Number Juggling


Satyam's in the news for carrying out a whooping 1 BILLION USD fraud, in a company with revenue of approx 2 billion USD ie 50% of the revenue amount now being reported off the cash reserves! Guess who their financial auditors are, none other than PWC!
The problems of financial misreporting are not new, neither in developed or emerging markets. Whats concerning to me is why a CEO was allowed so much power to have reported these numbers without anyone of his VP's stepping up to stop him. Are companies so blind to the CEO's acts that such illegalities are done without fear.

On a personal note, I've always erred towards caution to avoid getting caught up in such misreporting (not that I havent ever fallen trap in one of these though). The golden rule of "if it sounds too good to be true, then its likely not true", the one I like and have been saved from the following scams using this principle:
  1. Investing in the summer home scam - the one where you were shown videos of the high life and asked to invest a few thousand dollars to avail residence in a million dollar home during your summer vacations.
  2. Getting membership to Quixtar/Amway/MLM - they sell dreams to the "business partners", not a compelling business strategy. There is no such thing as a get rich quick scheme, specially when its being sold to a huge number of individuals.
  3. Futures - CMC markets (UK) or others out there that get individuals to invest around 10K USD in futures by leveraging the said amount on price differentials. Yes, the possibility of becoming a millionaire looks to be a reality, but the likelihood of getting a quick loss of your invested amount seems more likely.
  4. You've just won a million billion dollars - calls/voicemails/emails/sms's etc. Need i say more on this!
That said, there are times when an opportunity comes knocking, and a certain risk has to be taken. But all in all, one's brain must assess if real value is being created without breaking laws. (assuming both explicit and the unlegislated rules of ethics). The key being short term artificial gains are easy to make while long term it's nearly impossible to keep the castle standing if its built on quick sand.

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