Horse Already Out Of The Barn

PricewaterhouseCoopers (I’m not making that name up—that’s what they call themselves now) has determined that China Aviation Oil, the Singapore company which filed Chapter 11 last year after disclosing massive oil trading losses, suffered some basic problems.

Among other things, “CAO valued its crude-oil options incorrectly, misunderstood the risks it was taking, ignored its own internal controls and failed to report accurately its positions to shareholders,” according to today’s Wall Street Journal.

Nice to know, now that the horse is already out of the barn and across the North 40.

The CAO story looks remarkably similar to the Enron story, as detailed in the excellent new book “Conspiracy of Fools,” by Kurt Eichenwald, including the inability of the auditors to understand what was going on beneath their noses.

Perhaps the funniest—and saddest—story in the Enron saga is when the company paid double the nearest bid for a Brazilian pipeline company and then failed to hedge the currency risk.

The Brazilian episode—one of many eye-popping examples of hubris, greed, incompetence and corporate chest-thumping—reads like a sort of billion dollar, high stakes version of two guys leaving a restaurant arguing over whose responsibility it was to leave a tip.

Having known at a least one of the players in the Enron saga fairly well, the Eichenwald book strikes me as the most accurate portrayal thus far of the players and their role in the Enron debacle. I recommend it not only as a good general read, but more importantly as required reading to anybody planning to work on Wall Street, to manage money, or simply to buy a stock.

We’ll have to wait a few years for the full China Aviation Oil story to emerge, but I imagine it’s as interesting as Enron.

Jeff Matthews I Am Not Making This Up