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Old 2nd July 2020, 11:39   #1
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Default Financial Scams, groupthink, speculative bubbles & irrational exuberance!

Financial scams or rather specious business and accounting practices are rife in the world. From the ever popular Tulip Mania to the 2008 housing crises or the closer to home PNB scam; accounting skulduggery, straight up financial frauds or all kinds of chicanery puts numerous lives at risk and blows up the confidence of investors and the general public.

This thread is dedicated to exhibit different scams or scandals which have some financial or economic connections and which shook countries or the world either with its deception or the people/money involved.

The idea of this thread started when I came across the most recent accounting fraud/ scam (counting 15 years in making) in Germany: Wirecard.
Wirecard is a German payment processor and financial services provider which offered its customers electronic payment transaction services and risk management, as well as the issuing and processing of physical cards.
In June 2020, the company reported €1.9 billion in cash missing which led to CEO Markus Braun's resignation and eventual arrest. Few days later, it filed for insolvency. At the height of its operation in Aug 2018, the market cap of Wirecard was ~$28 billion to ~$900 million as of 01-Jul-2020.



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Old 2nd July 2020, 12:17   #2
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The second scam or hogwash of a company which was betting billions (yes billions with a B) on raising an IPO and letting people be saddled with its toxic shares was WeWork.

WeWork or The We Company, is essentially an office leasing firm that can be called, rather crudely, a landlord for freelancers and workers who either do not have a fixed office or need a space to do their work. But that's not what We was projecting. In their S-1 paper filed with the SEC in the US, WeWork called itself a "Tech" company. In fact the word Tech appeared 110 times in the S-1 paper work despite it being unclear what their "Tech" was? Was it the WiFi, or the projectors, or the LED screens? Then there was the erratic CEO & Founder Adam Neumann, who, to put it mildly, was simply bonkers! He bought an artificial wave making company for $13 million that he could surf! He once created a startup that marketed baby clothes with knee pads to help clean homes!
All this was with the backing of Softbank, who after infusing $2 billion valued WeWork at an astonishing $47 billion, something which WeWork was also looking to validate in its IPO (while making a little over $200 million in profits a year). Once the details of the company were out, and its charade in the open for the public to see, all hell broke lose. The CEO and founder was ousted (not before he pocketed a cool $1billion), the IPO scrapped, and eventually Softbank took over WeWork. In Jun 2020, the investors sued WeWork over the botched IPO. Currently the valuation of the company stands at little less than $ 3billion and was about to run out of cash to keep the lights running before Softbank infused additional capital.

An interesting video below:
https://www.bloomberg.com/news/video...f-wework-video

More reading:
Article 1
Article 2
The S-1 filing

Last edited by ValarMorghulis : 2nd July 2020 at 12:19.
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Old 2nd July 2020, 12:37   #3
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Default re: Financial Scams, groupthink, speculative bubbles & irrational exuberance!

Let's now talk about another company founded in 2013 and the archetype for the Silicon Valley stupidity or rather a perfect example of hype and greed: Juicero.
Juicero essentially was a company making machines for fruits and vegetable juicing. But hey, when is that enough? So the company branded its juicers as WiFi enabled "connected" devices that extracted juices out of $6-$8 sachets with QR codes on them and had "sophisticated" technology to impart tons of force on juice sachets to extract the juice out of them. If all this sounds terrible stupid, you have to keep in mind that all this hoopla happened in 2014 when it sounded "new tech" so much so that even Google Ventures invested in this company selling juicers for a whopping $699!
However, the bubble burst when a Bloomberg report found that the juice sachets, which the Juicero used, could be hand pressed to extract juice. Neither did the machine did anything "sophisticated" to ensure that expired juice packets couldn't be used except having an expiration date on them, like, regular juice boxes.
The company founder, Doug Evans, who compared himself to Steve Jobs soon had egg on his face and the company was eventually closed.
Juicero is one company that used the concept of Internet of Things and turned it to Internet of $hit.

More reading:
Article-1
Articel-2
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Old 3rd July 2020, 07:34   #4
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Default re: Financial Scams, groupthink, speculative bubbles & irrational exuberance!

Thread moved out from the Assembly Line. Thanks for sharing!
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Old 3rd July 2020, 10:24   #5
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Default re: Financial Scams, groupthink, speculative bubbles & irrational exuberance!

While WeWork may have been overvalued, or that Adam Neumann might have been a crook or crazy person, I would *not* write-off WeWork, or the concept of standardized co-working spaces.

I run the India unit of a startup, and I have rented a small office in one of the WeWork offices. I can tell you, I would have struggled a lot if WeWork (or in general, standard co-working spaces) did not exist.

My headquarters is in Europe, they also work out of a WeWork office. Me and my Indian team members were able to smoothly travel back-and-forth between these offices, use the same access card and use all the familiar arrangements at both Europe and Bangalore.

So - I feel the relevance of co-working spaces (and hence, WeWork) is still there. We cannot write off the concept, or the leading player in the space.

just my two cents.

Quote:
Originally Posted by ValarMorghulis View Post
The second scam or hogwash of a company which was betting billions (yes billions with a B) on raising an IPO and letting people be saddled with its toxic shares was WeWork.

Last edited by Chetan_Rao : 3rd July 2020 at 11:17. Reason: Trimmed quote.
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Old 3rd July 2020, 11:30   #6
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Default Re: Financial Scams, groupthink, speculative bubbles & irrational exhuberance!

Quote:
Originally Posted by GS300 View Post
...I would *not* write-off WeWork, or the concept of standardized co-working spaces...
...So - I feel the relevance of co-working spaces (and hence, WeWork) is still there. We cannot write off the concept, or the leading player in the space.

just my two cents.
Of course, the concept of shared co-working spaces is going to only become popular. But that's not the story. IWC or Regus, another WeWork competitor has been in business since 1989 and is valued ~$3 billion (when it generates profits at ~11%)
The story is about how WeWork bloated itself to "project" a valuation of $47billion and used fancy words like WeEnergy, WeSpirit and called itself a technology company to sell that. Softbank's eventual aim was to take the company public, and flip its investment while saddling the public with WeWork's shares.
Quote:
“Basically, they paid $47 billion because they thought they could flip it,” said Aswath Damodaran, who teaches corporate finance and valuation at the Stern School of Business at New York University, in an interview. “The kind of numbers that were being thrown around before the IPO were great. So I think Softbank just got greedy and stupid at $47 [billion] because the IPO was imminent and people will see what we paid. It’s a combination of arrogance and greed.”
Article here
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Old 3rd July 2020, 11:42   #7
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Default Re: Financial Scams, groupthink, speculative bubbles & irrational exhuberance!

Quote:
Originally Posted by ValarMorghulis View Post
Of course, the concept of shared co-working spaces is going to only become popular.
--SNIP---
The story is about how WeWork bloated itself to "project" a valuation of $47billion and used fancy words like WeEnergy, WeSpirit and called itself a technology company to sell that. Softbank's eventual aim was to take the company public, and flip its investment while saddling the public with WeWork's shares.

Article here
Correct. Office space renting was nothing new, the coworking companies like WeWork have just split the operations to smaller chunks like Hourly rental, and split the space from the traditional floor renting to seats.

While that may be called some innovation etc, its hardly any business revolution.
At the end of the day, that business is about buying or leasing for 15/20 years exorbitantly priced real estate in city centres and renting it out to small startups which cannot afford offices. May be there is some margin in there, but one must note that every single sector cannot be UBERized.
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Old 3rd July 2020, 11:45   #8
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I have no disagreement on the bloated valuation or flip-flip on IPO and all that. Totally agree that it all points to unsavory stuff going on with the management and investors.

But, my point is, I would invest in WeWork, IF (I know that's a big IF) it is valued truthfully. I have had the opportunity to work in a Regus office for a brief time (almost 4 months), it is day and night difference between WeWork and Regus - in terms of convenience, overall ambience, facilities available for employees, office layouts..many more.

Quote:
Originally Posted by ValarMorghulis View Post
Of course, the concept of shared co-working spaces is going to only become popular. But that's not the story. IWC or Regus, another WeWork competitor has been in business since 1989 and is valued ~$3 billion (when it generates profits at ~11%)
I have to politely disagree here.

--Before I proceed further, I realize that I might appear like a fanboy of wework or someone who has some business interest in it - let me declare that I have absolutely NO relationship with wework except that I run a startup that works out of wework globally--

Many businesses can be described as "nothing new" - e.g.: cloud computing, or bed'n'breakfast or taxi service or hotel booking etc. But many companies are extremely successful in those businesses by re-defining the user experience or by pricing services optimally etc.

Similarly, many companies are able to find value in what WeWork is offering. In the building where I have my office, there is a US based company that has 100+ seats. I do not know why they still rent at WeWork those many seats, I guess they are seeing some value.

As for my company, I do not see renting office anywhere in the near future. I like the plush and sophisticated look that WeWork provides (helps in my hiring). Flexibility in adding and removing seats as and when I need (I sometimes have contract-staffed work that runs for certain duration). Global parity (all locations around the world we work in WeWork offices), ease with which we can book conference rooms, other facilities etc...


Quote:
Originally Posted by ashokrajagopal View Post
Correct. Office space renting was nothing new, the coworking companies like WeWork have just split the operations to smaller chunks like Hourly rental, and split the space from the traditional floor renting to seats.
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Old 3rd July 2020, 14:50   #9
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Default re: Financial Scams, groupthink, speculative bubbles & irrational exuberance!

Why are we forgetting the close to home pyramid schemes like:
Qnet: whose claim to fame (a decade back) was one being the pioneers in e-commerce, except that their website at that time did not feature any tangible product! Their whole remuneration was not based on selling products, but selling memberships.
(a lot many TV stars/actors were on the top of Indian food chain at that time)

The aim of this thread should be to talk about those who market "snake oil" in order to boost valuations and gather outside investments while actually offering nothing.

Last edited by alpha1 : 3rd July 2020 at 14:51.
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Old 3rd July 2020, 15:39   #10
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Default re: Financial Scams, groupthink, speculative bubbles & irrational exuberance!

Is Amway part of this (in)famous group?. or it falls in grey area.
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Old 3rd July 2020, 17:34   #11
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Default re: Financial Scams, groupthink, speculative bubbles & irrational exuberance!

Nice thread! Will go to homepage this weekend .

While I agree with the premise, I don't with some of the examples. WeWork might have tried to position itself as a tech company when they are really just a real estate company, but I wouldn't call it a scam. Ditto with Juicero which was a hilarious story, post the Bloomberg reveal.

If you ask me of a currently big company that is a fraud, it would be Herbalife, and here, I'm on Bill Ackman's side (more information). Have read both sides of the argument and I do think that Herbalife survives more on stuffing the channel than actual customer demand.

Another modern scam that drives me up the wall = sponsored content & advertorials. That is the most blatant form of fraud any media can do on its readers.
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Old 3rd July 2020, 19:35   #12
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Default Re: Financial Scams, groupthink, speculative bubbles & irrational exuberance!

Quote:
Originally Posted by GTO View Post
While I agree with the premise, I don't with some of the examples. WeWork might have tried to position itself as a tech company when they are really just a real estate company, but I wouldn't call it a scam. Ditto with Juicero which was a hilarious story, post the Bloomberg reveal.

Have read both sides of the argument and I do think that Herbalife survives more on stuffing the channel than actual customer demand.
What was the difference between Regus and WeWork - nothing at all? Same wine in "tech" bottle?

As for Herbalife, I met someone who told me that working conditions there are pathetic. Their fulfilment centre is behind my house. The kind of people who come there for their orders are folks who may not be that well educated. I pity them when I watch them emerge while waiting at the traffic lights

Last edited by SDP : 3rd July 2020 at 22:55. Reason: Minor typo
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Old 3rd July 2020, 20:05   #13
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Is Amway part of this (in)famous group?. or it falls in grey area.
Don't think Amway would fall under this category. They actually have products and some of their products are really good.
Also, you won't be chased aggressively to become a member like in the case of QNet. I used to buy their products from several folks and no one asked me to become a member.

QNet, EBiz and others should be at the top of this category. They are nothing but ballooned scams that suck the life out of gullible members.

If you really want to look at scams, start with the Indian stock market where we have multiple scams running every day.
There are thousands of groups on WhatsApp/Facebook/Telegram that do nothing more than "provide stock tips" for free. In reality, these are just fronts for circular trading and pump-and-dump type schemes

Last edited by anantpoddar : 3rd July 2020 at 20:16.
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Old 3rd July 2020, 21:16   #14
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Default Re: Financial Scams, groupthink, speculative bubbles & irrational exuberance!

It gives me great satisfaction to read about these frequent stock market scams, business scams and financial scams in the United States. Except for rare Enron-like accounting scam, I was under the impression that all Americans/Europeans are honest and incorruptible.

Now I don't feel THAT bad about corrupt Indian businessmen/ stock market operators and bank scammers.
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Old 4th July 2020, 17:46   #15
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Default Re: Financial Scams, groupthink, speculative bubbles & irrational exuberance!

Add Lückincoffee and Kingold scams. After seeing so many scams done against Indian banks by so called millionaires, i understand now that it is common across the world.
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