The Lehman Loss – Did The Auditors Grease The Wheels?
In Japan, it’s not unprecedented for the auditors to make everyone feel comfortable and sometimes be in on the deal…
U.S. investment bank Lehman Brothers was defrauded of some $353.1 million after it was caught in a scam in Japan, a source familiar with the situation told Reuters on Saturday, and trading house Marubeni said some of its staff were involved.
Goldman Sachs was also caught in the scam, daily Asahi Shimbun said on Saturday, citing sources familiar with the issue. The full scale of the fraud was not immediately known.
The Nihon Keizai Shimbun reported on Saturday that senior officials at medical consulting firm Asclepius Ltd, a wholly owned unit of LTT Bio-Pharma Co sought to raise funds from investors for the purchase of hospital equipment. The newspaper said the fraud involved fake documents from Japan’s fifth-largest trading firm Marubeni Corp.
External auditor for Lehman Brothers: Ernst and Young.
Interestingly Lehman Brothers features its Japanese operations on its website. For those of you who read Japanese, here is a link to that site.
Marubeni”s auditor is Ernst & Young Shin Nihon.
I have daily readers from Shin Nihon…
A firm called NIF Ventures backed the IPO of LTT- BioPharma in late 2004. The investment bank is a subsidiary of Daiwa Securities and its subsidiary Sumitomo Mitsui Banking Corporation. They are audited by KPMG.
I don’t know the culture or details about Japanese audits, but have exposure to the audits of Japanese subsidiaries based in the U.S. What I do see is that when a U.S. trained auditor attempts to actually audit the subsidiary, it rarely works out, and the gane-save lan is usually to bring in a “gray haired” Japanese auditor that was trained in Japan. I’ve concluded that such subsidiaries are basically unauditable using US standards, and people that try to do those audits are frustrated or roll-over, and people that rely on thye results are kidding themselves.
Also, it would appear the amount of respect and compensation for Japanese auditors is way lower than it is here in the US. Just go to a meeting at a Japan company and you will instantly figure that out.
I sorta feel bad for E&Y, not because I like them very much, but because I’ve been in a situation where my client got screwed over by another company that was audited by the Firm I’m associated with. The lead partner can’t say anything that will help, so the only approach is to apologize, blame the management of the other company, and bring in the “big bellies” from National and hope you get to keep your job.
Final Four Guy
the whole Japanese
This is delicious. I see it as a form of, pardon the pun, “Street Justice”, considering who the “victims” were.
Ernst and Young are money grubbers and a bunch of crooks. I worked for them in the Silicon Valley for 3 years and when I identified a controller embezzling money from an audit client they poo-pooed me (pre Enron) instead of the client. I was affected by a RIF shortly after.