Bad management tends to continue

Some CEOs are bad because they spend way too much time and effort figuring out how to enrich themselves.  Inevitably, they will siphon money from the company from taking an excessive salary, expensing “travel and entertainment” costs to the company, etc. etc.  These CEOs tend to fill the board of directors with their cronies.  What sometimes happens is that the board of directors has interlocking relationships with other boards, CEOs, etc.  All the shady people know each other.  It becomes a network of people giving each other favours and returning them.  What ultimately happens is that the directors and CEOs want to maintain a status quo of insiders profiting from the company.

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Smart fraud

Smart fraudsters do not commit fraud.  There are many ways in which scumbags can legally deceive (or lie to) investors.  Given all the legal methods available, I’m surprised that some people choose to do illegal things.

Avid’s impending financial restatement

Oddly enough… I don’t think that there is major fraud occurring at Avid, a stock that I have blogged about a few times in the past.

Spotting frauds

I’m surprised that many people don’t understand fraud and can’t spot it.  Here are the basic strategies for identifying fraudulent stocks.

Spotting inflated oil and gas reserves

There are two main approaches:

1. Look at management’s integrity.
2. Look at the technical data and/or perform proper due diligence.

Anybody who believes this slide deserves to lose money in junior mining

Here’s the slide:

BBA did technical report work for Bloom Lake.  Note the big discrepancy between Bloom Lake’s current operating costs and what the technical reports estimated.

BBA did technical report for Kami.  Hmm I guess Alderon’s management failed to mention this in their presentation.  Other slides in the presentation also fail to mention the sulfur and manganese levels in the Kami deposit.

*Disclosure:  No position in Alderon or Altius Minerals (key Altius employees sit on Alderon’s board of directors).  There may be some value in Kami.  However, I think that projections about Kami’s economics are “overly optimistic”.

Microcap stocks and G&A

Thankfully, it seems like many people (including even some institutional investors) don’t get it.  With microcap stocks, it’s very important to examine the company’s general and administrative spending.  The companies with excessive G&A spending are typically doing one or all of the following:

1. Lining insiders’ pockets or supporting their lavish lifestyles (e.g. private jets, unusually expensive meals, etc.).
2. Paying for stock promotion.
3. Operating inefficiently.

All of these behaviours are bad for shareholders.  Excessive G&A is a sign that at least one of these value-destroying activities is happening.  Examining G&A will help you avoid stock promotions and really awful management teams.