tag:blogger.com,1999:blog-4815867514277794362.post5126660151900262439..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Do not trust Deloitte - whistleblower edition...John Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger25125tag:blogger.com,1999:blog-4815867514277794362.post-85142683967377962752014-06-04T01:59:44.693+10:002014-06-04T01:59:44.693+10:00Presumably by forwarding the letter to the company...Presumably by forwarding the letter to the company then there is a chance that a tipping off offence was committed under money laundering laws?Stringhttps://www.blogger.com/profile/05414512718671720000noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-82108119119995754762014-01-23T15:38:10.607+11:002014-01-23T15:38:10.607+11:00Sorry one more thing... you mentioned 'an exte...Sorry one more thing... you mentioned 'an external partner should review it' - it is standard practice for big four firms to have a 'Quality Reviewer' on listed clients, that is, do exactly what you are suggesting should happen. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-14662035142447631842014-01-23T15:33:59.501+11:002014-01-23T15:33:59.501+11:00I really enjoy your blog and I think you actually ...I really enjoy your blog and I think you actually do the world an incredible service. Having said that, reading this I felt insulted for my profession and couldn't hold my tongue.<br /><br />As someone who has spent more than 6 years working in big four audit, including doing time at Deloitte, I think a lot of what you have said suggests you don't understand what an auditor actually does or what their responsibilities are. Understand than an auditor provides a 'reasonable assurance' opinion, not a 'certification'.<br /><br />Onus falls on the board and management to issue correct accounts and respond to queries such as yours; your question should be to them. The auditor has a duty of care to their client (who pays them) first, and every single person who sends them a letter second. What if you were an unethical person? your letter could indicate a speculative attack on the company designed to derail its share price. If regulation worked how you seem to expect it would images could be conjured of fund managers wanting to delay issuing of financial statements for market reactions and then getting every private citizen they know to write a letter to the auditor suggesting a fraud may exist so the auditor would then have delay the issue and spend time investigating it... it doesn't work that way, nor should it.<br /><br />What's more, you need to understand the main tool for auditing cash is bank confirmation, that is a separate confirmation from the company's bank sent directly to the auditor, meaning that if you had a fraud in cash, not only would it need to be a management fudge, the company's bank would have to be in on it too providing fraudulent or incorrect information... that's something that could only be stopped if the auditor was to audit the banks accounts as well which I'm sure you'll agree is impractical - when would it end then? Either way, if you believe cash is incorrect, you should be shorting the bank too and writing all sorts of letters to get them investigated... banks are better regulated than normal companies so you might actually get some traction there.<br /><br />An auditor is always going to think the evidence they have is better than someone who is not on the inside of the company, because they've had access to everything, rather than only access to the same limited market data as everyone else, combined with their (albeit impressive) calculations. An auditor would likely only act on such information received from people who are inside the company and have all the information, not just a part of it. <br /><br />Looking at it from an audit perspective, getting a letter from a hedge fund manager who specialises in shorting stocks which he believes are fraudulent, suggesting fraud may exist, has to be treated with the same level of professional skepticism as an audit and brought to the attention of the board given it could easily be perceived as a speculative threat... Noone wants to see their share price halve based on an unfounded rumour, no matter how good the guy who started the rumour is at his job.<br /><br />The main mistake the audit firm made was replying to you at all. What you should have got was a one line boilerplate response telling you to take your questions to management.<br /><br />The audit profession does more good than you realise or know, but it can't do everything.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-7331952953072671142014-01-06T08:00:15.747+11:002014-01-06T08:00:15.747+11:00Did you send any sort of evidence with your assert...Did you send any sort of evidence with your assertion? Without evidence, I could see how it would be viewed simply as a crank letter.<br /><br />As for the auditors being a wart, I am not sure how you figure that. The auditors are useless, compromised, corrupt, and feckless to be sure, but to call them a wart grants them more agency than deserved. They are essentially inconsequential. One among many entities corrupted by the corporate sector to the point of irrelevance.<br /><br />As for plaintiff lawyers, not sure why they earn your disdain. Your general compliant is a lack of independent oversight. In fact, tort law is the only remaining check on the industry - and so it is under heavy assault to limit it. And so, like it or not, we should be glad to have those ambulance chasers and the last only only line of recourse.McMikenoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-2309938305459113182014-01-05T15:04:47.901+11:002014-01-05T15:04:47.901+11:00John, I'm curious if you mentioned your suspic...John, I'm curious if you mentioned your suspicion of "criminal element" in your letter to d&t? If you did, Deloitte's response is even more questionable. I'm surprised by all comments thinking john expected to have a two way dialogue w the auditor. The thought is that Deloitte explores the questionable accounts that results in some some verification of fraudulent #s (ie auditor resignation, investigation, restatement, filing delay). I would bet two bit coins the timing of the letter is closely tied to the annual audit timing --s.w.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-73211870002568167002014-01-05T09:52:51.001+11:002014-01-05T09:52:51.001+11:00John, I echo what several posters point out as you...John, I echo what several posters point out as your gullible trust in an auditor. But I respect you greatly and will ask if this approach has worked in the past for you?<br /><br />John, you have also placed undo faith in the use of a administrator, specifically Citco. I am familiar with Citco and many of their processes and processors and I doubt they could have stopped Madoff or the next Madoff. They're a money generating dream paid handsomely to rubber stamp anything that comes there way.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-6336064184743594852014-01-04T23:17:06.029+11:002014-01-04T23:17:06.029+11:00I'm with those who think Deloitte behaved in a...I'm with those who think Deloitte behaved in a wholly foolish and unethical manner.<br /><br />First, there is a simple practical argument : if whistleblower information is passed on to clients, then no whistleblowers will come forward.<br /><br />There is a second practical element : passing on information may lead to personal danger to the whistleblower. To behave in a way which leads to this outcome is morally reprehensible.<br /><br />More profundly, though, there is a fundamental ethical argument. The information was provided in confidence; I am sure the letter opened with this.<br /><br />*The implicit deal is - I have these concerns, they are confidential, if you want to read them, you cannot pass them on*.<br /><br />If Deloitte felt such information was impossible for them to receive such information *they should have stopped at that point*.<br /><br />To read the information is to accept the contract of confidentiality - so Deloitte accepted and then violated.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-76695867700586774492014-01-04T19:14:53.203+11:002014-01-04T19:14:53.203+11:00I agree with Absalon, and John. The underlying poi...I agree with Absalon, and John. The underlying point is that Audit firms are a wart on the capital markets, unless they put their clients up to the test of scrutiny - surely this was their intended purpose! <br />Seems to me they are quite happy to be complicit... There should be more skin in the game for them, ie. if the firm misleads investors and the auditing firm doesn't pick up on it, but can be proved to have irresponsibly fact checked, they should be up for restitution to investors. Carl HTnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-762569502583003372014-01-04T18:35:10.883+11:002014-01-04T18:35:10.883+11:00I like the "Terminal Spy" allusion in Mc...I like the "Terminal Spy" allusion in McContrarian's letter. Eapen Chackohttps://www.blogger.com/profile/16989320987808898240noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-45763389832924029912014-01-04T14:15:58.571+11:002014-01-04T14:15:58.571+11:00Based on other comments, seems like people assume ...Based on other comments, seems like people assume that Bronte is asking for a dialogue but nothing directly suggests a dialogue is an issue. <br /><br />If Bronte's letter is just a "I suspect certain accounts are fake, and question their validity based on research" then it seems like it makes sense that Deloitte would take this into consideration as a tip that could help avoid harm to reputation. <br /><br />If Bronte asked Deloitte for additional info to prove accounts are correct, then obviously that is different. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-78047516371369073192014-01-04T12:11:26.890+11:002014-01-04T12:11:26.890+11:00What's your definition of "whistleblower&...What's your definition of "whistleblower"? I always understood that denoted an insider. Whistleblower protections protect such a person from reprisals such as being fired or demoted.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-2056364172138217822014-01-04T10:54:49.001+11:002014-01-04T10:54:49.001+11:00@ Anonymous @ 8:57 am
How many frauds have the &#...@ Anonymous @ 8:57 am<br /><br />How many frauds have the 'Big 8', then 'Big Six', then 'Big 5', now 'Big 4' ever uncovered in the entire history of external audit?<br /><br />(skips beat.......................<br /><br />ZERO<br /><br />http://en.wikipedia.org/wiki/External_auditor#Detection_of_fraudCrocodileChuckhttps://www.blogger.com/profile/10762442097044797842noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-26880730860019453022014-01-04T09:34:01.856+11:002014-01-04T09:34:01.856+11:00I didn't see anything in the blog that stated ...I didn't see anything in the blog that stated that Mr. Hempton wanted an individual dialogue with the auditor, so let's just stop saying that. read it again. He never asks for one. He sent a letter of his concerns, because he needs to know if Deloitte is being deceived, willfully or otherwise. These days, you know, they carry a larger burden for the things they sign off on. He made his concerns known, if for no other reason than his previous blog post. He makes no material gain from Deloitte by relaying his letter and in fact, they may have shut the door on relieving themselves of future laibilities. I look forward to both the implosion and the inevitable blog write-up. Unless of course, the company winds up being bought out by the chairman and/or a related party after a good run up. But I can't remember that ever happening...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-53639336191554652772014-01-04T08:53:21.023+11:002014-01-04T08:53:21.023+11:00While Deloitte clearly needed to pass on your info...While Deloitte clearly needed to pass on your information to the client, it is not so clear they had to pass on your letter. They could have protected your identity yet passed on the allegations. That would have met their legal responsibilities to the client, and their ethical responsibilities to you. Paul Gillisnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-59815552008221487332014-01-04T07:21:53.624+11:002014-01-04T07:21:53.624+11:00I pass on commenting on Deloitte's conduct, bu...I pass on commenting on Deloitte's conduct, but I will say anyone with a brain and moral sense shouldn't be too surprised that things go wrong on Deloitte's watch.<br /><br />As to "going to the SEC", that is laughable. Basically the SEC is deliberately weakened by the legislative and executive branch. The staff is only allowed (budget 'issues') to pursue a single digit percentage of the cases they already KNOW are very likely to be serious. Read that previous sentence again: I've been in the stables talking to the animals. Which cases are pursued, you ask? The ones' whose pursuit harms political rivals and their associates.<br /><br />I think you have done Ok, John. But I do like the idea of addressing the head of the audit committee and perhaps the whole audit commitee. It isn't perfect, but getting them worried is about as good as one can easily do.Dikaios Logosnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-78866767708624591582014-01-04T05:42:36.464+11:002014-01-04T05:42:36.464+11:00"Go to SEC next time."
That seems to be..."Go to SEC next time."<br /><br />That seems to be a complete waste of time. The evidence of the last ten years is that the SEC is utterly useless. After multiple warnings they only moved against Madoff when he marched into their offices and forced his own confession on them. <br /><br />I'm not an auditor but it seems to me that Deloitte should have gone back and taken further steps to verify the information being provided to them by the company without telling the company why they were doing it.Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-68198636972873681402014-01-04T05:26:55.170+11:002014-01-04T05:26:55.170+11:00Deloitte could not engage in a dialogue with you a...Deloitte could not engage in a dialogue with you as this clearly would violate client confidentiality rules. The problem with those rules is they treat the company, instead of the investors, as the client.<br /><br />Deloitte cannot ignore the information that you provide them, however. They must also (unless they consider the allegations to be clearly inconsequential) inform management and the audit committee, and also the SEC if the company does not deal with the issues. <br /><br />A good article on this: http://www.law.yale.edu/documents/pdf/SEA-Section_10A_Audit_Requirements-A_Play_in_Five_Acts.pdfPaul Gillishttp://www.chinaaccountingblog.comnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-83676495823251525312014-01-04T05:15:56.130+11:002014-01-04T05:15:56.130+11:00An auditor should not share information about a cl...An auditor should not share information about a client with an outsider any more than a priest should pass on anything learned during confession. I find it naive that you seem to have expected that Deloitte would talk to you. However, they should never have forwarded your letter to the client. That will come to haunt them, and not only if something bad happens to you because of it.<br /><br />How often have you tried to alert somebody to something but were ignored?<br /><br />Why do intelligent people like you still believe that auditors, regulators and all the other financial oversight bodies are more than blind, toothless dogs who usually fail to bark? And it is meant to be that way so that fools can be parted from their money more easily.Wilfriednoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-57039750125497561242014-01-04T04:55:59.448+11:002014-01-04T04:55:59.448+11:00Deloitte did exactly what the law and professional...Deloitte did exactly what the law and professional standards required. You should have filed a whistleblower complaint with the SEC so you could have been paid, and then sent it to the chairman of the audit committee. The audit committee would be required to inform Deloitte. <br /><br />But it sounds from your post that you do not have proof, only a theory, and wanted Deloitte to do your field work. It does not work that way. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-8493982944540605892014-01-04T03:50:59.736+11:002014-01-04T03:50:59.736+11:00Agree with comment #1. Go to SEC next time.Agree with comment #1. Go to SEC next time.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-36478254719664831012014-01-04T02:50:58.577+11:002014-01-04T02:50:58.577+11:00John,
I agree that what Deloitte did is the only p...John,<br />I agree that what Deloitte did is the only path they could have taken. If you had written directly to the Chair of the Audit Committee, then it becomes more challenging for the company because per the typical audit committee charter, it would be difficult, but not impossible for them not to notify the auditor and their general counsel and to start some sort of process. Now, you are a whistleblower from the company's standpoint. It would have been entirely inappropriate for Deloitte to have started a dialogue with you, as Anonymous has said also. <br />Eapen Chackohttps://www.blogger.com/profile/16989320987808898240noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-82691459206628454942014-01-03T22:05:48.838+11:002014-01-03T22:05:48.838+11:00"Dear Mr Chem Co,
I have evidence that your ..."Dear Mr Chem Co,<br /><br />I have evidence that your client, Mr Oli Garch, is using chemicals supplied by you to poison his rivals. I'm sure you don't wish to be complicit in murder.<br />This letter is sent in the strictest confidence.<br />yours..."<br /><br />"Dear Whis Le Blower,<br />I have passed on your letter to my client Mr Garch since the use of arsenic & polonium is his responsibility. I expect his representatives will be in touch.<br />regards<br />Mr Chem Co"MrContrarianhttps://www.blogger.com/profile/05265474275564866062noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-79485247125450847292014-01-03T20:57:16.823+11:002014-01-03T20:57:16.823+11:00I don't see how audit firms are a "wart o...I don't see how audit firms are a "wart on the capital markets". Really?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-89804637607980032482014-01-03T17:51:22.472+11:002014-01-03T17:51:22.472+11:00Just checked on Sarah Simpson. She seems to be pre...Just checked on Sarah Simpson. She seems to be pretty senior to make such an elementary mistake. That is one hell of a blunder. <br /><br />I guess you must have kept your attorney posted on this one.Rahul Deodharhttps://www.blogger.com/profile/13354874480198485819noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-11835198834883809152014-01-03T16:11:35.597+11:002014-01-03T16:11:35.597+11:00Perhaps you should have written to an oversight bo...Perhaps you should have written to an oversight body, rather than the firm's auditor. They have a duty to their paying client, not you, and it seems appropriate that they bring such a letter to the attention of the audit committee that is charged with oversight of the financials. It is not the auditors job to be a regulator or police the board. They provide an audit opinion clearly subject to representations made by management to the board. So I suggest you were barking up the wrong tree and misunderstanding the role of the company's auditor in this case. Anonymousnoreply@blogger.com