Tellwell Talent (2022)
L.S. (Al) Rosen has combined being a university professor (holding a PhD) with several qualifications in the fields of investigative accounting and reporting (such as acting as a fraud examiner) for over 35 years. He has authored many reports for court cases, and has testified in courts in various countries in many large-dollar cases. Often the allegations are that investors have been deceived by materially misleading financial reports. He has co-authored two previous books, and articles, with his son Mark. They address how and why multi-million dollars of investor money essentially, and often quickly, vanished. Real situations are the subject of these writings. Money was stolen and hardships resulted.
Hi Al, thank you for joining us today at Reader Views. What is Avoiding Swindlers about?
The book deals with actual situations that resulted in investors losing multi-millions of dollars to financial tricksters. Emphasis is placed upon learning how to detect early warning signs. Financial exposure can be minimized prior to situations deteriorating into bankruptcies. However, individual investors have to take specific actions after doing some homework. Otherwise, the alternative is to lose money by listening to “hot tips,” often involving publicly traded securities.
Some types of commonly seen but inappropriate financial reporting are permitted in certain countries (including parts of North America), even though they deeply aid the financial tricksters. Governments are seriously neglecting investors by not prohibiting certain reporting trickery. Overall, in some regions, investor protection is simply archaic (including allowing false advertising). Currently, investors face serious risks.
The book attempts to minimize technical language. Stress is placed upon encouraging investors to look for specific warning signs before opening their purses and wallets to the growing group of tricksters.
What prompted you to write this book?
Being investigative accountants, we frequently have to deal with the damages that swindlers inflict on others (sometimes causing up to “suicides”).
The public does not seem to know much about dirty financial trickery, especially spotting it at an early stage, and “running away fast.”
Swindlers prey on certain people, and tell many lies that naïve people find “somehow believable.” Danger signals hence can require explanations in a book-length.
Certain governments (such as in Canada) have delegated “policing” of swindlers to auditing or attorney/lawyer groups, who tend to have conflicts of interest, and therefore take minimal effective protection action. [The U.S.A. does much better “detective work” except for not having much control over U.S. citizens who buy into, for example, Canadian-based nasty IFRS-like swindles. Thus, U.S.A. investors have to comprehend which tricks exist in IFRS reporting countries (in England, Australia, New Zealand, Canada, etc.) where adequate monitoring of swindlers is too weak to constitute protection.]
In our experience, investors/savers generally forget to include in their personal assets the pension dollars that are being managed within their country, but which exist physically in a foreign country. Pension managers diversify their choices and thus buy shares, being unaware of huge differences in various country accounting and reporting “principles/practices.” (An example is that a significantly different method of reporting exists between the U.S.A. and much of Canada. Comparisons are difficult to credibly make.)
Also, in our experience, many people do not bother to learn enough about financial reporting because they say that it is boring, too complex, and similar. In short, such people are willing to believe what some swindler will say. Yet, signs of “problem companies” are not hard to locate or notice. Examples to focus upon are low income tax rates (which indicate that the governments are not taxing fake “income,” because it is nonsense or is faked); or reporting of income that is grossly in excess of cash receipts from sales and services. [In short, simply doing a little checking can release you from being swindled.]
Observations that too much of the media ignore the education that is needed by investors to detect false advertising; hence, the media can be too money-biased to “tell the truth” and thereby lose advertising revenue.
Procrastinating politicians who do not write and then pass legislation that blocks nasty swindler trickery. Again, swindlers have too many “friends” who help them “stay out of jail.”
Repetitions of the same trickery (such as repeated Ponzi Schemes) clearly show that education of investors has not been effective enough. Hence, a different educational approach, with more of the non-technical language seemed to be needed, along with more real examples was being attempted in writing the book.
Who will benefit most from reading Avoiding Swindlers? Is it geared toward corporate or individual investors?
Target-audience readers are individual investors who manage their own money or work with a broker/investment dealer, and need help identifying “unworthy” investment possibilities, or nasty “scams.” Virtually every week we encounter “money managers” who have seriously inadequate understanding of how to properly read published financial statements. Choices made to cover-up dreadful negative trends of the business are being missed (such as losing cash from merely continuing to operate a segment of the business, hoping for “miracles”).
Broker/dealers are being deceived by listening to false advertising. They have to detect the trickery, and not advocate that clients buying-into specific stocks.
Many North American stockbroker/dealers have not grasped, for example, that IFRS financial trickery can be materially misleading, and be covering-up nasty Ponzi Schemes and similar plots to steal investors’ savings.
Too many governments are allowing swindlers to self-regulate. That is, the swindlers are being permitted to regulate themselves. But, what they are actually doing is introducing weak (and sometimes laughable) “revisions” that “make matters worse” for investors. An example would be changing wording requirements of reporting; but, which still do not curtail variations of nasty tricks.
Summed up, the book is targeted at a range of people: governments, securities regulators, police who investigate frauds, pension managers, financial analysts, stockbrokers, portfolio managers, investors, university professors, high school teachers, and similar. (Swindlers clearly are being weakly regulated, which encourages more thefts.
Is the average investor uninformed, misinformed or both, and why?
Uninformed? Yes, no doubt. (Plentiful evidence.) Misinformed? Depends on the country. For example, telling U.S. investors that Canadian financial reporting is closely-regulated and has the same or similar requirements to the U.S.A. is a monstrous misdirection, and has been costly to many American investors. “Effective” oversight in Canada of IFRS reporting is nasty nonsense. All a person has to do is realize that, since 2011-2012, one-after-another of the costly scams were swindler-based in Canada. As well, since 2000, several companies (e.g., Sino-Forest Corporation; Poseidon Concepts) issued audited financial statements where alleged ASSETS such as forest lands and accounts receivable simply did NOT exist.
Should investors educate themselves or seek professional guidance? How?
A basic amount of time has to be devoted to educating yourself, to the point where you can ask some probing questions of your proposed “professional” money managers. Some are knowledgeable; many are not. (For years we have operated businesses that are designed to hopefully educate the professional money managers. For example: how does the person detect a dubious company-situation?)
What is the most important step a potential investor can take when searching for a sound financial services company or other investment opportunities?
That’s a tough question. Much readily-available information about “financial services companies,” in our experience, is exaggerated advertising. So-called successes are heavily advertised, whereas losses or “disasters” are not mentioned. Time periods that are quoted tend to be those when the overall stock market was strong. Again, recession periods are barely selected, or mentioned.
Hence, knowing exactly who prepared the recent advertised history of the success and failure periods for a services company is vital. But, such information is difficult to obtain, and verify. Employees in such companies can turn over, and who is now making purchase and sale decisions may “have been hired yesterday, and is unproven.”
Recent successes and failures of those people who are making investment decisions can be helpful to know. But, was this a result of skill, or good luck? Probing questions have to be asked. Bias opportunities widely exist.
For example, how is the investment manager being rewarded, or incentivized? Increased “successes” have to be analyzed. Are they credible? For example, does the portfolio person or manager “value” the portfolio (because, like for IFRS, no credible market trading values may be available)? If so, the investment manager can increase her/his bonus by over-valuing specific portions of the portfolio. Eventually, the stock values have to drop because they are faked (so the person receives a bonus).
In our experience, considerable analysis is needed concerning the credibility of advertised investment results. Mainly, our view is that too much of such success advertising is exaggerated, and cannot be trusted. (Gullible people are being told fantasies.)
Investors can ask to see multiple-year results of who is making the investment decisions. But, the vital question is who prepared what you are being shown? Are they independent and honest? (People are too often told that the data has been “audited.” Such can be useless commentary. Audited by whom? With which skills?…and much more.)
In short, be skeptical, because investment management companies vary widely. Some are at the level of “used-car salespeople.” Advertising accuracy varies from country to country.
How do companies get away with misleading the public and potential investors?
Much is dependent upon the country being considered. For example, a huge reporting difference can exist between the U.S.A. and the IFRS countries (U.K., Canada, Australia, and more). The USA has Federal and State oversight differences and monitoring; plus investigation versus prosecution practices can vary widely.
Canada, as an IFRS “supporter,” simply rarely seriously monitors, investigates and prosecutes glaring crooked financial reporting. (The recent marijuana company trickery is but one example within Canada.)
Self-regulation collapsed years ago in various IFRS countries. Yet, governments have largely remained silent, while the swindlers have increased their aggressiveness, and “successes.”
The “Avoiding Swindlers” book was written in part to explain that investors have to protect themselves. Words such as “audited” have become misleading. Such nonsense had to be pointed out in books and articles.
I would venture to say most people have heard of Ponzi schemes. What are some of the other most common “get-rich-quick” scams investors need to be aware of?
The book deals extensively with ACTUAL, faked or crooked financial statements, where:
- revenue is grossly overstated.
- income is overstated.
- cash received is far below what is labelled as income (crooked income).
- assets are significantly overvalued.
- stock prices are bloated by repeated lies.
- pending bankruptcy is “covered up.”
- future possible asset sales are being recorded in the current year.
- cash-based income tax expense is the clue to identifying scary survival of the “cooked books” company.
- IFRS is the cause of much of the above (and is being tolerated too much).
- reported trends can be lies.
- plus other tricks. (Loan to Own; etc.)
What are some of the warning signs or red flags investors should look for?
- Cash from operations being only a small percentage of IFRS’ reported “income.”
- Cash tax expense being a low percentage (maybe 10% or so) of reported income before income tax.
- Wide swings in reported income, caused by non-cash property value changes being reported as “income.”
- Increased percentages of “accounts payable,” “revenue” and similar from previous years.
- Non-current receivables building up.
- Increased bank loans payable (borrowing more to pay accrued interest on previously borrowed money; in short, “bad loans”).
- A drop in loan loss reserves. Why?
- A change in the business/property valuator. Why? (Need additional nonsense?)
Many others are mentioned in the book.
Many of the examples you cite in your book are about Canadian companies – would you say this is a universal problem? Why?
The book applies to U.S. investors who unwisely invest in Canadian IFRS-reporting companies.
Same for other IFRS-reporting countries (such as England, Wales, Australia, New Zealand and others). Dirty tricks have to be identified; otherwise losses await investors. Pension manager investments in the IFRS countries seem to be being ignored. Such is not wise. Pension managers often can invest in other countries. Do they know the dirty tricks? It would seem not!
What role do governments play? Are there measures to protect the investor? Do they do enough?
Countries have to be considered separately.
The U.K. ignored several of the IFRS problems for a few years. It then experienced a rash of corporate failures, and had to tighten up regulations. At this point, they have not yet phased out IFRS; and, should pursue the dangers of neglect in permitting IFRS, because it aids nasty trickery.
Canada’s governments can rightly be accused of serious neglect. IFRS should never have been permitted for use in Canada. Its serious shortcomings were obvious over 15 plus years ago, long before it became utilized. Self-regulation of external auditors was obsolete 20 or so years ago in Canada. Self-serving behaviour repeatedly has occurred, with consequences.
Governments in some countries should be thoroughly embarrassed by their neglect, and change their laws.
In your years as an investigative accountant, what is the most egregious “swindler” you’ve come upon?
Given that we have been engaged over 35 years on many large cases, with extensive dirty tricks, a choice is difficult to do.
A number of cases have involved lending institutions where loans were being made to entities that were essentially bankrupt. Such is clearly a “cover-up;” just postponing the date of recording losses.
Many cases involved using “suspect” valuators, who appended high “values” to nonsense assets. (Note that IFRS-based companies are still employing such valuators. This constitutes an alarming warning.)
Several cases have involved not only over-valued assets, but also non-existent assets (e.g., forest lands that were not owned; products being sent to an otherwise empty warehouse “owned” by an imaginary customer.)
…and more (Many swindlers are quite “cheeky” people.)
What do you recommend as a follow up to readers/investors after reading Avoiding Swindlers?
Those who are still not convinced that IFRS reporting can be extremely dangerous ought to read “Easy Prey Investors” (McGill-Queen’s University Press, 2017) by Mark & Al Rosen. Available from Amazon. This book warned people over 5 years ago that IFRS provided unlimited opportunities to swindle investors. The marijuana company collapses had not yet occurred in 2017. Losses have been huge in the past 3 or so years.
Columns by Al Rosen exist in Canadian Accountant.
Do you provide any kind of consulting services or other resources for investors?
Mark Rosen has been operating ARC (Accountability Research Corporation) for over 20 years. Al Rosen has been, and is, an expert witness for cases that proceed to litigation.
Is there anything else you’d like to add?
My long background as a University Professor taught me that many people are inclined to believe whatever they were FIRST told. Reporting that was excessively advertised (as with IFRS) as being some “modern day” wonderful improvement for investors thus is not easy to overcome, even given its huge failures.
IFRS was repeatedly advertised in the IFRS countries (not the U.S.A.) as being close to the opposite of what it really is. That is, IFRS is a “gift from swindler heaven” to greatly assist them in easily swindling investors. Self-regulation, controlled by a batch of swindlers, keeps IFRS in place. Several governments are currently being deceived by false hype, and ultimately will face severe embarrassment.
The public has to take sufficient interest in financial reporting trickery to overcome the mass of false IFRS claims. Stolen money often is not retrieved. Examples are plentiful. Silence about trickery merely promotes more nastiness.
Fundamentally, what is at stake is that companies which issue financial reports using IFRS do not need much worthy evidence to claim that they have “made a profit.” Management decides the level of many numbers/dollars. Hence, management is being permitted to write its own report card. Investors who are naïve unfortunately believe these management fantasies. A crooked system can feed upon itself when too many naïve people exist.