By: Laura Hoffmann, Editor-in-Chief
On Wednesday, September 10, 2014, Carson Block, the famous U.S. short seller and founding partner and Director of Research of Muddy Waters Research LLC, joined the Zicklin Forensic Accounting Association and Zicklin Graduate Accounting Society (ZGAS) at Baruch College for an informative and interesting discussion. Mr. Block is one of the 50 most influential people in global finance today. He discussed his background, approach to short selling, experiences with Chinese companies, some published research of Muddy Waters LLC, and his views on the capital markets, accountants, boards of directors, lawyers, market research firms and management. Following Mr. Block’s presentation, Charles Hwang, President of ZGAS, moderated an audience Q&A session.
Some highlights of the presentation were:
· In discussing his background, Mr. Block’s first piece of advice was to “be honest with yourself about what you want to do.” One should not get a job just to make money, but do something one enjoys, which leads to money.
· Having a background that is as intellectually diverse as his, wherein he attended law school and later acted as an entrepreneur and opened a storage company in China, is beneficial. Experiences such as his make better investors and provide a more critical eye. His recommendation was to never stop learning and study other areas, as he did, to become better-rounded. He also said mistakes are all right (as long as they are small), as they allow one to develop valuable skills.
· The most valuable skill he picked up in his experiences, useful for both business and personal life, was understanding people. In doing so, he could understand what other people were thinking, taking it to the next level.
· In terms of auditors, he feels they work for their clients. There are no negative consequences for audit failure, and the accounting profession fights against accountability. Big 4 firms lobby against having to disclose the names of senior audit partners in audit reports. Key audit work is often done by juniors, thus audits usually catch small frauds and not those enacted by management. In fact, only 5% of audits uncover fraud. So, an unqualified opinion is not a clean bill of health for investors. Thus, one should never discount a strange feeling about a company.
· In terms of management, they often manage on a short-term basis and are prone to financial engineering. Once CEOs are put on a pedestal, such as those at Enron, it is hard for them to come down and admit mistake or failure.
· As to Boards of Directors, they owe their position to management, often have an easy paycheck, and thus will not crack the whip on management. When Boards do independent investigations, they usually conclude that things are running as they should, because to admit things are wrong indicates they failed in their jobs. Thus, investors should take these investigations with a grain of salt.
· With respect to lawyers, clients hire and pay them. There is also the attorney-client privilege, which shields what is truly going on in the corporate world. Lawyers are often used to comply with legal requirement disclosures, and make such documents indecipherable.
· In terms of market research firms, there are loopholes in disclosure requirements in regards to their work. They are paid to do market
research studies by the firms that hire them. For instance, they value assets by the standards of such firms. This practice is particularly egregious in China.
· The backbone of fraud is often related-party transactions, and thus Muddy Waters looks for this first. Acquisitions, accounting anomalies, and a lot of goodwill are also key indicators of fraud.
· With his experiences in China, Mr. Block said “China is to stock fraud as tech is to Silicon Valley. No fraudster from China has ever been meaningfully punished for defrauding North American investors.” Further, China and the U.S. do not recognize each other’s judgments. These risks are priced into investments in Chinese companies.
· His framework for short selling is to know enough about each discipline to understand different perspectives of dissimilar people, such as attorneys and investors. He looks backwards to see if there was financial engineering. He also always asks himself whether the market has a fundamental misunderstanding of the company.
· Muddy Waters Research generates key performance indicators as building blocks to compare different businesses in research.
· In terms of Muddy Waters Research tactics: (1) He keeps management at a distance, and always reads the transcripts of a few years’ worth of corporate conference calls when examining a company. He looks, for instance, at initiatives that were mentioned and never followed up on. He is fundamentally looking to see if management is staging and managing such calls. (2) He looks for risk factors in material disclosures, because he knows lawyers are doing their job of making things indecipherable. Thus, he makes sure to read and understand the material. (3) He pays close attention to taxes, because there are often strange things occurring with tax rates in fraud situations. (4) He is critical of fair value accounting, because this method of accounting can be used to generate a positive P&L, and ultimately leaves it to management’s discretion on whether or not they will generate a profit. (5) He is very careful with respect to management estimates.
· Mr. Block is a short selling activist, and speaks out on companies. Activists basically use facts to form a conclusion and then let
markets make the decision. This is not insider trading, as short sellers put out intellectual property and opinions, and such opinions are formed by looking backwards and not inside. Most companies won’t sue short sellers for defamation in civil lawsuits because they are aware these short sellers can prove cases against them.
· Non-activist short sellers are a traditional form of short seller, and their methods vary: from “insurance,” wherein, these are
good when the market is bad and won’t go up much in a good market, to “sniper,” which are high beta, or risk, stocks.
· Short selling counterbalances bubbles (such as the Dot-com bubble) and fraud.
ZGAS Executive Board members asked a few questions during the Q&A Session:
ZGAS Executive Vice President, Sherri Zhang, posed the following question: All of your experiences make you who you are. How does your law experience help you do research in China? Mr. Block’s response: “Good question. It was immensely helpful. Investors that don’t get into the legal aspect of how companies are structured can be missing some important issues, especially in China. Reading material exhibits closely and understanding them is important, as one finds shocking things there. But it has helped me in many situations to know there was something wrong.” Mr. Block went into detail on his experience with Sino-Forest (a Chinese company).
Keren Shi, ZGAS Internal Committee of Event Planning, then asked: “How do you complete the investigations of Chinese Companies; are attorneys and accountants Chinese, and do you have partnering firms in China that do the investigations?” Mr. Block’s response: ”We have people on the ground in China, but the Ministry of State Security in China came at everyone doing due diligence, so we had to cut down our staff. Internally we have lawyers and accountants that are Chinese and travel to China, but we work with outside firms. We don’t do it openly as Muddy Waters, and pay them through another entity. This is because one of the biggest problems in this business is
that the more successful you become the more people follow you in the market, because you will move stocks.”
ZGAS President, Charles Hwang, posed the following question: What’s the toll on your life being known as a short seller? Mr. Block’s response: “I’ve gotten death threats. I often joke with my wife that it’s one of my key performance indicators.” Ultimately, though, he feels it’s all worth it because he enjoys doing this.
To listen to the entire discussion, please click here: https://baruch.mediaspace.kaltura.com/media/Muddy+Waters+101/1_oe3xmbar
For the event slides, please click here:
We hope this has been helpful. If you would like to read more on the discussion, there are a few articles that have been written about it:
New York Times:
By: Laura Hoffmann, Editor-in-Chief
On Monday, September 8, 2014, professionals and recruiters from Ernst & Young and Deloitte joined the Zicklin Graduate Accounting Society (ZGAS) for an information session on their respective advisory practices, followed by a Q&A session moderated by ZGAS board member David Shifrin. The event concluded with an open networking session.
The panel was comprised of the following professionals:
Lena Bakis, EY, Manager, Financial Accounting Advisory Services
Andrew Hovance, EY, Manager, Financial Accounting Advisory Services
Merilee Martin, EY, Campus Recruiter
Andrew Mahabir, Deloitte, Manager, Business Risk
Caroline Leach, Deloitte, Consultant, Risk Analytics
Katherine Dvorak, Deloitte, Campus Recruiting Specialist
The panel began with backgrounds on each firm’s advisory practice:
EY’s advisory practice focuses on non-audit clients with issues related to Financial Accounting and Advisory (FAAS), ranging from bankruptcy to IFRS. This service falls under the EY assurance service line and is classified as a specialty practice. Exposure to audit clients in advisory is limited due to independence concerns. Practitioners in this area are forward-thinking, often focusing on accounting standards as they evolve and how those changes will impact their clients. Experience in assurance is very important to the FAAS practice. EY has a rotational program that lasts two to three years, wherein staff initially work in assurance. Staff are often recruited from assurance for FAAS.
At Deloitte, advisory falls under the Audit & Enterprise Risk Services service line and comprises 6,000 people nationwide. Professionals in this area have diverse backgrounds, such as in financial statement audit, internal control audit, and valuation services. They also have a wide variety of majors and degrees. The advisory staff look at a large number of risks and have a high degree of interaction with
clients. One of the firm’s larger practice areas in advisory is cybersecurity.
David Shifrin: Please elaborate on your experiences at your respective firms.
EY: Andrew joined the firm after graduation, worked in audit for four years (his first client was Lehman Brothers). He got into FAAS because his mentor recommended he do so. Merilee began as an experienced hire in the Event Services Group, and then transitioned into recruiting in Houston. She recently came back to New York as a recruiter. Lena worked in audit for five years, and then transitioned into advisory. She emphasized that advisory is not where she had expected to end up (as is often the case).
Deloitte: Andrew started in internal audit and ended up in IT advisory. He reiterated Lena’s (EY) point that one never knows where one will end up when first starting one’s career. Caroline attained an accountancy degree with an IT minor, and started at Deloitte as an experienced hire. Katherine started as an experienced hire with Deloitte in Chicago. She felt that the firm was a breath of fresh air, because it offers a lot of flexibility in terms of one’s working schedule.
David Shifrin: Please elaborate on your prior work experiences, and include quirky things on your resumes.
EY: Merilee was a marketing and events intern with Pfizer prior to joining EY. She was present during the life-cycle phase of a drug that was to have a positive impact on lung cancer and thus found it very rewarding. Andrew then offered resume tips and stressed that resumes are really important to recruiters. What he focused on when looking for a job (as all students should) was ensuring that he demonstrated an entrepreneurial mind-set on his resume, with active leadership roles and extracurricular activities. Lena reinforced this point by specifying that what differentiates students are extra-curricular activities as many students have similar GPAs and working experiences. In fact, when looking at a resume she will immediately scroll to the bottom to see what activities the student participates in.
Deloitte: Andrew had a tax internship while in school, and learned that tax was not his calling. Katherine was a recruiter for Deloitte during Occupy Wall Street.
David Shifrin: How does your firm integrate new hires?
EY: Andrew began by discussing the counseling families that new hires can rely on for support. He mentioned other social events, often planned by social committees, such as dinners, networking events, happy hours and intramural sports. Merilee said that new interns’ engagement teams treat them just as they would full-time staff. There are also great events at EY that foster team spirit among new hires and current employees. On EY Connect day, all firm offices nationwide shutdown so staff members can volunteer for a cause of their choice. Further, there is an intern conference where 3,000 interns in the U.S. go to Disney in Orlando to network and participate in team-building activities. Managers and senior managers also go to Disney in Orlando later in their careers to celebrate career milestones and their accomplishments.
Deloitte: Katherine discussed that Deloitte’s intern program allows individuals to get real-world experience in working with clients. It also allows for networking with other interns. Every Friday, all the interns in the New York office have an event. To foster the team spirit among new hires and current employees, there is the Deloitte Impact Day, wherein the entire company shuts down and all staff members perform community service activities. This is followed by a party. Additionally, there is a summer fair in the office which allows staff to connect and network with intra-office clubs called Business Resource Groups.
David Shifrin: What types of responsibilities do new hires take on?
EY: Lena began by saying that the firm assigns peer advisors to new-hires to bring them up to speed in their new environment.
Deloitte: Caroline discussed how all new hires are taught team-working skills. Andrew added that new hires are treated like everyone else, as they are there to learn and ask questions. And Katherine stated that Deloitte is always training individuals, especially new hires -- they are never just thrown in. New hires are given the chance to acclimate to their engagements and over time attain more responsibility. Everyone, including new hires, is valued and accountable. Further, mentors teach new hires and also help them acclimate to their work environment.
David Shifrin: How do you see your firms or practices in the next five years?
EY: Merilee stated that EY has a new vision and goal, which is to grow the firm and become a 50-million person staff by 2020. Thus, the firm needs more quality people. Lena then said that the goal in FAAS is to grow to 1,200 people, meaning three-times the size of the practice currently.
Deloitte: Andrew stated that the firm’s advisory practice is a growing overall, especially the area of cyber risk.
David Shifrin: What is the best part of each of your days?
EY: Andrew said that the people, culture and flexibility of EY make his day worth it. Further, every day is a new challenge and learning experience. Lena then stated that she loves seeing clients appreciate what she has done for them.
Deloitte: Andrew stated that the people of Deloitte make his day, as he feels the firm is one big family. Katherine said she enjoys the use of technology within the firm, such as videoconferencing.
Once the floor was opened up for audience questions, the following points were made: Lena (EY) stated that students should stay connected with the FASB and other industry sources, so as to be updated on accounting and tax issues. Merilee (EY) then discussed team communications, noting that one should observe and understand the culture of one’s team. Lena added to that, saying communications should sometimes be face-to-face and not solely electronic. Katie (Deloitte) further stated that no two people are alike, and communications depend on the group one works within and its key players.
The panel discussion then concluded and an open-networking session began.
By: Laura Hoffmann, Editor-In-Chief
On Monday, September 8, 2014, during the height of On-Campus Recruiting season (OCR) at Baruch College, Jack Pullara, former partner at PricewaterhouseCoopers and current manager of the Working Professional Career Programs at the Graduate Management Career Center (GCMC) joined the Zicklin Graduate Accounting Society (ZGAS) to provide students with tips and tricks for the Fall 2014 OCR. We would like to highlight some of the key points discussed, for those who missed or need a recap of this informative workshop.
Attitude and energy are important in all interactions with recruiters. One should convey excitement about the position and firm. This is because most jobs in the accounting field require long hours and involve dealing with important clients; thus, recruiters need to be sure that one will work well with others and have good interactions with clients. Attitude and energy can often be very easily shown, via a smile and handshake.
Resume Tips: All students should have their resumes proofread. When recruiters look at resumes they ask three key questions:
1. “Can this person do the job?”
2. “Is this person the right fit?”
3. “How well will this person do the job?”
These questions are easily answered through clues on one’s resume. Other questions regarding key skills for the job, such as attention to detail, are also easily answered by looking at one’s resume. In terms of formatting, be sure no tabs are used, use Calibri font, and center margins. As for content, list skills and accomplishments but do not use words such as “assist” and “participate in,” as they are too broad and make it appear that one did not truly accomplish the task on one’s own. Additionally, Jack suggests leaving hobbies and interests off one’s resume and listing them on LinkedIn (a link which one should provide on the resume and cover letter heading). Only include skills and hobbies that would be relevant to the position (i.e. chess champion).
Cover Letter Tips: Students should always provide a cover letter, even if it is not requested by the firm, unless application instructions specifically state not to include a cover letter. Customize every cover letter to the position being applied for, and do not use a form letter. A good way to address the letter is “Dear Hiring Manager.” Think about this when writing the letter: “How would you define success in the position you are applying for?” Include at least three actionable strategies and examples that relate your experience and knowledge to the position. Make sure these are not items you have already mentioned in your resume. Also, make sure the letter is one page or shorter and match the font with your resume (preferably Calibri).
Thank You Note Tips: Send these quickly, usually within 24 hours of the interview. The best time of day to send them is between 8:00 – 9:00 a.m. on a working day. One of the best things to do is mention specific details of the conversation you had with the recruiter. Compliments in the note are also a wonderful way to build a relationship. Finally, don’t expect a reply unless you have asked specific questions in the note.
We hope these tips will be useful for you during OCR, and we wish you the best of luck!
Hello ZGAS Members,