I've heard of companies bringing revenue forward but I've never heard of postponing revenue to a later quarter. I guess it makes sense if you can already know next quarter is going to be bad.
I thought this was pretty much standard practice in public B2B companies (not the illegal part but pushing sales around). Public companies want to beat quarterly estimates every quarter lest investors dump their stock.
So if you might not have enough, you throw switches like promotions and try to get contracts signed before quarter end. If you have more than enough, you slow walk so you get the contract signed right after the end of the quarter so that it makes the next quarter easier to hit.
Theres a material difference between taking actions to affect how the business will perform in the final weeks of a quarter and lying about what actually happened.
> I've heard of companies bringing revenue forward but I've never heard of postponing revenue to a later quarter.
Schilit et al on Financial Shenanigans is instructive here.
Management might try playing this game to reach future bonuses staked to earnings targets.
Microsoft did it in the late 90s with unearned revenue reporting as a way to avoid bringing additional regulatory attention to their anti-competitive practices.
Enron did it in the early oughts using undisclosed reserve accounts to smooth income while manipulating the energy markets after landing huge windfall profits in its trading division to the tune of over $1 billion.
USRobotics did it when they merged with 3Com in 1997 by not booking over $600 million in revenue during a two-month stub period---instead reporting $15.2 million, compared to $690.2 million in the preceding quarter---for 3Com's benefit after the merger closed.
A few months ago, Broadcom announced plans to acquire VMware for ~$61 billion in cash and stock[1]. Speculating, suppose VMware were to pull a similar stunt into the merger, but rather than using it to conceal bad faith projections circa 2019, a variant of the 1997 USRobotics+3Com merger playbook were to pan out undetected.
There's a part of me that (perhaps naively) wants to believe this press release isn't really about some weak $8 million penalty, but a warning shot to both VMware and Broadcom that the SEC is watching very closely.
This is fairly common for public companies but sadly not many get caught. Also the fine is hilariously tiny compared to say this instance almost 2 decades ago:
Well, the SEC and IRS have both been repeatedly defunded and appointments made to make them as ineffective as possible - so yea, I think those efforts are paying off.
Thanks for name-dropping that book. I've always wondered what exactly happened to GE, and I love history books that speak to the modern corporate era we inhabit.
My personal favorites of the genre are Titan (about Rockefeller and Standard Oil), The Organization Man (an anthropological study of the "company man" archetype from post-WW2 America), and Shoe Dog (much lighter reading than the other two, and a great read about the founding of Nike).
Anyway, I just grabbed a copy. More history book recommendations welcome!
Auditors almost never find any fraud, and the SEC only rarely detects it on its own. Almost all cases of investor deception are revealed by short-sellers or insiders.
Speaking as a former employee of a Fortune 100 company for who PWC provides services, PWC is pretty thoroughly "captured" by their clients... they will never report things like Sarbanes-Oxley issues even if they're hit over the head with them... because they're quite used to not finding any problems at this point.
Ironically, it was PWC that came in after Deloitte and reported accounting irregularities to the board of Royal Ahold back in 2003 that lead to one of Europe's largest accounting scandals: https://www.sec.gov/news/press/2004-144.htm
KPMG was the auditors of USF before they were bought by Ahold, and their service period spans the window of when the accounting issues existed, so you have KPMG and Deloitte finally called out by PWC but that was almost 20 years ago.
$8 million USD penalty? What kind of joke is this?
Is the intention to serve as a deterrent or a not-so-subtle endorsement? Honestly, seems like the latter.
SEC seems to be full of industry insiders these days. I pulled my positions and exited all stock market investments recently, that shit is rigged.
I'm thinking of adhering to a new policy where I only invest into things where I can hunt them down and hit them with a stick or at least call a particular individual human being in real life. Otherwise incentives tend to get too perverse.
I understand your exasperation/frustration, but my fix would be to have the SEC charge individuals rather than corporations (though the settlements would be much smaller).
100% with you my friend @nickff, fix the system. Ship the perps off to a non-white-collar prison, pretty please. They have abused and continue to abuse the public trust for their own personal gain.
Sentencing should take macro trends and effects into account.
Unfortunately, the United States has a long and sordid history of letting the upper echelon go to town on the public without any significant consequences. Just look at how light Lizzy Holmes is getting off for hundreds of millions in fraud and willingly posing a negligent danger to the public. 20 years or less, and in the meantime she roams free. The system is broken at every level.
Why even charge corporations? Charge the ultimate beneficiaries and the decision makers. The executives and the board should be the ones with their balls in a vice rather than indirectly harming investors that were already harmed as part of the malicious act.
There is a legal miasma around "piercing the corporate veil", originally about limiting investors' financial liability for acts of the corporation to their stake in it.
Instead it mostly protects officers against criminal charges, which turn into fines borne by those investors in place at the time the fine is finally collected. Officers almost always get off scot-free; often enough, investors too, with the corp simply enjoined to pledge "not to do it anymore". Allegedly this is to protect employment or something, or to encourage boards to exercise control over officers. Instead it encourages officers to keep boards toothless.
But the whole purpose of corporations' existence is to provide a vehicle by which to evade all personal responsibility. Thus, every legislative attempt to define avenues for accountability for people wielding corporations is neutered by Supreme Court legal invention.
US Congress defined legal status of "person", which SCOTUS extended to include corporations, "legal persons". Then Congress defined "natural person", and SCOTUS extended that to include corporations, too. Congress gave up, after that.
US Department of Justice technically has power to "pierce the corporate veil" and charge investors or corporate officers, but practically never does, possibly for fear of collecting a SCOTUS decision eliminating its ability ever to do it at all.
As we say, "the fix is in". The only effective legal bound on behavior of people wielding corporations is that it cannot vote or serve on juries, which is not wanted in any case, or be elected to public office. It will be at least a generation before SCOTUS could be constituted to overturn corporate "natural" personhood.
This is only true on technicality. While the SEC is a regulatory agency they are more-or-less in bed with the FBI who, to my knowledge, has never said "yeah we're not gonna go after that criminal" when they asked.
So yes, de facto they cannot charge people with crimes. The reality is they basically just phone the FBI and the FBI does it for them. There's very little separation in powers especially after the chevron deference case.
> Sentencing should take macro trends and effects into account.
This is dangerous territory. Do you want people charged with other crimes to follow the law and sentencing guidelines or to take macro trends into account?
Taking macro trends into account to more stiffly punish civil rights protesters in summer of 2020 is an example of something that I would not want.
(If we want to laws which explicitly offer variable punishment based on effect/intent [as in first DUI vs fifth DUI or DUI vs DUI crash vs DUI crash with fatality], that’s fine of course, but it should be legislated not judicially sourced.)
You exited the market in a time like this? So now you'll pay capital gains on a less than ideal return, and stuck with cash while inflation still beats your interest. Did you at least buy fertile farmland with it?
The buffett indicator and shiller PE are good indicators but it misses the point. What you're looking at is a "normal market swing" indicator and what we're standing in is a nuclear reactor about to go critical. It's about as useful as a windchime at chernobyl.
The market is overvalued because of free money. Stock buybacks for the last 10 years account for easily 80% of the EPS gains in major stocks. Global issues are important as well, but still...missing the point. America has a lot of ammunition available to deploy to at least make these issues far less painful than they good be (albeit, still painful).
The fed will continue to print billions of dollars whenever congress asks. If you notice their language they refuse to use the R-word and news agencies won't say it either despite every economic indicator pointing at a deep recession. The fed is LOOKING for any avenue to continue to keep rates lower, or lower them further (possibly into the negatives) because the alternative is literal pandemonium.
The fed does not want this money train to stop. In fact, I'm of the opinion it can't stop. If they stop the money train everything goes to hell. Raise rates just an inch too high and we're overnight in a depression. Keep rates too low and stagflation. Raise them just enough, then lower them back, and we melt up which for Powell's next term will look good. It'll be the next guy's fault - anyway. If you do the math, the country cannot possibly raise the tax base enough to pay off debt should the country lose it's credit rating. The fed is doing the equivalent of blindfolded brain surgery to keep the green candle sticks coming. Funny, all of this could've been prevented if we stopped the fed from being able to purchase directly from the market.
While I think in the long term you are more than correct I think in the short term you are very wrong. You're underestimating just how much the beast will fight before it dies... and this time when it dies it may be permanent. We never did resolve the 2008 crisis. We were just starting to pay into the principle on the loan we gave ourselves to save the banks when COVID hit. Then the money printers spun into high gear and now there's no possible way we can go back without significant pain. Enough pain that every person with the ability to do something about it will find a reason to not do it. No one wants to go down in the history books as the person who killed capitalism for a generation.
> despite every economic indicator pointing at a deep recession
I mostly agree with you and believe that we’re in or entering a recession, but the jobs figures are a major economic indicator that is pointing away from recession at the moment.
A single datapoint in a 12 year near non-stop bull run powered by free money. You can't refute a statement on an economic rocket ship with a single instance.
You're welcome to post a little more about how I am wrong though instead of just tell me so.
For what it’s worth I’m not buying or selling anything at the moment and I hold very little in the stock market. I have a modest home in a cheap place and that’s about it.
You’re just another stark raving lunatic on a forum. Why are you even making this comment if you aren’t?
The market is equally likely to go down as it is up. In fact there may be significant downside, interest rates will continue to go up for the foreseeable future. Valuations are still very, very high when compared to earnings.
I have exited U.S. market as well, almost a year ago, when the prices were still dropping in the late fall / early winter.
Until the USD is the "world currency", SEC's and U.S.' billionaires' decisions will impact other markets. Would the "world currency" change, some other power's SEC equivalent and billionaires would possibly shake other markets too. Maybe in a less "stable" way for local gain.
But there are other markets than the U.S. and some sectors aren't impacted in a major way by U.S. government's instability, U.S. jobs reports, U.S. social benefits handouts etc. European energy sector is interesting for me and can be dealt with in EUR only. Diversify markets, diversify sectors, diversify currencies. This is the way.
pushing around sales a little for smoothing out rev rec is not unheard of on the private side. they should have noted it but it's not what i'd call serious. and it didn't do a ton to "obscure".
The problem with exiting is knowing when to enter. You have to time the market twice. And if you succeed you'll start to believe you're an effective market timer.
Unless you're going into alternative assets? I haven't found any attractive ones - valuations are high across the board.
These "fines" are simply the cost of doing business.
The SEC is now an ineffective shell of its former self.
The real question is why the trend where companies "pay a fine without admitting guilt" and the executives who are paid obscene amounts to "manage" the company dont face any consequences.
They claim they need to pay this amount to attract talent and the risks around managing a company but whenever "bad things" happen on their watch it is ultimately the shareholders who pay (company pays a fine with money that belongs to the shareholders).
Let's just say, Deloitte - the absolute shit show they contract to do the audits are dumber than a box of rocks.
I know a company that had to pay ~600k because their contractor (Deloitte) flagged several environments as "production" even though they were provided with all the data proving otherwise.
By the time VMware laid down the hammer it was apparently "too late" to argue as it should've happened "a month ago". Neither VMware or their contractor could apparently do anything about it.
The 600k was apparently worth it to the business to just take it in the nuts to maintain partnership/status/whatever.
Straight extortion / scammy. There was even one environment which consumed about 70k of the 600k fine that straight up was licensed properly with proof of all purchasing - but their shitty vb scans were mixed up with another environment (in the same overall biz) and falsely marked as not compliant.
I get it, I'm sure NFR licensing is being used rampant and improperly by all-sorts of business and there were certainly cases here and there with this org, but nothing even remotely close to 600k
That whole process was worse than the "v dash trash" you would have to put up with ok a m$ audit.
Paying $600K not owed could be a valid business decision to just move on. However, if you’re in a position to burn $600K on this, I’d much rather stand on principle and threaten to burn $500K (or even $800K) of your own money and a similar sum on the vendor side to stand up against improper audit findings.
I’m willing to flex on cases that are 60/40 or 40/60, but if we think we’re 100% right, you’ll get more blood from a stone.
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[ 2.9 ms ] story [ 131 ms ] threadOr, if you want to demonstrate quarter after quarter growth. i.e. https://en.wikipedia.org/wiki/Crazy_Eddie#Fraud, where sales were slowly put back on the books.
So if you might not have enough, you throw switches like promotions and try to get contracts signed before quarter end. If you have more than enough, you slow walk so you get the contract signed right after the end of the quarter so that it makes the next quarter easier to hit.
Schilit et al on Financial Shenanigans is instructive here.
Management might try playing this game to reach future bonuses staked to earnings targets.
Microsoft did it in the late 90s with unearned revenue reporting as a way to avoid bringing additional regulatory attention to their anti-competitive practices.
Enron did it in the early oughts using undisclosed reserve accounts to smooth income while manipulating the energy markets after landing huge windfall profits in its trading division to the tune of over $1 billion.
USRobotics did it when they merged with 3Com in 1997 by not booking over $600 million in revenue during a two-month stub period---instead reporting $15.2 million, compared to $690.2 million in the preceding quarter---for 3Com's benefit after the merger closed.
A few months ago, Broadcom announced plans to acquire VMware for ~$61 billion in cash and stock[1]. Speculating, suppose VMware were to pull a similar stunt into the merger, but rather than using it to conceal bad faith projections circa 2019, a variant of the 1997 USRobotics+3Com merger playbook were to pan out undetected.
There's a part of me that (perhaps naively) wants to believe this press release isn't really about some weak $8 million penalty, but a warning shot to both VMware and Broadcom that the SEC is watching very closely.
[1] https://www.broadcom.com/company/news/financial-releases/602...
I wonder how much the execs benefited from it
https://www.sec.gov/news/press/2004-134.htm
I almost wonder if the SEC is slowly losing its teeth.
Click any of the links within https://money.cnn.com/2018/04/24/investing/ge-annual-meeting...
I wonder if PWC missed it by design, but then again I've been pessimistic about stuff like this after reading Lights Out, the book on the GE failure.
My personal favorites of the genre are Titan (about Rockefeller and Standard Oil), The Organization Man (an anthropological study of the "company man" archetype from post-WW2 America), and Shoe Dog (much lighter reading than the other two, and a great read about the founding of Nike).
Anyway, I just grabbed a copy. More history book recommendations welcome!
KPMG was the auditors of USF before they were bought by Ahold, and their service period spans the window of when the accounting issues existed, so you have KPMG and Deloitte finally called out by PWC but that was almost 20 years ago.
Is the intention to serve as a deterrent or a not-so-subtle endorsement? Honestly, seems like the latter.
SEC seems to be full of industry insiders these days. I pulled my positions and exited all stock market investments recently, that shit is rigged.
I'm thinking of adhering to a new policy where I only invest into things where I can hunt them down and hit them with a stick or at least call a particular individual human being in real life. Otherwise incentives tend to get too perverse.
Sentencing should take macro trends and effects into account.
Unfortunately, the United States has a long and sordid history of letting the upper echelon go to town on the public without any significant consequences. Just look at how light Lizzy Holmes is getting off for hundreds of millions in fraud and willingly posing a negligent danger to the public. 20 years or less, and in the meantime she roams free. The system is broken at every level.
But anytime a corporation is charged with any crime, at least one executive should also be charged.
Instead it mostly protects officers against criminal charges, which turn into fines borne by those investors in place at the time the fine is finally collected. Officers almost always get off scot-free; often enough, investors too, with the corp simply enjoined to pledge "not to do it anymore". Allegedly this is to protect employment or something, or to encourage boards to exercise control over officers. Instead it encourages officers to keep boards toothless.
Worse, when corporations pay fines this is with SHAREHOLDER money.
The leaders / decision makers should be fined and corporations forbidden from paying these fines.
Having more "prohibited from taking on a leadership role in any publicly traded company for 5 years" rulings would also help.
These actions would put a quick end to what takes place these days.
But the whole purpose of corporations' existence is to provide a vehicle by which to evade all personal responsibility. Thus, every legislative attempt to define avenues for accountability for people wielding corporations is neutered by Supreme Court legal invention.
US Congress defined legal status of "person", which SCOTUS extended to include corporations, "legal persons". Then Congress defined "natural person", and SCOTUS extended that to include corporations, too. Congress gave up, after that.
US Department of Justice technically has power to "pierce the corporate veil" and charge investors or corporate officers, but practically never does, possibly for fear of collecting a SCOTUS decision eliminating its ability ever to do it at all.
As we say, "the fix is in". The only effective legal bound on behavior of people wielding corporations is that it cannot vote or serve on juries, which is not wanted in any case, or be elected to public office. It will be at least a generation before SCOTUS could be constituted to overturn corporate "natural" personhood.
So yes, de facto they cannot charge people with crimes. The reality is they basically just phone the FBI and the FBI does it for them. There's very little separation in powers especially after the chevron deference case.
This is dangerous territory. Do you want people charged with other crimes to follow the law and sentencing guidelines or to take macro trends into account?
Taking macro trends into account to more stiffly punish civil rights protesters in summer of 2020 is an example of something that I would not want.
(If we want to laws which explicitly offer variable punishment based on effect/intent [as in first DUI vs fifth DUI or DUI vs DUI crash vs DUI crash with fatality], that’s fine of course, but it should be legislated not judicially sourced.)
September 2022? No, not really.
By most historical market valuation metrics, markets are still drastically overvalued (shiller pe, buffet indicator)
- with rising rates for the first time in a decade (except the powell pivot in which markets quickly blew up),
- with the balance sheet moving in the wrong direction for the first time in longer than that(with the same exception),
- with the highest debt to GDP since ww2
- with a more volatile geo-political situation since any time since the cold war
- with China on the brink of a major issue
- with Europe on the brink of a major issue
- with most economic leading indicators printing bad numbers
If you think markets going up from here is a foregone conclusion, I wish you luck.
The market is overvalued because of free money. Stock buybacks for the last 10 years account for easily 80% of the EPS gains in major stocks. Global issues are important as well, but still...missing the point. America has a lot of ammunition available to deploy to at least make these issues far less painful than they good be (albeit, still painful).
The fed will continue to print billions of dollars whenever congress asks. If you notice their language they refuse to use the R-word and news agencies won't say it either despite every economic indicator pointing at a deep recession. The fed is LOOKING for any avenue to continue to keep rates lower, or lower them further (possibly into the negatives) because the alternative is literal pandemonium.
The fed does not want this money train to stop. In fact, I'm of the opinion it can't stop. If they stop the money train everything goes to hell. Raise rates just an inch too high and we're overnight in a depression. Keep rates too low and stagflation. Raise them just enough, then lower them back, and we melt up which for Powell's next term will look good. It'll be the next guy's fault - anyway. If you do the math, the country cannot possibly raise the tax base enough to pay off debt should the country lose it's credit rating. The fed is doing the equivalent of blindfolded brain surgery to keep the green candle sticks coming. Funny, all of this could've been prevented if we stopped the fed from being able to purchase directly from the market.
While I think in the long term you are more than correct I think in the short term you are very wrong. You're underestimating just how much the beast will fight before it dies... and this time when it dies it may be permanent. We never did resolve the 2008 crisis. We were just starting to pay into the principle on the loan we gave ourselves to save the banks when COVID hit. Then the money printers spun into high gear and now there's no possible way we can go back without significant pain. Enough pain that every person with the ability to do something about it will find a reason to not do it. No one wants to go down in the history books as the person who killed capitalism for a generation.
I mostly agree with you and believe that we’re in or entering a recession, but the jobs figures are a major economic indicator that is pointing away from recession at the moment.
You're welcome to post a little more about how I am wrong though instead of just tell me so.
You’re just another stark raving lunatic on a forum. Why are you even making this comment if you aren’t?
You sold at a high, congratulations, but that was not what the discussion was about.
If you’re certain this is the low there is a fortune in your near future.
You sure?
Until the USD is the "world currency", SEC's and U.S.' billionaires' decisions will impact other markets. Would the "world currency" change, some other power's SEC equivalent and billionaires would possibly shake other markets too. Maybe in a less "stable" way for local gain.
But there are other markets than the U.S. and some sectors aren't impacted in a major way by U.S. government's instability, U.S. jobs reports, U.S. social benefits handouts etc. European energy sector is interesting for me and can be dealt with in EUR only. Diversify markets, diversify sectors, diversify currencies. This is the way.
Unless you're going into alternative assets? I haven't found any attractive ones - valuations are high across the board.
I don't think there's ever been a GAO report favorable of the SEC.
The real question is why the trend where companies "pay a fine without admitting guilt" and the executives who are paid obscene amounts to "manage" the company dont face any consequences.
They claim they need to pay this amount to attract talent and the risks around managing a company but whenever "bad things" happen on their watch it is ultimately the shareholders who pay (company pays a fine with money that belongs to the shareholders).
Watch the CEO here get his full bonus.
I’m surprised the CFO and CAO doesn’t get sacked for this. And PWC should have caught this. Will the engagement partner get sacked too?
They learned absolutely nothing and it will happen again. $8M can be found between the couch cushions at VMWare HQ
[1] https://www.sec.gov/Archives/edgar/data/1124610/000119312519...
Let's just say, Deloitte - the absolute shit show they contract to do the audits are dumber than a box of rocks.
I know a company that had to pay ~600k because their contractor (Deloitte) flagged several environments as "production" even though they were provided with all the data proving otherwise.
By the time VMware laid down the hammer it was apparently "too late" to argue as it should've happened "a month ago". Neither VMware or their contractor could apparently do anything about it.
The 600k was apparently worth it to the business to just take it in the nuts to maintain partnership/status/whatever.
Straight extortion / scammy. There was even one environment which consumed about 70k of the 600k fine that straight up was licensed properly with proof of all purchasing - but their shitty vb scans were mixed up with another environment (in the same overall biz) and falsely marked as not compliant.
I get it, I'm sure NFR licensing is being used rampant and improperly by all-sorts of business and there were certainly cases here and there with this org, but nothing even remotely close to 600k
That whole process was worse than the "v dash trash" you would have to put up with ok a m$ audit.
I’m willing to flex on cases that are 60/40 or 40/60, but if we think we’re 100% right, you’ll get more blood from a stone.