The Secret Broker: Couldn’t make this up? You don’t have to!
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
I love it when satire and the real world meet, as sometimes you think that maybe these comedy writers seem to have an inside edge.
Yes Minister was a classic TV show, where the public servants showed us all who really runs the office and now we have an new series of Utopia over here, which is produced by the Working Dog production team.
Working Dog were also behind the ‘vibe of the thing’ movie The Castle, so they have, ahem, a good pedigree.
And this week, the stars aligned, when the Australian finance department hired a consultant to advise the department on how they should go about… hiring consultants.
The boys and I had a real laugh about this one at the coffee shop yesterday, as we all agreed that this bit of news should be put into the Christmas files, ready to reappear at our year end piss-up as part of the after dinner recap speeches.
You couldn’t make it up if you tried and this is after our man Dan, over in Victoria, managed to cancel their up and coming Commonwealth Games.
These were the games on which he bid, on behalf of all of the Victorians, pre-election. And then having paid the consultants to advise him on getting in, he then needed them to help him in getting out.
The fodder that all of the politicians and civil servants produce is just gold for the writers of production houses like Working Dog.
And it’s all free.
No consultants needed, unless of course a new consultant comes along and suggests that the government copyrights all of these goings on, so they can’t be used or copied.
Of course, over in Financial Land, we had our own bit of near the bone satire in the form of a comic strip called Alex.
The actual main character went by the name of Alex Masterley and he would be drawn as wearing a pinstripe suit and the creators got a lot of their fodder from being approached by city types, with true stories.
The creators would take these true stories and turn them into a comic strip that lasted just four frames and they were very clever with what they did.
Here is an example. It’s worth the click.
The best of the lot though, was when John Cleese played the part of a city banker and he was approached to donate to a good cause. He couldn’t understand how he could give money and get nothing back as a return on his £1 ‘investment’.
In 2021 till 2022, the Morrison government spent $20.8bn on employing the services of 54,000 consultants from the Big Four accounting houses.
The main reason they did this was to keep an election promise and cap the amount of civil servants that they directly employed.
By doing it this way, they didn’t have to declare this bit of the equation until there was an audit put in place.
The audit discovered there were ‘54,000 full-time (consulting) staff supplied by consultants and service providers to the federal government during the 2021-2022 financial year, which was the equivalent of 37% of the 144,300-employee public service staff’.
For those of you with long enough memories, the actual falling out following the Enron bankruptcy was the complete demise of the accounting firm Arthur Andersen.
In subsequent after the event enquiries, it was deemed that Andersen should have never been an auditor to Enron, as well as have a consultancy arm, which consulted to them at the same time.
Back to the 2001 scandal, which was brought about because Andersen allowed Enron to fraudulently report $100 billion in revenue through institutional and systemic accounting fraud and therefore Andersen’s performance and alleged complicity as an auditor came under intense scrutiny.
This scrutiny led to their demise and their 28,000 employees’ demise too.
In fact the Sarbanes–Oxley Act of 2002 was a direct result of the consequences of the Enron demise plus some other listed companies’ bankruptcies, like Tyco International, Adelphia, Peregrine Systems, and WorldCo.
The act was introduced to shore up investor confidence in American listed companies and it mainly placed the directors of listed companies to become, well let’s say, a bit more honest.
For example, if you remember Worldcom, it was at one time almost as big as American T&T but became a victim of the dot com bubble after it lent money to its then CEO, allowing him to cover off on his margin calls, without needing to sell his shares into a falling market.
So desperate were the directors of the company to stop the share price crash, that they inflated the company’s income and Arthur Andersen signed them off as their auditor.
In 2004, Australia adopted the Sarbanes–Oxley Act for listed companies and this led to adjustments in how some items are reported into their accounts.
The main one, from memory, was how companies should treat company employee issued options, so they became an expense to the company, just like if they had been paid cash (instead of in options).
In total, there were 11 main accounting rule changes which were designed to make a difference.
And of course they didn’t!
On 25 June 2020, Wirecard filed for insolvency after revealing that €1.9 billion was “missing” and this time their auditor was Ernst and Young.
Basically, they said they had €1.9 billion held in a bank account in cash, when basically they didn’t, though this little bit of oversight never stopped their auditor from signing off on their accounts.
The company was a top 30 listed German company and in 2002, Germany had signed off on introducing the exact same Sarbanes–Oxley Act accounting rules, just like everyone else.
The way BaFin, the German equivalent of our ASIC, handled the demise of Wirecard was something that would have made the creators of Yes Minister very proud.
Instead of praising the journalists who investigated and then reported this fraud, BaFin decided to sue them in court and threatened them with their livelihood.
They also banned short selling in Wirecard stock.
Sue the reporters and ban short selling! That was their reaction to publications accusing Wirecard of fraudulent accounting.
It took eight months before the directors of Wirecard were arrested, for which BaFin then admitted its mistake in going after the wrong people and their top brass got sacked.
Wirecard were able to keep their scams going because they spent €120m a year on consultants, whose job was to paint a picture of truth and protect the company’s share price, so margin calls could be held at bay.
Taking all of this on board, you can see why we used to use a forensic accountant to pore over listed company accounts and write us a short report on each one.
We never short sold on the information that he gave us, but we would just advise clients to sell and move on to the better ones.
The moral of the story is that where there is smoke, there is fire and wherever a politician goes, there is a consultant following them with a fire bucket.
Oh and of course, fodder for the likes of Working Dog is free.
For the moment.
Feel free to contact him with your best stock tips and ideas.