Dear readers and followers, considering all the material and inspiration provided lately by great corporate barons and myopic regulators, for fairness, I decided to write a brief guide on how to fabricate revenues so everyone can benefit from it, and not only the big corporations that can afford to pay expensive lawyers, consultants, and bankers for advice.
Is what I am going to write about legal? I do not think it is, but apparently, it became legal, and I missed the notice about it. I personally would not recommend any honest citizen use anything in this brief guide, but in a period of history when rules and regulations are so discretionary, I will not judge anyone who decides to take advantage of it.
STEP 1: Your company (Company A) has a big pile of inventory your clients do not want to buy anymore because their end market is saturated. Here is when you have to create a “Narrative” to reignite demand for your goods. Let’s assume you have a pile of semiconductors that are quickly becoming outdated in your inventory.
STEP 2: Create a “Narrative” to reignite interest in your products. Not difficult at all, just pick up a small company that is trying to develop a new product no one wants using your semiconductors and build a marketing campaign around it (Start-Up B).
This service is going to be “revolutionary”, what they are doing is “world-changing”, they will make “billions” in revenues, and so on, are the typical buzzwords that always work to attract attention.
STEP 3: Find a partner (Company C) that gives legitimacy to the small company. This partner can be easily found among your top clients who themselves built up a stack of inventory they struggle to monetize with their end clients.
STEP 4: Now Company C (on paper) invests “billions” in this “revolutionary” Start-Up A that “will change the world”. What does this investment look like? The small start-up does not need tons of cash to run its operations, but you still want to kill two birds with one stone:
- Land a big “headline” in the MSM to trigger a “narrative”
- Put to use the idle capacity you built
So that “billions” investment is in reality a small amount of cash and a big amount of “credits” for this start-up to use in the future.
STEP 5: Both Company A and Company C still face the problem of a depreciating inventory. That’s why other clients of Company A are still not placing orders to jump on this new “revolutionary” opportunity because they can buy those semiconductors from other oversupplied companies that want to get rid of them. This is when Company A “invests” in Company D.
STEP 6: Company D, a completely empty shell, then uses the cash from Company A to place a “large order” for semiconductors at an inflated price. However, the money they got in their bank account, of course, cannot cover the order, so they need to borrow. Company D then goes to Private Investor E and is open to lend on two conditions:
- Company D can demonstrate they will make revenues
- Company D pledges its future assets as collateral
STEP 7: Company C then signs a contract for “future services” with Company D for “billions” with the intention of making those services available to Start-Up B.
STEP 8: Company A receives a call from Private Investor E asking for an appraisal of the value of the semiconductors that will be delivered to Company D. Company A, of course, confirms they expect “huge” future demand because of the “revolutionary” product Start-Up B is building.
STEP 9: Private Investor E agrees to lend the money, and then Company D pays for the delivery to Company A.
STEP 10: Company A then agrees to buy “future services” from Company C which will then buy more Company A semiconductors (with the same cash) since now they expect a “pick-up” in future demand. Of course, this new purchase is made at higher prices so both Company A and Company C can “re-evaluate” their inventory at higher levels and then book a (fictitious) “profit”.
At this point all Company A has to do is to replicate Steps 1 to 10 with Company C and make sure to pay for non-stop PR campaigns to entice more companies and private investors to join the scheme.
If you are Private Investor E and you foresee this potential pick up in revenues for both listed companies A and C, why not buy long-dated deep out-of-the-money options on both stocks? Nothing wrong with that… right?
Can this scheme go on forever? Well, theoretically speaking till the money is being printed into the system out of thin air the scheme can be perpetrated for a very long time, however, as you can easily understand when the cash needed to “spin around” and fabricate revenues starts drying then it will come to the point someone won’t be able to pay the bills due and as it happened for Enron from that moment on everyone figures out that in reality, the king was naked.
After reading all of the above I believe what we discussed yesterday in “NO, NVIDIA IS ONLY ONE PIECE OF A BIGGER (FRAUDULENT) PUZZLE” will be clearer. How many more companies are using similar “tricks” to goose their revenues and consistently “beat” Wall Street Banks (ridiculous) “expectations”? You tell me…
By the way, the gentleman in the picture was Charles Ponzi featured in a popular financial magazine while keeping track of his “successful” investments