensively and that I actually have build up a “post pandemic travel basket” recently. Therefore, I was really excited to look at AirBnB’s S-1 going public filing.

Airbnb is one of the most prominent Unicorns of the last decade. The company was founded in 2007 and has since then become one of the really big names in online travel. It describes itself as having established a new category of travel called “home sharing” and that all the hosts on the platform as well as the clients are a big “community” that make travel “Human”.

However the big “elephant in the room” is the question: Why do they go public now after 13 years ? Why didn’t they go public earlier or wait a few more months once the travel recovery really kicks in ?

There was already a lot of press coverage already for Airbnb in the past weeks. I think in general one could distinguish between the Bull Case and the Bear Case:

The Bull case :

  • It’s a “positive” global brand with strong growth potential and a huge TAM (all travel lodging globally ) 
  • People will rent apartments first if travel rebounds 
  • Restrictions maybe less a problem in cities after Covid-19

One of the biggest cheerleaders of the Bull case is clearly Prof. Scott Galloway who wrote a big post some days ago, putting the value of AirBnB at 120 bn USD with the following statement:

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“Trading Corner” Part 1 – The rules, German Basket Cleansing & neW Trade: Play Magnus Group (ISIN NO0010890726)

Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH !!!!!

Follow up

A big thank you top all readers who either commented on my open question  if and how to include “Trading positions” into the blog. Overall I concluded that I can allow myself the luxury of a small allocation to “trades” as long as I do it consistently and with good risk management. One of the luxuries of a private investor is indeed that one can allow oneself some fun without needing to explain it to third parties and having fun is important to stay motivated.

Following some additional deliberations, my approach (for the time being) will be the following:

  • I will allow myself up to max 10% and up to max 7 trading positions at any given time going forward
  • In order to track them I will write short summaries with a clear “game plan” for the position
  • Close ot in case of a pre defined loss is a must
  • The maximum time allowed will be set at 12 months and either they go out or get upgraded to my other “buckets” in order to avoid a lot of “Trade goes wrong and becomes investment” positions
  • However, the “German Basket” will be “sacrificed”, as this honestly is already some kind of “trading portfolio”

German Basket “cleansing”:

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Grenke fOllow up: Recap & Fundamentals (and why Grenke is actually a stealth insurance broker)

Disclaimer: This is not investment advice. Please do your own research and never believe anything from  anonymous bloggers !!!!

A first a quick quick recap on what happened since the last post.

Friday’s written statement from Grenke pre press/analyst was actually pretty lame. I think they made clear that the money laundering and Ponzi issue were indeed minor issues but they didn’t shed any more light on the whole CTP issue.

Unfortunately I missed the press/analyst call. From what I have heard there was nothing new.

A quite surprising statement from Grenke on Monday was more substantial. All past M&A transaction with Franchises will be checked by an independent auditor, Grenke AG will have the option to buy the existing non-consolidated franchises and Wolfgan Grenke will (temporarily) step down from the Supervisory Board. It is also mentioned, that in the future, Grenke AG will fund new franchises.

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Some Links

Shocking news ! Fraud in Startup Land. How can this be ?

In Silicon Valley, “pre-telling the truth” is ok according to Alex Danco

For a change, FTAlphaville somehow recommends 4imprint, a UK based company 

IPO’s are maybe not that bad compared to SPACs and direct listings

A great deep dive on London-listed Hypgnosis Song fund

A very good deep dive feature on Masa Son (Softbank)

Very interesting long term projections on energy usage from BP

Grenke Leasing Short Attack – First analysis


Long time readers of my blog know that I covered Grenke a while back and unfortunately invested instead in what I thought was the “Australian Grenke” with a pretty bad outcome.

Now Viceroy Research came out with a blazing short attack on Grenke. Viceroy seems to be the same guy that released the now famous “Zatarra Report” on Wirecard in 2016.

This post is a first attempt to look at the allegations in order to find out if they are true and how severe they potentially could be. At the time of writing, Grenke is down more ~ -20% and close to the lows from March.

1. Non disclosed related party transactions

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Some links

When I saw the GM & Nikola announcement my first though was: This looks like Theranos and Walgreen back in 2016. Hindenburg Research is of the very same opinion: Nikola is a fraud. And yes, that’s what SPAC’s are really good for…

Great stuff: Bessemer Ventures has posted some of their internal investment memos including Wix (2007) and Shopify (2010)

The Brooklyn investor has a first look at Warren Buffett’s Japanese stock basket

Preis and Wert blog has a great write up on JDC Group (in German, the other parts of the insurance broker series are highly recommended, too)

Very interesting feature on Reed Hastings, CEO of Netflix

Great deep dive on Uber’s business model

A good reminder: Even the best companies see deep draw downs in their stock prices at one point


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