Which Thread to Pull: Insights from Following the Money with Rob Smith, FT

Yesterday marked our 12th in-person event at The Ned, and we wrapped our newest course, an exploration of an investigative journalist’s approach to financial diligence featuring a case study on the First Brands situation.

Rob Smith, Corporate Finance Editor at The Financial Times and the journalist who broke the story, shared with FLT guests his approach to uncovering corporate fraud – a process backed by a long list of discoveries from Abengoa to Casino to Greensill, and most recently, First Brands.

In this blog, I share some of the key insights from the day – and introduce the newest special offer from FLT.

Know Which Thread to Pull

Rob noted right from the start that journalists get stories from talking to people and reading lots, and lots of documents. Let’s start with talking: top tips here included being willing to ask “stupid” or awkward questions like these:

- “Sorry, could you explain that again?”

- “Where does the risk lie then?”

- “But how is that reflected in your accounts?”

- “Why were you accused of fraud multiple times in relation to several bankruptcies?”

These questions may come from a genuine lack of information, knowledge or understanding on your part – but remember, if you can’t find the information, chances are there are many others who can’t, either.

Sometimes you want them to think you know everything, other times that you know nothing.

Conversations with management may at times feel like a game of chess. Sometimes they have something to hide, but other times they themselves just might not know the whole story. Asking them questions prompts them to ask their own, an exercise that could prove enlightening to everyone.

Reading the Documents – All of the Documents…

Rob noted that many lenders do not read the documentation in full, or at all. He told the story of a French borrower that included more disclosure in the French language (and legally-binding) accounts than in its English-language versions – following the money revealed critical issues.

In another example, Rob explained how he was challenged over his reporting on CoreWeave’s default and decided to read the documents. When he did, he discovered that the business had committed atechnical default months earlier – and no one noticed.

His experience with CoreWeave prompted him to submit a query to ChatGPT about whether CoreWeave ever defaulted on its debt, just to see if AI would pick up through EDGAR filings to the SEC or other publicly available information (which he had found himself). The answer was bereft of this important information, confirming what FLT has been saying for months – AI is an excellent time-saving tool but it can’t get to the bottom of the truth like using your own human brain can.

Red Flags as a Diligence Checklist

Rob provided several other red flags that provide a thread for lenders to pull to find hidden risk,including:

- Billions of off-balance sheet debt

- Heavy use of expensive working capital finance

- Repeated debt-funded acquisitions

- Skeletal online footprint for a large, global company

Each of these, and others, were present in the First Brands situation – and we are seeing the painful aftermath of their unfolding.

How to Stay Ahead – FLT’s Offer

Our newest course with Rob and myself (presenting on the legal implications of off-balance sheet financing from a contractual and insolvency perspective) provides critical insight for lenders to stay ahead of fraud unravelling in their portfolio – and together with the analytical framework provided by our flagship offering, the Leveraged Finance Covenant Training course, strongly equip credit market participants to stay ahead of the curve when it comes to legal risk.

That’s why we are offering a 30% discount on our flagship course in celebration of our newest offering. Use the code FIRSTBRANDS at checkout and start your covenant education journey today!

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