“Only when the tide goes out do you discover who’s been swimming naked.” - Warren Buffet
Oil has gone out—well (no pun intended), the price has gone out—indeed into the negative. As a consequence, there is a scramble to sell futures, pay margin calls, rehedge, off-load storage liability and, if possible, stay in business. The oil price drop is causing problems to governments, banks, traders, tanker operators, and oil producers.
In 2008, the money—or access to money—ran out for Bernie Madoff, and he surrendered to the Securities and Exchange Commission. For 20-plus years he had been falsifying the figures. Subsequently, he tried to take the blame for a massive fraud and protect his family. Ultimately, he failed: He is serving 150 years, his brother is serving 12 years, and his two sons are now dead (Mark committed suicide, and Andrew died of cancer). They never spoke to their father again after he confessed to the fraud.
Last week in Singapore, Lim Oon Kuin (a.k.a. OK Lim), the founder and family owner of oil trading company Hin Leong, presented an affidavit to the court seeking bankruptcy protection for his company. Within the affidavit he admitted the company had been operating with $800 million of hidden debt. He reportedly stated he personally was responsible for hiding the debt when securing billions in loans and credit from more than 20 banks. He reportedly admitted he had instructed staff to falsify figures in the accounts and told them he would take the blame.
OK Lim’s son, Lim Chee Meng, has also submitted an affidavit to the court, and sources report Lim Huey Chig, OK Lim’s daughter, signed some documents related to the sale of oil that had been presented as collateral for loans received from some of the banks.
It has been proposed that the combination of coronavirus and the oil price drop have led to Hin Leong seeking bankruptcy protection, but the $800 million debt had been hidden for years. The reality is these recent factors have now revealed previous false accounting. OK Lim, his family, and businesses are now the subject of a police investigation. As with Madoff, OK Lim had been in business for many years, and he drew his family in. Much as OK Lim may try to protect his family from “his” wrongdoing, he may fail.
There are often problems with family businesses dominated by a powerful father figure: Robert Maxwell was a similar case. The facts are, when the tide goes out—the money runs out, or the price of oil goes down—much is revealed, including fraud. More than 20 banks are now looking at potential losses of $3.34 billion, while family members face the prospect of jail time, regardless of what dad says. Additionally, the commodity trading business in Singapore suffers another blow following on from the collapse of Agritrade and Noble Group.
No one, not even a powerful father figure, can stop the tide coming in or going out, and no one can give immunity to people who help them to hide losses and deceive others.
“He told me to do it” may be mitigation, but it’s not a defense.