Financial Forensics: The Due Diligence Files

In November 2007, Eurex sent Société Généralea formal letter flagging an unusually large DAX futures position heldby one of its traders. Compliance forwarded it to Kerviel'ssupervisor. The supervisor asked Kerviel for an explanation. Kervielprovided one. The inquiry was closed without contacting Eurexdirectly. A derivatives exchange flagged the position inwriting. The bank asked the subject to...

In January 2008, Société Générale discovered that a junior trader had built a €50 billion unauthorized position in European equity futures. Jérôme Kerviel was 31 years old. He earned €52,000 a year. The position was larger than the entire market capitalization of the bank. He didn't hack the system. He built his career inside it — three years in the back office before moving to the trading flo...

Every real estate credit model has a line for pre-sale receivables. In China's property sector, pre-sale cash was not ring-fenced — it was working capital. The developer collected full payment from the buyer, used the cash to service existing debt and acquire new land, and depended on the next wave of pre-sales to fund the construction of the apartments already sold. Evergrande had three hundr...

In 2021, Evergrande was the most indebted real estate company in the world. Three hundred billion dollars in liabilities. One point two million apartments sold to buyers who had paid in full. Construction stopped on hundreds of sites across China. The buyers had the receipts. The apartments did not exist. This is the financial autopsy of Evergrande: the pre-sale Ponzi mechanism that turned China&#...

Ernst & Young audited Wirecard for ten years. One point nine billion euros in cash appeared on the balance sheet — held at Philippine banks. EY accepted confirmations through a trustee Wirecard influenced. It never sent a letter directly to the banks. When it did, the accounts didn't exist. The fraud wasn't sophisticated. The cash either existed or it didn't. This episode dissects...

In June 2020, Ernst & Young told Wirecard it could not confirm one point nine billion euros in cash held at Philippine banks. EY had audited Wirecard for ten years. It had never sent a confirmation letter directly to the banks. When it finally did, the banks said the accounts did not exist. Twenty-four billion euros in market cap disappeared in three weeks. The CEO was arrested. The COO disapp...

Every sovereign credit model has a line for fiscal deficit. The number comes from the sovereign's own reporting. Greece's reported deficit in 2001 was three point two percent. The actual deficit — including the two point eight billion euros Goldman had structured off the balance sheet — was materially higher. The market priced Greek debt at near-German spreads for nine years on the reporte...

In 2001, Goldman Sachs structured a currency swap for the Greek government that moved two point eight billion euros of sovereign debt off the balance sheet. Greece entered the eurozone. Its deficit looked compliant. Goldman collected six hundred million euros in fees. Nine years later, the new finance minister opened the books. The deficit was not three point seven percent. It was fifteen point fo...

Theranos had a board that included George Shultz, James Mattis, and Henry Kissinger. It had no one with clinical laboratory science expertise, no one with medical device regulatory experience, and no scientific advisory committee with access to real performance data. The board was not designed to govern the technology. It was designed to signal legitimacy to investors who would not look past the n...

Elizabeth Holmes raised $900 million from investors including the Walton family, Rupert Murdoch, and former Secretary of State George Shultz. Theranos was valued at $9 billion. The technology — a blood testing device that could run hundreds of tests from a single drop — never worked. The company ran patient tests on commercial machines from Siemens and Abbott, hid the results, and kept raising cap...

Every sovereign bond issuance has a use of proceeds section. 1MDB's described joint ventures with Abu Dhabi sovereign entities and Malaysian energy infrastructure. The proceeds went to a yacht, a private jet, and a Hollywood film. Goldman charged six hundred million dollars — nine percent of total raised against a market standard below one percent. The excess fee was not a pricing anomaly. It...

In 2009, Malaysia created a sovereign development fund to build infrastructure and reduce inequality. By 2015, four and a half billion dollars had been stolen. The money bought a two hundred and fifty million dollar yacht, Picasso paintings, Manhattan real estate, and financed a Hollywood film about financial excess. Goldman Sachs processed every bond issuance and collected six hundred million dol...

Fairfield Greenwich had seven and a half billion dollars with Madoff. It earned three hundred million in fees. It never called the Options Clearing Corporation to confirm the positions existed. That call takes twenty minutes. This episode is the institutional autopsy of the Madoff case — the specific due diligence gaps that kept the fraud alive, the three verification steps that would have ended i...

The largest Ponzi scheme in history didn't survive for seventeen years because it was sophisticated. It survived because the institutions around it — auditors, feeder funds, regulators — had every incentive to believe the returns were real and no incentive to prove they weren't. This is the financial autopsy of Bernard Madoff: how a three-person auditing firm in a strip mall, a regulator t...

The legal framework for SWIFT exclusion existed before 2022 — Iran had been excluded in 2012. The escalation pattern from targeted sanctions to infrastructure exclusion had a documented precedent. The speed of execution — seventy-two hours from invasion to exclusion — was the variable no institutional model had priced. This episode dissects the SWIFT sovereign exclusion mechanism, the financial in...

On February 26th, 2022, seven finance ministers disconnected Russia from the system that moves forty trillion dollars a day. It took seventy-two hours 🔴 Every corporate failure leaves behind a pattern. FFL Risk Pattern Scan provides access to a searchable library of documented corporate collapses, frauds and restructurings that can be filtered by geography, sector, collapse mechanism and fraud ve...

The UK's reserve position was public. The ERM commitment level was fixed. The interest rate required to defend the peg was politically unsustainable. Three pieces of public information. Combined, they described a commitment that could not be honored under pressure. Soros modeled the limit. The Bank of England was the counterparty. This episode dissects the Black Wednesday sovereign commitment...

On September 16, 1992, George Soros made one billion dollars in a single day. He didn't find an edge nobody had. He read a government document, ran the arithmetic, and concluded the Bank of England was defending a promise it mathematically could not keep. Then he sized a ten billion dollar position against it. This episode dissects the mechanism — how a public commitment becomes a one-sided tr...

The gold purchase data is published monthly by the World Gold Council and individual central banks. The Treasury International Capital data shows the trend in foreign official dollar holdings. The divergence between the two series — gold up, dollar share down — has been consistent since 2014. It is a structural signal, not a trading call. This episode dissects the central bank gold accumulation si...

 Central banks called gold a relic. They sold it through the 1990s and 2000s. Then, in 2022, they bought more gold than in any year since 1967. The buyers were not Western central banks. They were emerging market institutions — China, India, Turkey, Poland — building reserve positions that do not depend on a single counterparty's fiscal promises. They did not announce a strategy change. They c...

 The beneficial ownership of the offshore funds holding Adani shares was not disclosed. The related party transaction volume was in the annual reports. The float percentage — after subtracting the promoter group and undisclosed related holders — was below the regulatory minimum. Three signals. In the public filings. The short seller found them. The institutional holders did not. This episode disse...

In January 2023, Hindenburg Research published a 100-page short report on the Adani Group. Within ten days, $150 billion in market capitalization had been erased. Gautam Adani — briefly the world's third richest person — lost more personal wealth faster than anyone in history. The report identified float manipulation, related party transactions, and offshore structures that had been in the pub...

The confidentiality clauses in the loan agreements were non-standard. The collateral was infrastructure, not cash. The cross-default triggers gave the lender acceleration rights that no bilateral creditor had seen before. Three signals. In the loan documents. Available to anyone who compared them to standard sovereign lending terms. This episode dissects the China sovereign collateral lending arch...

 China has extended over $1 trillion in infrastructure loans to developing countries across Africa, Asia, and Latin America. When borrowers default, the collateral is not cash — it is the infrastructure itself. Ports, airports, railways. The Hambantota Port in Sri Lanka was leased to China for 99 years after the government could not service the loan. The architecture was not a mistake. It was the...

 The win rates on government contracts were statistically anomalous. The margin structure on public contracts was inconsistent with competitive bidding. The offshore payment network was visible in the correspondent banking data. Three red flags. Available before the DOJ indictment. Not acted on by the institutional lenders with the largest exposure. This episode dissects the Odebrecht regulatory a...