It just don’t stop do it?
I feel like a fraud… My name is not even actually Ashton. Ashton is my middle name.Ashton Kutcher
On the 24th of July 2020, the FT ran one of their signature Lunch with the FT pieces where https://twitter.com/harrietagnew sat down with Jim Chanos, for a new-normal lockdown lunch. She was at Oswald’s whilst Chanos joined from Prime 112 steakhouse via video. Check it out if you have the time https://www.ft.com/content/ccb46309-bba4-4fb7-b3fa-ecb17ea0e9cf . The Wirecard scandal had just broken and Chanos had made out like a bandit. His contention is that “We’re in the Golden Age of Fraud“. It made for an interesting read, especially after Wirecard, Luckin Coffee and a number of other “champions” fell over in the subsequent months. Of course, everybody blamed COVID initially but really, when the dust settled those names were up to no good.
A couple of months back, the Greensill drama had just come to centre stage and the world (including us) thought it was the usual old story of misaligned incentives (hence the need for an iHuddle type platform – shameless self plug alert!). We had thought that all the parties involved were just trying to push product to get paid, the investor be damned and had messed up good, old-fashioned underwriting discipline.
The last few months have been sobering. There have been allegations of circular trading (i.e. millions of pounds of steel, sold to third-party buisnesses run by people known internally as “friends of Sanjeev”, creating an invoice that Greensill would lend millions against, with GFG buying the steel back), allegations of fictional invoices (https://www.ft.com/content/e450c8f9-29fa-432b-98fd-5885edb4680f), allegations by banks of inaccurate bills of lading (https://www.mining.com/web/as-sanjeev-gupta-rose-from-trader-to-tycoon-several-banks-backed-away/) and self financing by UK banks owned by the Gupta family. This Saturday, the Serious Fraud Office has opened an investigation into the GFG Alliance (https://www.bloomberg.com/news/articles/2021-05-14/u-k-fraud-prosecutor-opens-investigation-into-gfg?sref=dg6kE46V). This saga now has repurcussions for the taxpayer and has become a big deal.
None of this is good news for the private credit industry or for smaller, newer companies trying to raise capital. As always, the good guys i.e. the guys who play by the rules, have to suffer as a consequence of some rotten apples. There is no schaudenfreude here, just a genuine worry for the real economy and for Main Street. Britian didn’t need this. COVID and Brexit are bad enough when it comes to liquidity and equity providers freezing the UK mid-market, worry about fraud could be the death knell.
We need to invest in UK businesses. We need to make the real economy work for all our sakes. Always invest with and in people you trust and those who have skin-in-the-game. Remember, if it looks too good to be true, it probably is.
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