SCAM - The typical signs to look for

Today a new TV-series is starting on CMore regarding a Swedish bank, HQ Bank, that collapsed in August 2010 due to trading of derivatives at too high risk and stating a complete wrong valuation of the financial instruments in the books/balance sheet which allowed the risk-trading to continue until the bank finally collapsed.

Now, this is just one example out of many different corporate scandals that have occurred over the years, and there are a large number of them and in several different industries that comes up if you do an internet search in this subject.

Since I am a derivatives specialist and I have additionally had the Global Profit/Loss responsibility over many billions of EUR and USD in all kinds of financial structures such as e.g. trading/bridge-facilities/loans/investments/risk-capital/debt-capital/settlement etc then people often ask me how all these scandals can happen.

The answers to these questions about the origin of scandals are multiple. However, there are some typical signs that indicates a strong reason to execute a thorough investigation and here are a few of those signs to look out for:

1. Employees or Managers who don’t want to hand over their work to co-workers or to new people in a board or organisation. E.g. they don’t want to go on vacation, or they want to remain in the same position where it previously might have been difficult to find voluntaries (they are wanting to avoid others from getting insight in their work).
2. People make themselves hard to reach when you have questions; they don’t return phone calls and don’t answers mails. Maybe they state that it is too complex, or they don’t have the time.
3. People become very irritated or arrogant or even aggressive when you have questions (this is a very strong sign).
4. People try to “get rid of” who ever is trying to ask questions or investigate their work (they try to undermine or back-stab who ever is asking questions about financials or other information – they might even try to get them out of the building or fired).
5. They don’t reply at all – or they use the “politicians’ way” which means that they talk around it or change subject or respond trying to use very complex arguments – but in the end they have not answered the question.

The above are some examples of warning signs to watch out for. People who have nothing to hide are never reluctant to answer questions about their books or financials or any other information to whomever are entitled to view the information. So, if it appears to be very hard to get answers – then just keep asking and digging because you might be close to detecting a scam. However, be polite when you perform your investigation because maybe the person you confront simply do not have the relevant and necessary knowledge in the subject/field and then it is merely a matter of further education that is required and nothing else.

AimHill Consulting Group
www.aimhill.com