470 Final Cases
poison pill
used by a company to give shareholders certain rights in the event of takeover by another firm, most effective anti-takeover plan Shareholders have opportunity to buy more shares at a discount Twitters board unanimously approved the provision prevent musk from getting over 15%
How much stake did Elon originally purchase in twitter?
~9%
Worldcom fraud
$11B fraud that led to bankruptcy Investors collectively lost $30B Fraud was discovered by an internal auditor Arthur Anderson -- auditor, failed to detect the fraud WorldCom is now MCI and was acquired by Verizon
Wirecard issue
E&Y was unable to verify the existence of $2.1 billion of Wirecard's cash June 2020 → Wirecard's CEO Markus Braun was accused of inflating Wirecard's sales volume with fake income $2 billion probably does not exist
E&Y's role in Wirecard fraud
Hired by Wirecard in 2008 amidst allegations of deficiencies in financial statements → EY cleared Wirecard 2009 → EY became Wirecard's group auditor EY's repeated signoff of Wirecard's financials adds to a number of instances in recent years in which EY affiliates have seems to miss signs of fraud
What is wire card?
Intermediary company to help connect credit card companies to retailers
Special KPMG audit Wirecard
Requested by the board of directors Related to concerns about its accounting practices KPMG indicated that Wirecard was unable to provide all requested documents and those that were provided were electronic and couldn't be verified
Confirmation of cash balances → reliability of electronic documents compared to originals: Wirecard
Scanned electronic copies of confirmations from 2 philippine banks verified the cash in March 2020, but a request for subsequent confirmations revealed that the electronic versions were fraudulent and the banks never held any funds for Wirecard
Shareholder options - twitter
Shareholders can sell to Musk for $54.20/share (38% premium over stock price day before Musk revealed his stake) or wait until the day Twitter goes private to receive the current trading price
Worldcom Fraud
Simple fraud with huge outcome Recording expenses as investments (assets) Booked line costs as assets instead of expenses Resulted in billions of $ in profit rather than a net less .com burst caused lines not to be used but they were still in WorldCom's books as assets even though they were expenses that were paid monthly Also booked routine maintenance expenses as capital expenditures
Terms of Elon's twitter deal
•$1B breakup fee (if find another buyer or financing for deal falls apart) •Musk can't back out if Twitter loses all/most of its user before the deal •Oct 24th drop dread date (if deal hasn't closed then both parties can walk away) •Musk can tweet about the deal, but cannot disparage Twitter or any of its employees
How is a hostile takeover accomplished?
•A) Taking bid directly to target company's shareholders (i.e., tender offer made to shareholders at a premium price) or •B) Replacing target company's management (i.e., proxy contest to unseat current directors)
Worldcom background
Telecommunications company Rented infrastructures (landlines) and paid line costs for them → should be an expense WorldCom merged with over 30 other companies, but when the internet and cell phones emerged, the telecommunications industry changed Started manipulating financials
Wirecard's unusual arrangements of cash
Trustee accounts → Wirecard claimed it was a form of risk management Third-party partners processing payments on behalf of Wirecard (impacts inherent risk) in markets where it doesn't have licenses Wirecard's cash was held in bank accounts it didn't control → revenue from these markets was deposited in trust accounts rather than paid straight to Wirecard
