PC Cooling Specialist Zalman Goes Bankrupt Due To Fraud

An anonymous reader writes Zalman's parent company Moneual's CEO Harold Park, and vice presidents Scott Park and Won Duck-yeok, have apparently spent the last five years producing fraudulent documentation relating to the sales performance of Zalman. These documents inflated sales figures and export data for Zalman's products. The reason? Bank loans. By increasing sales and exports Park and his associates were able to secure bank loans totaling $2.98 billion. Someone has finally realized what has been going on, though, triggering Zalman's shares to be suspended on the stock market and the company filing for bankruptcy protection. The questions now turn to how this practice was allowed to continue unnoticed for so long and how the banks will go about getting their near $3 billion back.

Comments

Just

[Anonymous Coward]

Capitalism done right.
The ultimate example of "i earn, fuck you".

Re:Just

[thieh]

It's not like they actually "earn" the money, so it's more like "I make money, you get fucked".

Re: Just

[Anonymous Coward]

Sorry fag, it stopped being capitalism the moment they started lying

Re: Just

[fustakrakich]

Why? Fraud is part of the show. It's perfectly natural.

Re:Just

[GameboyRMH]

*Earning* money is for the peasants.

Re: Just

[Anonymous Coward]

No, dude. It's capitalism perfected.

Re:Just

[halivar]

Umm, I'm pretty sure that if you end up in jail and/or bankrupt, you did it wrong.

Re: Just

[mcvos]

Does capitalism depend on people being truthful all the time? Somehow I don't see that working. I thought the robustness of capitalism came from relying on everybody to be selfish bastards.

Re:Just

[silfen]

It's indeed "capitalism done right" if the banks don't get their money back: the people who were careless get punished automatically by the market. The nice thing about that is that the punishment is automatic and appropriate: you make a bad decision, you lose your money.

In non-capitalist systems, the people investing in fraudulent companies use other people's money, so they don't get punished automatically. Here's an example of how that works: http://en.wikipedia.org/wiki/3...

Re: Just

[Anonymous Coward]

Ayn Rand taught me that if I feel good doing it, it is the right thing to do.

Re: Just

[halivar]

Classically, capitalism relies on producing goods that people want at prices people are willing to pay for them. It relies on consumers being rational actors in their own self interests. Deception throws the whole thing off; you can make rational, selfish decisions if important data needed for your purchase decisions is withheld; hence consumer protection laws.

Re:Just

[Luckyo]

Except that, of course, in modern capitalism banks are too big to fail and take these risks because they know it's not their own money that's at stake, but that of tax payers.

But well obfuscated.

Re: Just

[NotDrWho]

Does capitalism depend on people being truthful all the time?

HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

Re:Just

[Savage-Rabbit]

Except that, of course, in modern capitalism banks are too big to fail and take these risks because they know it's not their own money that's at stake, but that of tax payers.

But well obfuscated.

More like simplified. The people whose money was lost were bank customers, the ones who lost it were bank employees. All the customer can do is choose a bank as best he can based on the bank's reputation. It is his money that is lost because the bank handed control of it's money to a bunch of morons. So the market punishes the customer not the moron who made the bad decision. It is the law that is supposed to punish the bank employee. However, in view of the fact that not a single bankster seems to have been put on trial as a result of the 2008 mortgage crisis we can rest assured that the worst that is likely to happen to the bank employee is that his bonus will be reduced that quarter and his career prospects may be dampened for a while. Now one may still criticize the customer for picking a lousy bank to do business with but let's face it, when it comes to finding a honest bank to handle your finances, the average capital owner is not exactly spoiled for choice these days. The best he can do is choose the least scummy bank. Ether that or invest his money in guns, ammo, canned goods and a heavily fortified dwelling with a built in water source.

Re:Just

[NotDrWho]

Not it you stashed a good chunk of it in offshore accounts and your jail time consists of a few months in some minimum security country club.

Re: Just

[Anonymous Coward]

It also relies on there being a number of supplier so that there always is a possibility to go somewhere else, even if the first twenty you used turned out to be collaborating to keep prices high.
Once you buy something else than toothpicks and bolts there are surprisingly few fields that aren't dominated by a few large companies that avoids competing too much.

Re:Just

[idontgno]

...if you end up in jail and/or bankrupt....

No one doing this shit ever believes they'll wind up in jail or bankrupt. It's like the Dilbert, where PHB insists that even if he winds up being wrong in the end, at least he's right at first.

Re: Just

[fuzzyfuzzyfungus]

Does capitalism depend on people being truthful all the time? Somehow I don't see that working. I thought the robustness of capitalism came from relying on everybody to be selfish bastards.

That depends on what you mean by 'capitalism'(many people who use the term do mean something, though often not the same thing, so it's pretty rhetorically slippery).

Typically, when people say 'capitalism', they are implying 'free market' and implicitly or explicitly extolling the virtues of 'economic equilibrium'. This is where truthfulness becomes a direct requirement. The idealized model of a free market equilibrium requires rational actors, perfect information, absence of market power, and the like. Lying is about as aggressively contrary to perfect information as you can get, since it's usually a calculated attempt to ensure even more asymmetric information in the liar's favor. And the demonstrations of asymmetric information leading to market failure(both historical case studies and in theoretical models) are numerous.

So, while any real-world implementation can't rely on people to be honest, or even assume that the cheats will be caught all the time; there are good reasons to suspect that dishonesty imposes both direct costs on the victims of fraud and an overall drag on the market efficiency, so there is a strong incentive to punish, and attempt to minimize, dishonesty and fraud.

Re:Just

[wonkavader]

No. You're right that if you end up in jail, you did it wrong. But if you end up bankrupt, well, that's normal and shows you're good at taking risks. Lots of entrepreneurs wind up going through several bankruptcies. When they do the bankruptcy right, they still come out rich, and have something else already lined up. I know this sounds insane, but it's really quite normal. Fiscal responsibility, the kind we normal wage earners have to maintain, is a sign of not taking risks. It's a negative attribute, as far as the VCs are concerned. (Until it's their money being lost.)

Re: Just

[halivar]

Not necessarily. Elevated prices act as a "release valve" on demand; the higher things are priced, the less consumers are willing to buy them. In the aftermath of the Katrina crisis, Americans changed their driving habits significantly to reduce the need for gasoline. Without elevating prices, shortages become complete scarcities, and this happens often in South American socialist states with centrally planned economies, such as Venezuela.

And a note about collaboration: cartels are a function of lassaiz-faire economics, not free-market capitalism; they skirt the organic supply-demand relationship of capitalism by introducing artificial price points, when price fluidity is an essential component to capitalism.

Re:Just

[Anonymous Coward]

That's the lesson here. They just weren't big enough.Dell did it too but got away with a pat on the wrist.

Re: Just

[Anonymous Coward]

So real estate and university mills are not capitalist?

Re: Just

[penguinoid]

Capitalism done right.

Sorry fag, it stopped being capitalism the moment they started lying

Wait, you're saying it stopped being

an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.

the moment they started lying? This was very much a case of private owners doing something for profit.

I think you're confusing it with the ideal free market, which assumes well-informed decision-makers. Do please try to be accurate when you are correcting others.

Re: Just

[Anonymous Coward]

As long as you realize that Libertarian capitalism (i.e., no oversight of financial activity) is exactly what happened here.

Re: Just

[Anonymous Coward]

One of the fundamental requirements for the proper functioning of a free market is access to accurate information. If consumers don't have information about the products and services they are contemplating for purchase, they can't be rational actors after all. When a business misrepresents its products or services in a way that isn't immediately obvious, the market fails to function correctly. So in short, yes, capitalism relies on honesty as much as Communism relies on altruism. Humans are neither, which is why both systems fail without some way to discourage selfishness and lying.

Re:Just

[Lunix Nutcase]

Agreed. How dare they punish this job creator!!

Re:Just

[binarylarry]

Spending your own money is for peasants.

Re:Just

[JosKarith]

Plus, the banks involved won't even lose out cos' the governments will declare them "Too big to fail" and bail them out from the endless pot of money that governments just pull out of their asses without any source. So it's totally a victimless crime, right? So we should all do this then everyone will have infinite money and live happy ever after...

Re: Just

[Anonymous Coward]

Would imagine there has been regulatory capture. Who did the audit?

Re: Just

[mi]

Does capitalism depend on people being truthful all the time?

Of course, not. A liar will be caught — and pushed into bankruptcy. The banks will be punished for not being sufficiently careful by losing their monies and their customers (not taxpayers').

The company will, likely, be sold or otherwise placed in control of new management, which might — as Mitt Romney was doing before entering politics — turn it around into making profit again, possibly even repaying the debts.

That is, indeed, how Capitalism works — or ought to, anyway — unless the company's product is something particularly dear to the government (Solindra, cough, Tesla, cough), or the banks involved are at risk of failing over the problem and the Administration decides, it can not be allowed. Then it becomes Crony Capitalism, which to the real thing is like Westboro Baptist Church to Christianity.

Re: Just

[Rob Riggs]

Classically, capitalism relies on producing goods that people want at prices people are willing to pay for them.

Bullshit. Classically, capitalism has a solitary defining feature: the private acquisition of capital. It is solely about who controls the resources used to produce goods. Lying and cheating are time-honored practices of modern capitalism.

Re:Just

[mi]

Capitalism done right.

Evidently, the Anonymous troll has never lived in the USSR...

Re:Just

[johnthediver]

So if I play video games on a console I have to earn my money? Fucking PCMasterrace wins again. I mean there is no other definition of a peasant right?

Re: Just

[Anon-Admin]

So by your definition if I break into a house and steal everything, then sell it at my store... Thats Capitalism.

Sorry, you are wrong. What they have done is not capitalism, it is fraud and IMO Theft.

Re: Just

[mcvos]

And a note about collaboration: cartels are a function of lassaiz-faire economics, not free-market capitalism

I think this is the real important point here: many fans of laissez-faire economics call that "real capitalism". According to them, you can't say capitalism is a failure, because it simply hasn't been tried yet. Any government interference makes it not really capitalism anymore. But the one gem in capitalism, the one really, truly unmitigatedly good thing about it, is the free market. But with everybody looking to dominate the market in some way, the only way to keep the market free is to regulate it in a sensible way, break up cartels and monopolies, and force some competition in places where it is clearly needed (like the broadband internet market in the US, perhaps?).

And of course the regulators need to be independent from the industries they regulate. (Again, ISPs buying laws that block competition and ban community broadband is something that shouldn't even be possible. Or car dealers lobbying to block Tesla.)

Re: Just

[Anonymous Coward]

Just FYI, the "Anarcho-Capitalist" model specifically allows lying, since the model is based on freedom and therefore it's against their ethos to have a government impose rules against lying. In short, "freedom means also being free to lie".

The idea is that liars will be "self-regulated" out of the market because once they're found to be liars, nobody will ever do business with them ever again.

Obviously reality shows us this cannot possibly work, but there's nothing inherent about laissez-faire capitalism that precludes lying.

Re: Just

[Archangel Michael]

Cartels are collaborative efforts to raise prices through collusion. This only succeeds when the cost to enter a market is sufficiently high. It rarely survives long term, and crumbles horribly when the cartel breaks apart. Just watch OPEC as the US becomes the largest oil producing nation, not part of the cartel for a nice view of how cartels stop working.

The problem is, we are too fucking impatient as a people to wait for market forces to change the landscape. However, if you're aware of your surroundings, and understand that market forces eventually win out, you can take long term investments and plan accordingly, you'll end up very wealthy. The trick is to read the tea leaves well in advance.

Re: Just

[operagost]

The real question is, how much are you charging for that straw man, there?

Re:Just

[drinkypoo]

All the customer can do is choose a bank as best he can based on the bank's reputation

And that's why we have the FDIC. Because when banks go under and deposits aren't guaranteed, there is chaos all about as people lose their homes and then their jobs.

Re: Just

[Your.Master]

I think you're trying to say is they haven't done good capitalism.

Literally the definition of capitalism is

an economic system in which trade, industry, and the means of production are largely or entirely privately owned and operated for profit.

(cite for that exact phrasing: http://en.wikipedia.org/wiki/C...).

The word owned there is relevant. Theft is a subversion of ownership and thus stealing can legitimately be called anti-capitalist.

That said, the GP wasn't defining capitalism, he was saying capitalism relied on profitable manufacturing of goods. I would clarify that this is one of several things it relies on, I don't disagree that capitalism relies on that.

Re:Just

[silfen]

Except that, of course, in modern capitalism banks are too big to fail and take these risks because they know it's not their own money that's at stake, but that of tax payers.

That's not capitalism; that's progressivism and financial regulation; it's what Democrats preach, and both Democrats and Republicans practice.

Hence my point: let banks eat their losses and let the market take care of this.

But well obfuscated indeed.

Re:Just

[silfen]

The people whose money was lost were bank customers,

If my bank makes a bad loan, I don't lose any money; the amount in my account stays the same. The bank may have to reduce interest payments, but that's not a loss: I simply switch to a different bank.

when it comes to finding a honest bank to handle your finances, the average capital owner is not exactly spoiled for choice these days

If you let a bank "handle your finances" you're a bloody fool anyway; most banks don't even pay enough to cover inflation. Banks are for handling financial transactions, not for savings.

Re:Just

[sexconker]

I think it's also a type of bird.

Re: Just

[Anonymous Coward]

Alas, capitalism and fraud & theft are fully compatible with each other.

Re: Just

[ChrisMaple]

Regulation should not consist of anything beyond punishment of (and where possible prevention of) the act or threat of force or fraud, and restitution where reasonable. Anything else is a violation of individual rights, and the market ceases to be free.

Re: Just

[ChrisMaple]

The requirement for "perfect information" is a straw man created by people attempting to tear down capitalism. "Perfect information" is impossible.

Re: Just

[maugle]

Wait, what's wrong with Tesla? I though they paid back their government loan ahead of schedule.

Re: Just

[fuzzyfuzzyfungus]

No, its a simplified model created by 'economists' to provide a comparatively well behaved 'ideal market' that can be used as a comparison tool to study the behavior of the real market, how it is similar and different, what factors are or aren't relevant to its behavior, and so on.

It's a 'strawman' in the same painfully weak sense that ignoring friction when a physics class starts talking about parabolic motion is an attempt to tear down Newtonian mechanics. Yes, it's an abstraction that doesn't exist in the real world. Everyone knows that. However, its an abstraction that simplifies the behavior of the model and provides a starting point to analyze the real world and attempt to work out what sorts of information imperfection are at play, what types of information would be most valuable in achieving results similar to those of perfect information, and so on.

Re: Just

[ChrisMaple]

Rational action involves behaving in accordance with one's understanding of available information. Actors do not become irrational acting on bad information.

Communism relies on altruism

That's the advertising. In practice, communism is a particularly bad flavor of tyranny that relies on force and deception.

Humans are neither [honest nor altruistic], which is why both systems fail without some way to discourage selfishness and lying.

__People are individuals, and range from habitually honest to habitually dishonest.

__Capitalism is weakened, and the people living in it harmed, by dishonesty.

__If the goal of communism were to make the lives of its people better (it's not), it would fail anyway because of built-in contradictions and a misunderstanding of human nature. Communism is inherently irrational.

__Selfishness is acting in accordance with one's rational self interest, and it is a virtue . (Some will try to tell you that selfishness is excessive self-interested action, but that is not possible.) Honesty between people is rational and selfish behavior.

Re: Just

[ChrisMaple]

You must feel good lying.

Rand heavily emphasized that emotions are not tools of cognition, and that rational action is right.

Re:Just

[ChrisMaple]

It is government that pronounced banks "too big to fail", not reality. And it's government that set up pernicious incentives, and in fact well nigh mandated, that banks act in a destructive manner. Both are to blame.

Re: Just

[suutar]

One thing that's currently regulated is "anticompetitive behavior". One example of such is lowering the price on your product enough to drive the competition out of business, absorbing the loss with your (presumably larger than theirs) cash reserves, and thereby becoming a monopoly provider.
Would you consider that behavior to be force, fraud, or okay? (Seriously, I'm curious how you would classify it. I could see arguments for each; they're pretty broad categories.)

Re: Just

[LordLucless]

That's pheasant. Although, traditionally, it was fine to harass peasants, but peasants weren't allowed to hunt pheasants.

Bloody English.

Re:Just

[Luckyo]

Right. It's capitalism when it's good, it's not capitalism when it inevitably becomes bad doing the exact same things.

Gotcha.

Re:Just

[Luckyo]

And since both government and banks in their current form are the product of unchecked capitalism doing what it does - streamlining its profits to the max while minimizing risks, this has no impact on the argument.

Re:Just

[silfen]

Right. It's capitalism when it's good, it's not capitalism when it inevitably becomes bad doing the exact same things.

It's capitalism when investors bear risks, reap the rewards, and have to deal with the consequences of bad investments. Sometimes that is "good", sometimes that is "bad". It increases volatility and inequality, but it also increases wealth for everybody.

It's not capitalism when government assumes the risk of big corporations and banks through regulation or bailouts. The current administration has been particularly hypocritical in using attacks on capitalism to justify handing out money to big businesses. That kind of hypocrisy is a long-standing trait among progressives, and it is one reason progressivism is so evil.

See, the part you don't get is that you have a choice between growth and inequality on the one hand (capitalism), or corruption and poor economic performance on the other (progressivism). Anybody who promises you the benefits of capitalism without the costs is a liar and a fraud.

Re: Just

[mjwx]

That's pheasant. Although, traditionally, it was fine to harass peasants, but peasants weren't allowed to hunt pheasants.

Bloody English.

The pleasant peasant presents the pheasant's presence.

English, because fuck you.

Re:Just

[Luckyo]

Right. So you separate capitalism and it's inevitable consequences, give the inevitable consequences a name that is not "capitalism", and then happily pretend you didn't just whitewash capitalism.

Gotcha.

Re:Just

[Anonymous Coward]

Right. So you separate capitalism and it's inevitable consequences

Oh, sure, stupid people like you coming out of the woodwork trying to take us towards fascism out of their greed and ignorance is indeed an inevitable consequence of capitalism. It's just not a fault of capitalism, nor a reason to avoid it.

Gotcha.

I doubt you'll ever figure it out; proto-fascists like you never do.

Re:Just

[Luckyo]

People warning about inevitable tendencies of unchecked capitalism are in fact fascist.

Excellent point.

In other news, people warning about inevitable violent tendencies of certain criminal psychopaths are in fact murderers and so on.

Re: Just

[beastofburdon]

Not by definition, but in practice it is pretty damn close. The real difference is that you are not wealthy enough to enter that market, and you do not have corporate personhood to hide behind.

Uncool

[DigiShaman]

Yeah, never good to engage in fraud. That said, Zalman will be missed as a passive cooling solution for many. I wonder how their IP will be sold once this is all finalized with the banks. I'm unclear of the process.

Re:Uncool

[danknight48]

That said, Zalman will be missed as a passive cooling solution for many.

They wont be missed by me, i've had too many bad experiences with their products:
- my Zalman GM1 mouse emits a constant high pitched electronic noise
- My CNPS5X has a high pitched "whuring" fan noise. Louder than any other fan in my PC, even at lowest RPM. http://www.zalman.com/eng/prod... . The contact plate also had metal fillings left on it, had to sand it down. The contact plate wasnt level and the copper pipes "dig" into the cpu.

Not a great experience i've had, shame because they are so tempting with the cheap price. They wont be missed on my part. As for "passive cooling", so many more companies out there doing exactly the same with higher quality finish.

Re:Uncool

[Anonymous Coward]

I wonder how their IP will be sold once this is all finalized with the banks. I'm unclear of the process.

Maybe they'll be bought over and continue (almost) as normal, isn't that what happened with OCZ when they went bankrupt?

Then again, I don't think the OCZ brand came with baggage like a fraud case...

Re:Uncool

[Anonymous Coward]

Shame. But they were too dear for what they were offering. They assumed everyone would pay extra for their name. The market responded with a "fuck off".

Re:Uncool

[fustakrakich]

All their IP should be put in the public domain.

Re:Uncool

[Anonymous Coward]

The only Zalman CPU heatsink I purchased has the same issue. It was like it had a 5k RPM fan. Their GPU cooling, while generally effective, was also way too loud.

You can get the same performance or better for half the price or less.

Re:Uncool

[Holi]

How does that resolve anything, other then ensuring that Moneual cannot pay back it's creditors.
In what sense does the company owe the public anything, though they do own the banks who extended them the lines of credit. It's not like the public were the ones loaning them money.

Re:Uncool

[QuasiSteve]

Presumably sold off to multiple interested parties by a curator if it gets to that stage.

All of their coolers - and we're not just talking fans here, but their vast library of heatsink and heatpipe designs (both functional and aesthetic targets), cooling pads, etc. will be an easy target for either a competitor, or for a company to keep Zalman going and focus only on those. It's what Zalman's known for - to the point of their own website suggesting for the VGA products that "Zalman cooler is equipped with VGA card", rather than the other way around ;) - so that would make some sense.

The peripherals.. well, most of them can probably die off. Not too many people seem to care about Zalman mice, keyboards, USB sticks, headsets, etc. - they're either a dime a dozen or too fancy for their own worth, and only a few get to be big brand names in that arena.

There's some niche products like their virtual device storage options that would make a good complementary offering in WD's lineup.

Given their financial numberfiddling, I can't help but imagine that some divisions were used to prop up others to help make things look good - so selling it all together seems, to me, unlikely; except for purposes of selling it on again
(yes, the IP vultures, whose day job is to make up ways in which popular products violate their IP in the hopes of landing settlements because that's cheaper than bothering with the court case even if you think they're on extremely shaky ground)

Re:Uncool

[fustakrakich]

The public grants them the IP. The public can take it back. The public benefits from the IP being on the open market. IP is a public debt. It is granted to you on the condition that the public will benefit from the *promotion of arts and sciences*. I really don't care about the bank's losses. The ATM and other transaction fees they already charge will cover them in a matter of minutes.

Re:Uncool

[Anonymous Coward]

Don't be surprised if Zalman cooling parts are still available in a year.
The company might continue operations, since a company making money may be worth a lot more than its component parts.
Bankruptcy courts will have to put the terms together, so the process at this point in time would be undefined.

It is possible that a competitor will get the chance to buy Zalman (entirely) to help offset the debt, in which case their products could be sold under that brand.
If I were building some kind of system that depended on a Zalman part, I'd be talking to them, or making sure I had another product lined up that could be used as an alternate.

Re:Uncool

[Anonymous Coward]

"Then again, I don't think the OCZ brand came with baggage like a fraud case..." You never bought one of their SSD's I take it.

Re:Uncool

[alexander_686]

I am familiar with US / western bankruptcy law. This is Korea so your mileage will vary.

First, the issue is one of finance, not operations. If that is true, that means the company is still viable – that is worth more as a operating entity than being sold off for parts. So it will probably keep on going.

Second, from a brief scan of the article, there are no allegations of fraud against Zalman. It is against Moneual, which owns 90% of Zalman's shares. It sounds like it is not the court seizing Zalman's assets, but freezing Moneual's assets.

Technically as a independent entity, Zalman should keep on ticking like it has. This assumes that Zalman did not assist Moneual's fraud. Since Moneual had a controlling interest in Zalman that is a big assumption that needs to be checked out. Probably another reason why the shares are frozen.

Re:Uncool

[Stolpskott]

I wonder how their IP will be sold once this is all finalized with the banks. I'm unclear of the process.

The books (the real ones) will be independently audited; profitable divisions will be sold off with some insanely clever financial jiggery-pokery making sure that they exit the current Zalman corporate structure with a minimum of debt; probably the IP will be sold off to the highest bidder separately to those successful divisions; the remainder - the unprofitable elements and as much of the debt as possible, will be wound up in a bankruptcy proceding.

In cases like this, the component parts of the company are far more valuable when broken up, so that is what will end up happening.

Re:Uncool

[Mike O'Hara]

OCZ just had shockingly bad products and customer service.

Re:Uncool

[fuzzyfuzzyfungus]

Zalman might actually be a better 'sell off and business as usual' candidate than OCZ was.

Fraudulent accounting is a problem, and no doubt the banks are angry and the books are thoroughly cooked; but none of that has any direct impact on Zalman's products, consumer perception of them, or how profitable or unprofitable Zalman's day-to-day operations would be. It is unlikely that they are even remotely profitable enough to make good on the loans obtained by fraud; but if they are otherwise healthy the creditors might recover the most money by selling them off as a viable business.

OCZ, by contrast, had some dramatic product issues, and was being eaten alive by pressure from competitors on the low end who (while a bit slower) were as cheap or cheaper and didn't fail catastrophically, and competitors on the high end who were as fast or faster, actually reliable, and getting cheaper at a reasonably steady clip. I'm still amazed that somebody thought that their brand was worth saving.

Re:Uncool

[putaro]

Part of the bankruptcy will be to get as much cash back as possible. That's typically done by selling the assets and technologies of the company, along with things like brand names. The buyer does not assume any of the original company's financial responsibilities.

Re:Uncool

[myowntrueself]

I am familiar with US / western bankruptcy law. This is Korea so your mileage will vary.

Well its Korea so it'll involve having a big meeting with everyone; the people at the top can't make a decision without consulting with everyone all the way down to the janitors.

Then they will all get very very VERY drunk.

Re:Uncool

[gstoddart]

Well its Korea so it'll involve having a big meeting with everyone; the people at the top can't make a decision without consulting with everyone all the way down to the janitors.

Then they will all get very very VERY drunk.

You know, judging by how their manufacturing economy has been going for the last decade or so ... I would say they might be on to something.

Hyundai has caught up to Honda in terms of reliability and customer satisfaction. They also do some other major heavy manufacturing.

In common with Honda, I find consultation, and getting drunk ... ergo ... if you want a better company, consult with your people, and then get drunk and sing karaoke together. Put aside the massive egos of your executive and stop being a cult of personality, and include the people who actually do the work.

And then come in the next day and make an awesome product, and lots of money.

Re:Uncool

[Anonymous Coward]

You're forgetting the most important step in the SK:

Have the politician you own make everything go away.

90% of the SK economy is controlled by 5 large companies. There is no separation between business and government in that country.

Re:Uncool

[vyvepe]

On the other side, my Zalman Reserator 1 V2 still works fine. It's more than 8 yers old now.

http://www.zalman.com/global/p...

Re:Uncool

[operagost]

I'm not sure where you get the idea that the public interest trumps actual written law, but it doesn't. That's a mob mentality. So you might then think, "Oh, then let's change the law so that the IP of failed companies goes into the public domain." Congrats, you've now made it impossible for entrepreneurs to obtain loans, as they have nothing to borrow against-- they don't even have any physical assets, to begin with.

Re:Uncool

[operagost]

Will it end in a big drunken melee, like in their legislature? Seriously, you should Google "south korea parliament fight" some time.

Re:Uncool

[Anonymous Coward]

That's the way things are when you deal with Korean businessmen. They will cheat you because that's how the market is in Korea.

Re:Uncool

[omnichad]

I would love if some other company took over making something like the Zalman ZM-VE200. A hard drive that can do a virtual CD-ROM from ISO files. There have been some flash drives that do this, but none that have the storage capacity I was looking for.

Really, I'd like to see one of these that would do a virtual hard drive for EFI booting of OS X images or Windows 8.

Re:Uncool

[fustakrakich]

No, sir, I am demanding the law be changed to reflect that a person who did not create this ethereal 'intellectual property' cannot ever own it, or claim it in any fashion. I know it won't happen. The law is dictated by financial interests (kind of a mob of its own), not the 'rights' of a person, or 'the people'.

Re:Uncool

[Anonymous Coward]

The ATM and other transaction fees they already charge will cover them in a matter of minutes.

I'm sure in a minute or two at your job you'll make more money than the worth of your slice of Zalman's IP shared among the public, so why should we care about your loss if the IP wasn't made public?

Re:Uncool

[fustakrakich]

I don't care. The public domain is the only logical place after the 'owner' loses his privileges. To hell with the banks. They can take a loss every once in a while, that's why they charge interest. If they can demand their money back no matter what, then I demand little or no interest on the loan.

Re:Uncool

[sexconker]

I wonder how their IP will be sold once this is all finalized with the banks. I'm unclear of the process.

Maybe they'll be bought over and continue (almost) as normal, isn't that what happened with OCZ when they went bankrupt?

Then again, I don't think the OCZ brand came with baggage like a fraud case...

OCZ's entire catalog was essentially fraud.
Shit simply didn't fucking work as advertised.

Re:Uncool

[Required Snark]

Hundai is no stranger to fraud:

- August 4, 2003: Chung Mong-hun, Chung Mong-koo's younger brother and then chairman of Hyundai Asan, jumps to his death while facing trial over an alleged $500 million secret "cash for summit" payment to Pyongyang before the landmark June 2000 North/South summit. He was also accused of doctoring company books and embezzling 15 billion won.

- June 18, 2004: Hyundai Motor Group vice chairman Kim Dong-jin and Korean Air Chief Executive Cho Yang-ho are given suspended two-year and one-year jail terms respectively, for raising a slush fund to support politicians in the 2002 presidential race. Both get to keep their jobs.

- March 26, 2006: South Korea prosecutors raid Hyundai group units such as Hyundai Motor and Kia Motors Corp. over a probe into suspected illegal political lobbying.

- Apr. 19, 2006: Hyundai Motor says the Chung family will donate $1 billion in shares of the group's auto shipping affiliate Glovis Co. Ltd. to atone for the bribery scandal.

- Apr. 28, 2006: Chung is arrested on charges of misusing company funds.

- May. 16, 2006: South Korea indicts Chung, who is officially charged with breach of trust and embezzling 103.4 billion won in company funds, some for personal use, and for incurring losses at group companies by forcing them to support weaker affiliates.

- Jun. 28, 2006: Chung is released on $1 million bail.

- January 16, 2007: Prosecutors demand a six-year jail term for Chung.

- February 5, 2007: Chung is found guilty of breach of trust and embezzling company funds and sentenced to three years in jail.

- February 12, 2007: Prosecutors and Chung appeal the three-year jail sentence.

- Jun. 19, 2007: Prosecutors seek to double the jail sentence for Chung to 6 years.

- September 6, 2007: South Korea's appeals court upholds the lower court conviction and hands Chung a 3-year jail term suspended for 5 years.

Re:Uncool

[Anonymous Coward]

First, the issue is one of finance, not operations. If that is true, that means the company is still viable

If it was viable why did they need to exaggerate their sales to get loans?

Re:Uncool

[ChrisMaple]

I have ideas. They are my intellectual property. I'll make damn sure you never benefit from any of it.

Re:Uncool

[fustakrakich]

You'll have to keep them to yourself then. If you don't want the light to shine, don't turn on the lamp.

Re:Uncool

[alexander_686]

Let us break this question into 3 parts.

Frist, I still think you are confusing Zelman (child company, maybe viable) with Moneual (parent company, fraud, massive bank loans, not viable.)

Second, why operations vs. financials matter. Here is an example. You buy an apartment building with a 10m loan. The building is fully leased with long term leases. It is not sitting on a toxic waste dump, is not filled with asbestos, etc. It generates enough cash to cover maintenance, management fees, taxes, etc. There is a problem. It does not generate enough cash to pay the 10m loan. Maybe it can only support a 8m loan. Look at Enron. They had many well run viable electric power plants that are still running today. They just needed to be separated from the massive fraudulent debt of the parent.

The project is a failure. Question – should you tear down the building? Probably not. The building is economically viable. The problem is that the price paid for the building was too high.

The rational course of action is to restructure to loan to 8m. (which kind of implies that the banks should size the building and push the current owners out.). Note, we are not making a judgment on how we got into debt. Bad judgment, over optimism, fraud, etc. We don't care. Assigning blame won't change how we get out.

Third, why exaggerate sales to get loans. Or to simplify your question, why commit fraud? Exaggerating sales is just a means to an end. Most accounting fraud starts off small with good intentions. One has a temporary short fall, there is a really good opportunity, normally I am so good a picking the ponies, etc. It's just going to be a few thousand. There is always a promise to make it up next week. Or the week after that. And after a few years and a few million dollars, people wonder where they went wrong.

The book is better, but here is a favorite of mine to explain why people commit fraud: Rogue Trader with Ewan McGregor as Nick Lesson
http://www.imdb.com/title/tt01...

Re:Uncool

[Anonymous Coward]

To hell with the banks. They can take a loss every once in a while,

To hell with the public, they can take a loss every once in a while...

Re:Uncool

[alexander_686]

I am a little confused.

I am an investor, be it equity (stock) or debt (bank loans). I invest in housing. Maybe new construction, maybe something already built. It should not matter. The deal goes south and the project goes bankrupt. Under current law, the house is resold and the cash gets divided up by the investors. Normally equity gets whipped out the debt holders get paid some fraction of the loan's worth – say between 80% to 20%

Are you saying that we should rewrite the laws so that bankrupt properties get handed over to the public, with the equity and debt holders getting nothing?

Or are you trying to say that IP is a special, inferior good. As an inferior good, we in society should actively discourage people from investing in R&D by giving IP a lower standard of protection?

I don't think that either of the choice you offer is rational. I have issues with IP. However, the correct answers is to raise the standard that parents are granted and/or shorten the lifespan of the IP.

Re:Uncool

[hairyfeet]

I guess that is what they get for trying to go "Gangnam Style"....sorry couldn't resist, bad old hairy ;-)

But yeah that is why I avoided their shit at the shop, I picked up a couple of their heatsinks on sale and found 'em to be nothing but unfinished crap, pipes not ground correctly that wouldn't set flush with the CPU, fans louder and shittier than on a Worst Buy Special, these were the ones originally in the $50-$70 range but when you looked at the things? Frankly I've seen $15 units by other companies with better quality, they were real junk.

This is why I recommend the Coolermaster units, they have a heatsink at just about every price point and even their $15 units are well built and work better than stock when paired with a little arctic silver. I especially like the N520 which I use on my personal PC and those of my family as it fits nearly any case and is pretty quiet for a dual fan cooler,and for the budget builds the Hyper TX3 is quite nice and works well.

But if anybody is planning on buying Zalman if they get dumped cheap? just be ready to do some sanding, you'll probably want to change out the fans for less noisy ones if possible as well. I should have known that if they were cutting corners on their mid priced units and allowing work that shoddy to leave the factory something hinky must have been up, but seeing them go tits up really don't surprise me, they were the OCZ of heatsinks.

Re:Uncool

[hairyfeet]

The problem is, at least from what I've seen at the shop but posters here indicate is faaaar from out of the norm, is that like OCZ Zalman is one of those companies you buy from ONCE and then vow to never buy from again!

Look at the posts above and below you and you'll quickly see a pattern, they weren't having to "prop up other divisions" as you put it because their cooling was junk with shitty fans, unground heatpipes, they cut every corner when it came to quality to maximize the bottom line and have made the name into another Deathstar or again, OCZ.

So while I could see one of the competitors buying some of the designs to use under their own branding I really don't see Zalman as a cooling company staying on the market, I know I wouldn't buy another one of their products if you paid me, its just not worth the work you have to sink into grinding the bottoms and replacing the fans when you can get better quality for cheaper from the competition. I have a feeling when the actual sales figures get released its gonna be warehouses filled with unsold products, they really have just burnt too many bridges with shoddy quality in the past.

Re:Uncool

[Anonymous Coward]

I don't want to get drunk with my boss after work. I want to go home to my wife and kids and play video games -- as far away from my boss as possible.

Re:Uncool

[fustakrakich]

Well, yes, we already do, so the banks don't have to. You should be pleased.

Re:Uncool

[Anonymous Coward]

As do banks too, they deal with many losses too. Regardless, one doesn't have to be pro-bank to find your reasoning idiotic, and hypocritical since you wouldn't apply it to yourself. I think there is a lot that can be done to better regulate banks, but I don't go around saying "Eh, they'll make their money back, so there is nothing wrong with making them lose money to favor me." Might as well make theft of insured people legal.

Re:Uncool

[TheRaven64]

I've not built a machine with anything other than the stock cooler for a long time, but I had a 1GHz Athlon with a Zalman flower cooler that ran stably at 1.33GHz for years and was almost silent (big, low RPM fan pushing air over it). It actually still worked when I booted it a couple of years ago, although it's too slow to care about now.

Re:Uncool

[Anonymous Coward]

I am familiar with US / western bankruptcy law. This is Korea so your mileage will vary.

First, the issue is one of finance, not operations. If that is true, that means the company is still viable – that is worth more as a operating entity than being sold off for parts. So it will probably keep on going.

Second, from a brief scan of the article, there are no allegations of fraud against Zalman. It is against Moneual, which owns 90% of Zalman's shares. It sounds like it is not the court seizing Zalman's assets, but freezing Moneual's assets.

Technically as a independent entity, Zalman should keep on ticking like it has. This assumes that Zalman did not assist Moneual's fraud. Since Moneual had a controlling interest in Zalman that is a big assumption that needs to be checked out. Probably another reason why the shares are frozen.

Why would the bank not have sent in their auditors to review the books? Negligence on the part of the bank(s)?

Korean businesses...

[Anonymous Coward]

...I'm not at all surprised.

Re:Korean businesses...

[Anonymous Coward]

Pretty easy really.

The money is in Luxembourg...

Re:Korean businesses...

[Anonymous Coward]

Of course, the 2008 Mortgage Bubble burst crysis was definetely due to those damn koreans.... oh wait.

Re:Korean businesses...

[Anonymous Coward]

I blame Lee Man Dong.

Wow

[Anonymous Coward]

ya never know. frist

That raises the question:

[nospam007]

Will he be sent to the Cooler?

Re:That raises the question:

[wisnoskij]

http://i.imgur.com/N19oj58.gif

Re:That raises the question:

[Anonymous Coward]

Nah bro, acquiring $50 by grabbing it from the register gets your ass sent to prison... acquiring $3,000,000,000 by "questionable methodologies" makes you a hero.

Re:That raises the question:

[halivar]

Everyone knows better than to click gif links on Slashdot.

Re:That raises the question:

[Culture20]

If he is, it'll be one of those country club types where the guards don't carry heaters.

Re:That raises the question:

[Anonymous Coward]

Hogaaaaaaannnn!!!!

Re:That raises the question:

[war4peace]

I did, and it was funny.

Re:That raises the question:

[TWX]

It certainly is interesting.

I'm surprised that no one caught on. At $10 a pop, they'd have to sell three-hundred-million cpu coolers even if they had no operating expenses. Factor those in and it's probably more like eight-hundred-million.

Re:That raises the question:

[fuzzyfuzzyfungus]

It's from a particularly terrible Batman movie; but otherwise harmless.

Re:That raises the question:

[nedlohs]

You don't need to have prior profits of $X (or even revenue of $X) in order to borrow $X. You just need to be convince the lender that you will have enough to meet the repayment terms (which will end up being more than $X of course, but could be over the next 10 years...)

Re:That raises the question:

[alexander_686]

This has nothing to do with Zelman selling $10 CPU coolers. No acquisitions of fraud against Zelman yet.

This is about Moneual and the fraud they committed. Moneual just happens to own 90% of Zelman.

Re:That raises the question:

[s.petry]

Come on man, while it may be workplace friendly it's nearly as bad as goatse.

Re:That raises the question:

[Anonymous Coward]

His knob will be adjusted to speed him down to a near silence.

Re:That raises the question:

[hairyfeet]

He is probably remembering the fact that we had an AC scumbag a few years back post links to CP pics as his idea of a Rickroll, those that didn't have link readability on their browsers got to see CP involving an 8 year old so I really can't say I blame the guy for not wanting to take the chance.

Re:That raises the question:

[Megane]

I think it depends on how much cold cash they were able to pipe away.

3 billion on a fan company?

[funkymonkjay]

don't get me wrong, i love their fans... but come on, it's a fan. those exec and investors are dreaming if you think that market is that large.

Re:3 billion on a fan company?

[fuzzyfuzzyfungus]

The investors might have been acting reasonably (I don't know whether they were; but stock in a company that makes a relatively prosaic commodity isn't necessarily a bad thing as long as the P/E and various other details are in order compared to the alternatives); but I have to wonder about the logic behind the banks willing to extend 3 billion in loans.

Even with inflated sales numbers, I'd (probably naively) think that a bank would get nervous about that sort of borrowing unless they had some idea of the logic behind it. You don't borrow a bunch of money and pay interest on it just for giggles, you do so because you need to turn future expected profits into immediately available cash. If I were a bank lending them considerable amounts of money, I'd want to at least get a summary of why. Zalman manufactures stuff, so the idea that they might take loans to invest in manufacturing facilities, equipment upgrades, or the like seems plausible enough; but they make fans and heatpipes and stuff, not 20nm semiconductors. Did they tell the same story to multiple banks that didn't know about the others? Were the banks pretending to believe them because of a desire to get more loans on the books? Did somebody fall for a "Yup, 3 billion dollar machine shop, that's what we need!" story?

Re:3 billion on a fan company?

[hendrips]

Partial answers are given in this article, where a whistleblower answers some of these questions. Some of the answers seem like they have suffered in translation, unfortunately.

By the way, the fraud was not committed by Zalman, but by the South Korean company, Moneual, that bought Zalman in 2011.

Re:3 billion on a fan company?

[war4peace]

Assumptions made here:
- 3B dollars were loaned from multiple banks
- the money wasn't loaned all at the same time.
- we might find out that some loans were taken to cover others, which is a well known and common practice.
- some money might have come from other sources (not necessarily banks).

Re:3 billion on a fan company?

[LWATCDR]

I don't think it was Zalman but Moneual that got the loans. They own Zalman

Re:3 billion on a fan company?

[UnknowingFool]

The parent company Moneual was that one that got $3B, not the subsidiary. They did it however by falsifying Zalman's revenues as well as probably every other company they own. I think Moneual also has brands they sell as well. I seem to remember them trying to launch a Roomba clone.

Re:3 billion on a fan company?

[penguinoid]

To be fair, the guy did have a lot of fans.

Re:3 billion on a fan company?

[Anonymous Coward]

+1. I wondered the same as soon as I saw the total amount as in WTF was stupid enough to keep giving them loans once they hit say MAYBE $100M. They had to have disclosed at least SOME of the prior loans even if not ALL of them...

I mean WTF does a cooling company(for computers) need so much money for. There are actual PC companies that spend less designing motherboards, assembling, testing, etc. and other companies with similarly more costly processes that suck less in loans...

Re:3 billion on a fan company?

[myowntrueself]

don't get me wrong, i love their fans... but come on, it's a fan.
those exec and investors are dreaming if you think that market is that large.

Its not just fans, they also make pretty good heatsinks. A lot of those heatsinks are pure copper. So Zalman must get through quite a lot of the stuff and it isn't cheap.

For example, I used to have a dual CPU machine with two large Zalman pure copper heatsinks, the sort that are really big and have fins in a fan-out arrangement. In total there was about half a kilo of copper hanging off of that motherboard. They didn't even need fans on them, just the case fan was enough.

Manufacturing this shit must involve having a lot of copper stock.

Re:3 billion on a fan company?

[gstoddart]

we might find out that some loans were taken to cover others, which is a well known and common practice

Except TFS makes this sound much more like a ponzi scheme to inflate the stock value.

I'm pretty sure you don't borrow several billion dollars without either a) knowing you have an awesome business plan and will pay it back, or b) knowing you have a terrible business plan and won't.

I should think it takes some pretty fancy fast talking to borrow that much money. And if it was predicated on writing fraudulent documentation, there's no way in hell you can claim you did any of that in good faith.

Re:3 billion on a fan company?

[afidel]

The mid level managers were making $55-66k per year and that was enough for them to be silent about a massive fraud?!? I don't get that, it doesn't seem like enough money to have a permanent black mark on your resume.

Re:3 billion on a fan company?

[war4peace]

I was just stating possibilities, not whether it was obtained fraudulently or not...

yeah but

[moondo]

In these situations everyone should just chill and take it easy. Clearly we don't need to let things spin out of control. I'm sure Zalman's lawyers can take the heat.

Re:yeah but

[theskipper]

But it looks like management really blew it. Will be a cold day before investors warm up to it again.

Re:yeah but

[halivar]

Just take some time and let is sink in.

Re:yeah but

[war4peace]

Then fan it out.

Re:yeah but

[s.petry]

Let what sink in? The fact that 3 guys defrauded banks for a cool billion dollars each? The fact that a company with a large fan base is getting sucked under? The fact that this will have a chilling effect on the PC market? Obviously the banks blew it by not noticing the fraud occurring, yet tax payers will drawn in to fix the banks. Tax payers should really be hot about this. I really hope these guys get burned, or at least flow right into a long brisk term in "Federal Pound me in the Ass Prison"!

Intended as punny, not necessarily factually accurate.

Re:yeah but

[Anonymous Coward]

Hopefully things are settled duly. I love having multiple, adjusting knobs in my box at the same time.

Re:yeah but

[tlhIngan]

Let what sink in? The fact that 3 guys defrauded banks for a cool billion dollars each? The fact that a company with a large fan base is getting sucked under? The fact that this will have a chilling effect on the PC market? Obviously the banks blew it by not noticing the fraud occurring, yet tax payers will drawn in to fix the banks. Tax payers should really be hot about this. I really hope these guys get burned, or at least flow right into a long brisk term in "Federal Pound me in the Ass Prison"!

Intended as punny, not necessarily factually accurate.

Given it's Korea, I suppose taxpayers already are used to supporting Samsung and other companies as well. It's probably even a patriotic thing to cover for the company...

Re:yeah but

[kesuki]

"Let what sink in? The fact that 3 guys defrauded banks for a cool billion dollars each? "

try 800 trillion... makes these guys look foolish to only steal a few billion...
http://www.salon.com/2012/07/14/banks_biggest_fraud_ever/

"The fact that a company with a large fan base is getting sucked under?"

it happens aol had a huge fanbase too but not many are sad it's gone.

" The fact that this will have a chilling effect on the PC market?

any worse than apple saying they can no longer build ipod classics? the pc market is mainly swindlers anyways. $5,000 for a calculator... they swindled quite a few people in the upgrade cycle and making hardware crap and load crappier software that abandons the four basic freedoms required for truly free software...

"Obviously the banks blew it by not noticing the fraud occurring, yet tax payers will drawn in to fix the banks. Tax payers should really be hot about this. I really hope these guys get burned, or at least flow right into a long brisk term in "Federal Pound me in the Ass Prison"!"

The 3 billion?

[fustakrakich]

Oh don't worry about that. Taxpayers and ATM fees will cover it. Should take about about 20 or 30 minutes.

crooked investor?

[funkymonkjay]

might want to check those guys out. see if they got paid off on the side for this deal.

Auditors, auditors

[Bruce66423]

The occurence of this sort of fraud in the 19th century led to the emergence of the role of auditors, whose responsibility is to ensure that the accounts are telling the truth; as a result this sort of fraud is rare in Western countries. The question now becomes one of who the auditors were - were they ones who should have done the job, or were the banks fooled into accepting a poor audit. In either case however the auditors will be on the hook unless they can prove that the CEO was doing a VERY good job of hiding the facts.

Re:Auditors, auditors

[slashmydots]

My company doesn't even take in 10 mil a year and we have an outside auditor. No bank would give us a loan without having an auditor and it didn't have to be one of theirs. So you're definitely right.

Re:Auditors, auditors

[fuzzyfuzzyfungus]

I'm Arthur Andersen, and I approve this post.

Moody's has rated this post AAA.

This post is fully insured by AIG.

(That said, South Korea has its own flavor of structurally problematic businesses, most notably the rather fraught interactions between the Chaebols and the banking sector and a certain amount of 'too big to fail', against which reform has had limited success.)

Re:Auditors, auditors

[Charliemopps]

The occurence of this sort of fraud in the 19th century led to the emergence of the role of auditors, whose responsibility is to ensure that the accounts are telling the truth; as a result this sort of fraud is rare in Western countries. The question now becomes one of who the auditors were - were they ones who should have done the job, or were the banks fooled into accepting a poor audit. In either case however the auditors will be on the hook unless they can prove that the CEO was doing a VERY good job of hiding the facts.

Auditors do not have omnipotent powers. Specifically, management and sysadmins could easily fool them if they so chose to. I maintain some large databases and could easily just hide records from the auditors when they came around. I don't and have no reason to, but if I were up to something? The effort would be trivial. Likewise, management could enact rules and policies that would force me to hide such info. It would be suspicious, but there are plenty of sysadmins that just do what they're told out there, and I'm sure that's who management would hire if that's what they needed. Auditors are there to prevent stupid and/or low level employees from robbing the company. When the CEO is involved? The auditors are useless.

Re:Auditors, auditors

[war4peace]

I was on the brink for being fired because I didn't want to hide some data. Luckily, HR was on my side, which is almost unheard of, but thank God for the almost 1 GB of e-mails I had religiously saved to have my ass covered with full plate armor level 99.

Re:Auditors, auditors

[Anonymous Coward]

+1 for saving emails (though Outlook doesn't make it easy)

Re:Auditors, auditors

[Anonymous Coward]

and you may be a felon under the computer hacking laws

Re:Auditors, auditors

[chihowa]

Auditors are there to prevent stupid and/or low level employees from robbing the company. When the CEO is involved? The auditors are useless.

I'd say that it's actually the opposite situation. Auditors are there so that all of the information doesn't come directly from upper management. If management needs the cooperation of all of the rank-and-file to commit fraud, then the whole organization is a criminal operation or somebody's going to blow the whistle.

Upper management are the people who benefit the most from fraudulent schemes like these. How many low level employees are going to take on criminal liability so that the CxOs can roll in their piles of cash?

Re:Auditors, auditors

[alexander_686]

Zelman is a public company and I assume has a vigorous outside auditor.

Moneual, which committed the fraud, is not a public company. I would assume that their audit standards are lower.

Of course, even public companies can commit financial shenanigans.
http://www.amazon.com/Financia...

Re:Auditors, auditors

[Anonymous Coward]

Outlook is one of the easiest programs in the industry for saving emails, simply export to a personal folder. No need to save individual emails, just save entire years. God I miss using Outlook, Lotus Notes is a train wreck full of shit in comparison.

Re:Auditors, auditors

[squizzar]

I agree no system is perfect, but to some extent that's the job of enterprise risk departments in auditing firms: They look to determine who has access to the accounting databases etc, whether those accesses are logged and traceable and so on. They also look for discrepancies in the way those databases are managed and if they find them are obliged to recommend a more thorough financial audit rather than relying on electronic systems. If the entire company is systematically deceiving them then there's little anyone could do (other than whistleblowing).

The biggest problem with auditing is LLPs: Once upon a time they were personally and professionally liable for their work. If they failed to audit something correctly they were liable for a huge amount of damages, and because of that had an interest in ensuring no-one deceived them. LLPs reduce if not remove that liability (the personal liability of partners in the company at least - the company as a whole may still be liable I guess) and so there is less danger if they mess up. Couple that with a competitive market that means an auditor who finds too many problems will likely not be getting the contract next year in favour of a more 'flexible' competitor and you don't have an environment that encourages rigorous and cautious auditing practices.

Re:Auditors, auditors

[operagost]

Fortunately for you, management didn't roll a natural 20.

Re:Auditors, auditors

[hendrips]

Actually, while your comment is correct in most cases, it's not applicable here. Apparently, according to a whistleblower, upper management paid lower level employees very generously to keep their mouths shut.

Re:Auditors, auditors

[Jawnn]

The occurence of this sort of fraud in the 19th century led to the emergence of the role of auditors, whose responsibility is to ensure that the accounts are telling the truth; as a result this sort of fraud is rare in Western countries. The question now becomes one of who the auditors were - were they ones who should have done the job, or were the banks fooled into accepting a poor audit. In either case however the auditors will be on the hook unless they can prove that the CEO was doing a VERY good job of hiding the facts.

Surely, you aren't suggesting some sort of malfeasance on the part of auditors or regulators? Not in South Korea?

Re:Auditors, auditors

[Anonymous Coward]

... Arthur Andersen ...

Lied to the public.

... Moody's ...

Lied to the public.

... AIG ...

Put loophole in contracts; encouraging insurance fraud.

All three put pursuit of the dollar first, but AIG didn't willfully commit a crime.

Banks loose

[Anonymous Coward]

Banks are on the hook? Too bad for them, someone in the banks organization didn't do due diligence. Hopefully it was only JP Morgan run by the wonderkind. Lets not bail them out again on this. Couldn't happen to a nicer bunch of investors.

Re:Banks loose

[0123456]

Banks are on the hook? Too bad for them, someone in the banks organization didn't do due diligence.

But they probably got a nice fat bonus for making the loans.

easy

[silfen]

The questions now turn to how this practice was allowed to continue unnoticed for so long and how the banks will go about getting their near $3 billion back.

They shouldn't be getting their $3 billion back: they took a foolish risk and need to suffer the consequences.

Re:easy

[petes_PoV]

They shouldn't be getting their $3 billion back

It seems to me that the auditors, who passed the company accounts as being "true" should be held liable - and then get punished for negligence.

Re:easy

[Anonymous Coward]

Umm, how do you know the risk they took was "foolish"? Did you personally read the prospectus and subsequent 10-K/Qs and find all the red flags?

Dufus.

Re:easy

[Anonymous Coward]

They shouldn't be getting their $3 billion back

It seems to me that the auditors, who passed the company accounts as being "true" should be held liable - and then get punished for negligence.

Yes they should but there is something called risk management and it would seem logical to assume that picking reputable and competent auditors would be part of that job description so in the end the fault is IMHO still with the investors.

Re:easy

[Anonymous Coward]

Huh? As a public company shareholders vote whether to approve the choice of the auditing firm chosen by management. The responsibility for picking competent auditors lies solely on management's shoulders.

Re:easy

[Pascoea]

They shouldn't be getting their $3 billion back: they took a foolish risk and need to suffer the consequences.

I respectfully disagree. They are entitled to get their money back, per the contract that was signed. All debtors of the company have the same entitlement to get their contractually obligated money back.

Now, where that money comes from is a different story. Not a dime of it should come from anybody that wasn't directly involved in the fraud. Any executive/board level people that were involved should be stripped of any and all assets, then the company should be liquidated, restructured, or whatever it takes to satisfy the debtors. If someone wants to pick up the pieces and build Zalaman 2.0, that's for them to decide.

Re:easy

[Dcnjoe60]

They shouldn't be getting their $3 billion back

It seems to me that the auditors, who passed the company accounts as being "true" should be held liable - and then get punished for negligence.

That would depend on what type of "opinion" the auditors issued on the company's financial statements. However, if they did issue a clean opinion, then like in the Enron and MCI scandals, they will be held accountable. Then again different countries have different accounting standards, so what applies in the US or even Europe may not apply in SE Asia.

Re:easy

[hendrips]

The world sure would seem more just if the banks suffered more, right? Unfortunately, it's not that simple.

The loans were made specifically on the basis of Moneual's revenue statements. That is, the banks were trying to learn from mistakes they made last decade, and were relying on audited sales figures to make their loans, rather than "it's a technology company, it must be magic" like they were ten years ago. Unfortunately, the company lied about its sales figures, and then the auditing firm confirmed those falsified numbers. I'm not sure why the banks involved "should" have known that Moneual was lying and the auditing firm was incompetent. Maybe it's different in South Korea, but in the U.S., that kind of screwup would put the company's executives in jail for many years, and would lead to crippling fines and lawsuits for the auditing firm (how's Arthur Andersen doing these days?), so income statements and balance sheets tend to be considered fairly trustworthy.

Furthermore, bank loans like this are almost always collateralized by company assets, so in the event of default the bank gets first go at anything left over. Only large, well established companies can get away with issuing unsecured debt without crippling interest rates. Secured debt is precisely why lending to a startup (the Korean parent company is only four years old) is not a "foolish risk." Seriously, think about a world in which banks were not allowed to recover assets from their debtors. Why would any bank issue a loan, or at least a loan without double digit interest rates?

Actually, you don't have to imagine this - just look at the interest rates on a credit card, which is unsecured by any collateral. And before you tell me that those rates are so high only because banks are greedy, compare the credit card interest rate to the interest rate on a mortgage. Both credit cards and mortgages are issued by the same greedy banks, yet one usually has an interest rate of 15%-20% while the other has an interest rate of 4%-5%. The main reason for this difference is the fact that the mortgage is collateralized by the underlying house. That is precisely why lending $200,000 to a couple that makes $60,000 a year is not a foolish risk; the bank knows that it can get most or all of its money back by foreclosing on the house.

And lastly, how would you feel if the same logic got applied to every other fraud victim? Do you find it just as easy to say that the victims of Bernie Madoff "should" have known that something was suspicious, and that those investors took a foolish risk and should suffer the consequences? Why should these fraud victims (and make no mistake, the banks are fraud victims in this case, according to statements from at least one Moneual's own managers) be treated differently just because you don't like them?

Re:easy

[gstoddart]

They shouldn't be getting their $3 billion back: they took a foolish risk and need to suffer the consequences.

And then they'll pass their losses on to the rest of their customers, and essentially we socialize the losses of corporations.

In the end, that doesn't really serve anybody except the bank, because they're not accountable for their own risk and due diligence.

Kind of like when Wall Street got bailed out of the mess they created with their own funny money problems.

Re:easy

[silfen]

And then they'll pass their losses on to the rest of their customers

Correct.

and essentially we socialize the losses of corporations.

False, because those customers will switch to another bank if they are not getting a good deal.

Re:easy

[silfen]

The world sure would seem more just if the banks suffered more, right? Unfortunately, it's not that simple.

Are you daft or something? Nowhere did I say that the banks shouldn't be able to recover money from the perpetrators of the fraud. But that money is gone. That's why they need to eat the $3b loss themselves.

And lastly, how would you feel if the same logic got applied to every other fraud victim? Do you find it just as easy to say that the victims of Bernie Madoff "should" have known that something was suspicious, and that those investors took a foolish risk and should suffer the consequences?

The logic should very much be applied to the victims of Bernie Madoff. In fact, unlike the banks, which suffered from a simple case of fraud, Bernie Madoff's victims were simply greedy.

Why should these fraud victims (and make no mistake, the banks are fraud victims in this case, according to statements from at least one Moneual's own managers) be treated differently just because you don't like them?

They shouldn't be treated differently. In all cases, you should be able to recover from a company whatever is left. However, usually there isn't anything left, which is why investors and banks who make foolish decisions get stuck with the losses.

Re:easy

[silfen]

Not a dime of it should come from anybody that wasn't directly involved in the fraud.

That's my point: there is no money there; it's gone.

They are entitled to get their money back, per the contract that was signed. All debtors of the company have the same entitlement to get their contractually obligated money back.

Actually, none of that is true either (in addition your misuse of "debtor"). You aren't always entitled to get your money back under a contract, and creditors have different priorities.

Re:easy

[silfen]

It seems to me that the auditors, who passed the company accounts as being "true" should be held liable - and then get punished for negligence.

They should, if the banks hired auditors that made such a guarantee and paid accordingly. The banks should also have the option of hiring auditors that don't make such guarantees, pay less for the audits, and assume the risk themselves.

The point is: this kind of risk management is up to the banks. Tax payers shouldn't have to pay for either bailing out the banks or making their risk management cheaper or easier.

Re:easy

[Anonymous Coward]

Actually, you don't have to imagine this - just look at the interest rates on a credit card, which is unsecured by any collateral. And before you tell me that those rates are so high only because banks are greedy, compare the credit card interest rate to the interest rate on a mortgage. Both credit cards and mortgages are issued by the same greedy banks, yet one usually has an interest rate of 15%-20% while the other has an interest rate of 4%-5%. The main reason for this difference is the fact that the mortgage is collateralized by the underlying house. That is precisely why lending $200,000 to a couple that makes $60,000 a year is not a foolish risk; the bank knows that it can get most or all of its money back by foreclosing on the house.

In the case of credit cards, would that not be what the repo man is for? Take back the items that were purchased?

Re:easy

[Jawnn]

The questions now turn to how this practice was allowed to continue unnoticed for so long and how the banks will go about getting their near $3 billion back.

They shouldn't be getting their $3 billion back: they took a foolish risk and need to suffer the consequences.

Unless they are Too Big To Fail (tm).

Re:easy

[Anonymous Coward]

You mean switch to another bank that does the exact same because it is also not accountable for its own risk and due diligence?

How naive can you be?

Re:easy

[afidel]

Banks typically bring in their own auditors for any large loan, we routinely deal with just about all the major auditors and we're only a $7B company, plus our joint venture partners bring in their auditors whenever we're doing a joint deal. It's not like any company with $3B in loans should have just one set of eyes looking over their books.

Re:easy

[david_thornley]

A creditor can't just repossess random possessions. The reason they can repo cars is because car loans are written that way.

Re:easy

[ChrisMaple]

A lot of what is purchased on credit cards is either small stuff worth only 10 cents on the dollar to a repossessor or something immediately used up, like vacation expenditures. Significant credit card debt might have to go through the courts and end up as attached wages.

Re:easy

[Anonymous Coward]

OK if you won't say it I will. They shouldn't be able to recover money from the perpretrators of the fraud. Banks have been bailed out of their stupid mistakes enough times. Let them burn over it and they'll very quickly find ways not to let it happen again.

Re:easy

[Anonymous Coward]

the thing is of course that the company sales ( as assets in this case) don't link up to what were used for the loans, so the assets don't exist so the banks must figure out something.

Following all the blog links to get to the origina

[Anonymous Coward]

I had to click on several links from the link in the summary to actually get to something that details the fraud:

http://koreajoongangdaily.joins.com/news/article/Article.aspx?aid=2996835

Blow

[CodeArtisan]

Another blow for the Zalman fanbois.

im sure the financiers were horrified.

[nimbius]

Bank Analyst: oh god guise...this is bad...we've given billions of dollars to a company that makes personal computing chip coolers and exhaust systems...
PHB:Yeah Zalman...they do things with computers and internet, and probably clouds too its the smartest...
Analyst: no...you dont understand...you know those little fans in the back of the computer....
PHB:....mother of god.....

Re:im sure the financiers were horrified.

[guruevi]

Not even that, they make aftermarket versions of those. Not a single manufacturer makes devices with a Zalman cooler, only casemodders and those that put together their own computer do with the occasional repair or 'noise reduction' DIYer.

Re:im sure the financiers were horrified.

[Holi]

You might want to do some research. Zalman does indeed make OEM heatsinks and fans, along with many other products not directly related to PC cooling.

socialism

[p51d007]

I'll take free market capitalism over socialsim/communism ANY DAY! At least in a democratic form, you have the ability to do better. Under socialism, there is no reward, for doing better, and you become LAZY, quality of work, goods & services suck.

Re:socialism

[Savage-Rabbit]

I'll take free market capitalism over socialsim/communism ANY DAY!
At least in a democratic form, you have the ability to do better.
Under socialism, there is no reward, for doing better, and you become
LAZY, quality of work, goods & services suck.

You mean a free market capitalist democracy where wealth steadily gathers into the hands of an elite clique of super wealthy individuals with the result that the free market capitalist democracy inevitably evolves into a plutocracy where the clique of hereditary plutocrats (aka. the 1%) step on anybody who seeks to rise by his own merit while the underclasses become steadily impoverished. This is usually followed by a revolution of the underclasses and the free market capitalist democracy is replaced by some form of more socialist order with many of the shortcomings you mentioned. Lather, rinse and repeat at nauseam.

Re:socialism

[wonkavader]

In your first statement, you make a false dichotomy. I'll take getting handed 2.5 million bucks in twenty-four Scooby-Doo lunch boxes over Germany invading Russia any day.

Your first statement is about "free market capitalism", then your second one is about something with a "democratic form" -- these two things are not related.

In your third statement, you're confusing Socialism with Communism.

Re:socialism

[Anonymous Coward]

Totally.

Just compare German cars to American ones... oh wait

Re:socialism

[ChrisMaple]

Socialism is simply communism watered down and veiled. They share the same underpinnings.

Re:socialism

[ChrisMaple]

Long term statistical studies show that the freer the market, the less the tendency for wealth to be stable in a family. People generally and the rich particularly do a poor job instilling in their offspring the virtues that made them what they are.

Banks don't lend thier money!

[Anonymous Coward]

They will try and earn fees of a halfharted effot to get out money back.

One would think....

[Dcnjoe60]

One would think that before lending $3B, banks would ask to see audited financial statements. If they didn't, then they lost this money through their own negligence. If they did, then the accounting firm the provided the audits is liable (assuming it gave clean opinions). Neither of those mean the company itself wasn't fraudulent. I wonder if it was truly banks that made these loans or venture capitalists chasing after something that was obviously too good to be true?

False poorly written article

[digirave]

What happened was that the parent company Moneual, faked sales near $3 billion, NOT get that much loans. They secured loans of about $600 million with about $300 million insured. So the banks will have a loss of less than $300 million (probably near that amount). Also even though the parent company is definitely going bankrupt, Zalman will probably get a court order to keep running after the parent company forfeits all it shares.

WHY WAS THIS ALLOWED??!

[Anonymous Coward]

Yes, I would like to know why you all allowed this to continue!

how the banks will get their $3 billion back

[tekrat]

Higher fees to customers, less interest, ATM fees, credit card fees, checking fees, yadda yadda yadda. Banks have ways to fleece people like crazy.

If you want to rob a bank, you need a gun. If you want to rob the world, you need a bank.

Re:how the banks will get their $3 billion back

[hendrips]

If your bank is so horrible, why do you continue to do business there? In the 14 years since I got my first checking and savings accounts, the only fee I have ever paid is a $7 fee to print a spare box of physical checks.

Unless you live in an extremely isolated rural area, you almost certainly have access to a not-for-profit credit union. Heck, even if you are in an isolated area, most credit unions will allow you to deposit checks by mail, and to make all other transactions via the Internet. At one point, I spent two years living 400 miles away from my credit union's nearest branch without a problem.

Also, "less interest" is a function of the Federal Reserve's fiscal policy decisions. Short term interest rates are more or less going to look like whatever the Fed wants them to look like.

Re:how the banks will get their $3 billion back

[Anonymous Coward]

the only fee I have ever paid is a $7 fee to print a spare box of physical checks.

That is all nice and good, but can change at the drop of a hat, even with credit unions. I switched from a credit union to a different one that offered a better deal when combined with a loan I was planning on getting, and the original one found some way to apply a fee, which despite getting waved, it compounded into other fees when it original tried to pull from the now empty account. Long story-short, the never-had-a-fee credit union turned into $500+ in fees that would have cost more to fight than pay.

Will the CEO do some hardtime for this?

[Anonymous Coward]

Will the CEO do some hardtime for this?

maybe some FPMITAP time

Need more regulation

[Anonymous Coward]

This is why we need MORE regulation of banks and their practices. The regular people that go to the bank will be the ones suffering in the end. Too bad there were no regulators keeping an eye on this. If it is this easy to game the system, then there is a systemic problem.

learned a long time ago in investing

[OutOnARock]

if the bank loans an entity $1,000 and that entity cannot pay, that entity is in trouble

if the bank loans an entity $2.98 billion and that entity cannot pay, the bank is in trouble

Rebate

[Anonymous Coward]

It wasn't a $2 billion bank loan. It was was a $2,000,000,049.99 CPU cooler with a $2 billion mail-in rebate and free Eggsaver shipping
Hope they splurged for delivery confirmation

This blows!

[rleibman]

Really bad, I have both a Moneual case I love and Zalman coolers which work great.

Tesla vs. Solyndra

[mi]

Wait, what's wrong with Tesla?

It was deemed too precious to fail by the government.

I though they paid back their government loan ahead of schedule.

That's irrelevant to my argument. Not all companies helped by the government are necessary failures. The point is, there should not be any such companies.

Not to say, the Administration has failed to mishandle Tesla too:

Yet despite all the public celebration, both Solyndra and Tesla stand as warnings of the dangers in deputizing bureaucrats to play bankers and venture capitalists. In both loans, the government walked away laughably undercompensated for the risk it accepted in the startup companies. In fact, the Tesla deal was arguably far more costly for America than the Solyndra fiasco.

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