eFishery Fiasco: It’s Nothing New (So Don’t Panic) + 3 Things to Note

Yes, another eFishery post

The same good friend has been flooding me with eFishery articles, wondering if this region is still attractive for investment

But, this isn’t new

Here are some selected predecessors from around the world:
(ask your favorite AI for more less-famous cases)

Stark Corporation (Thailand, 2023, Deloitte)
- Inflated revenue via circular transactions
- Unexplained inventory growth, complex related-party deals
- ฿32B ($900M) debt default

FTX (US, 2022, Armanino & Prager Metis)
- Hidden transfers to Alameda Research
- Intermingled funds, no board oversight, no accounting department
- $8B+ in missing customer funds

Evergrande (China, 2022, PwC)
- Undisclosed debt, inflated valuations
- Aggressive land purchases, complex financing, high leverage
- $300B+ in liabilities

Wirecard (Germany, 2020, EY)
- €1.9B fake cash via phantom accounts
- Aggressive acquisitions, hostile responses to critics
- Collapse of DAX-listed company

Luckin Coffee (China, 2020, EY)
- Fake sales via voucher schemes
- Implausible store economics, rapid expansion
- $310M fabricated sales

Carillion (UK, 2018, KPMG)
- Misrepresented contract revenue/profitability
- Aggressive accounting on long-term deals, rising debt
- £7B in liabilities, 43,000 jobs lost

Now, what to note:

1. They share common patterns:

- High pressure on performance
- Rapid expansion, massive valuations
- Complex corporate/subsidiary structures

2. Audited ≠ bulletproof

First, auditors work on the basis that financial reports are prepared in good faith. Uncovering deliberate attempts to manipulate numbers would require a specialized audit, known as a 'forensic audit.'

Second, auditing is based on “reasonable” accuracy, not absolute. Standards can vary widely—audit programs can range from very lenient to extremely strict.

3. ‘It’s nothing new’

Bad actors exist everywhere. It’s not unique to this region. In the US, you got Enron, then WorldCom, then Freddie Mac, then Madoff - just to name a few. It’s a pattern: a north star shines so bright everyone wants a piece of it. One day, it explodes, leaving people hurt and bitter. Then after a while, we forget and chase the next bright star.

Here's my 2cents...

There are 2 types of misreporting: Mistake and Fraud. The difference lies in the intent to lie.

In my experience, fraud may start as a mistake. Insufficient integrity and enough fear will turn a mistake into a deliberate scheme to cover it up

You can continue working with one, but you cannot with the other

Bottom line:

- Keep your faith but also keep your skepticism sharpened

-..especially when the stars from point 1 above are aligned; extra when the auditor is lesser-known; max it for unaudited numbers

- Only work with people you can trust: mistakes can be fixed and you move on; dealing with low-integrity mindsets keeps you constantly looking over your shoulder