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Caleb Newquist: Hello and welcome to Oh My Fraud, a true crime podcast where the bodies are buried in the backyard there in the footnotes. I'm Caleb Newquist. How's it going? Uh, you're in for a treat today. I am talking [00:00:30] to Jonathan Weil of the Wall Street Journal, and that's exciting because I've known John for quite a while. We never worked together directly, but we had, like, lots and lots of off the record conversations over the years. And you'll you'll hear us talk about our history a little bit. But if you're not familiar with John, he currently covers accounting and corporate governance for the Journal. And I first got to know him [00:01:00] when he was still at Bloomberg about so got 1011 years ago or so. Um, he was kind of like Bloomberg is known for having this big, like very, uh, deep roster of of opinion columnists, like very smart people. But John was one of the opinion columnists like, before all that happened. And um, anyway, he, he was one of the few people who had an opinion column that covered accounting and auditing and kind of this deep and serious way. And I just remember reading [00:01:30] him, um, when, uh, I was still, you know, when I was still, uh, working as an accountant, um, in New York in the late 2000. Um, I, you know, I had become obsessed with reading, like, financial blogs, and there just weren't that many people writing about accounting, just not on blogs, but just in the legacy, legacy media in general.

Caleb Newquist: Like, you know, there's Francine McKenna, who had a blog that was one of the first people I found, and Greg and I interviewed her way [00:02:00] back on episode seven. Um, if you want to check that out. There's this guy, Jim Peterson, who also had a blog. Um, but in the mainstream press, there was Floyd Norris at the New York Times, and there was John at Bloomberg. And I'm probably forgetting other people. And, you know, John mentions it in our chat that there were there were definitely people on the beat. But he was he was one of the few people doing opinion, uh, writing back then. But [00:02:30] prior to that, he did, you know, he just did regular old reporting. Anyway, I got to know him and we, like I said, exchanged notes a lot and had a lot of good conversations and talking shop and stuff. Anyway, it was fun to talk to him. And so yeah, it's going to be a good episode. So anyway, uh, thanks to everyone who's rated or reviewed the show on Apple, Spotify or wherever. And, um, you know, especially on Apple. Zach is still complaining about, you know, [00:03:00] that comment that is complaining about the language.

Caleb Newquist: So if you can, you know, do him a solid do him a solid me a solid I don't know. Just you know, somebody write a review on Apple for Zach's sake. Anyway, uh, thanks. Uh, one other bit of business. This is the second to last time that I'm going to say this, but Greg and I will be at the new Jersey society of CPAs convention and expo on June 5th in Atlantic City. That is coming up very [00:03:30] soon. So if you're in the neighborhood and you'd like to see us give a little presentation i.r.l. That's how you can do that. There's a link in the show notes if you want to register for that show. Also, uh, if your convention firm business organization would like some training or fraud on ethics, let's talk about it. Email fraud at earmark Earmarks. Com to get more information on pricing and availability. All [00:04:00] right. That's all the business. And I could go on and on about uh, John while he's he's a great guy. He's a great reporter. Um, and, uh, I don't know, we had a good time. So, uh, here's me and Jonathan Weil, and I hope you enjoy it. Well, thanks for coming on. I know this probably isn't the journals, like, preferred venue [00:04:30] for one of their people, but you made it.

Jonathan Weil: I know you, Caleb. Thank you for having me.

Caleb Newquist: I know you know me. So, yeah, we're going to talk about that. I think the audience will enjoy that bit of it, but we are here to learn about you. John. Um, where'd you grow up? I don't think I have any idea where you grew up.

Jonathan Weil: Hollywood, Florida. I went to school in Fort Lauderdale.

Caleb Newquist: Okay, cool. How was growing up in Florida? Probably. Great.

Jonathan Weil: It's warm.

Caleb Newquist: Yeah. What did your folks do?

Jonathan Weil: My dad's a retired oral surgeon. My mom took care of my brother and me. All [00:05:00] right. And my dad, too.

Caleb Newquist: Yeah. Yeah. Well. Yeah. Yeah. Cool. And so in those days, like, were there, did you have any early indications of, like, what your professional future would be as a kid or like, what were your interests did that, that did that emerge early?

Jonathan Weil: By the time I was a teenager, I, I knew I wanted to go to law school and be a lawyer. The journalism bug caught me when I was in high school. My junior year, I got on the school newspaper and had taken a [00:05:30] journalism class that we had. And then the senior year I was an editor of the school newspaper, and the bug stayed with me, and I went to college and got on the campus press at the University of Colorado at Boulder, and was a journalism major, and then dropped the bug for a while and went to law school, but then kicked right back. Backward.

Caleb Newquist: So, um. So you go to see you. What took you? To see you? What was that?

Jonathan Weil: How we had been.

Caleb Newquist: Why did that happen?

Jonathan Weil: Um. [00:06:00] My parents, we they had always taken us for ski vacations since.

Caleb Newquist: I was.

Jonathan Weil: A little kid, and I wanted to ski. Yeah, it's the only school I applied to.

Caleb Newquist: Oh my gosh. So.

Jonathan Weil: And you got. I knew I was going to get in. Yeah. Confident I was going to get in. Yeah. But I didn't. I saw lots of friends who were applying to 18 different schools and trying to get early admission here or there, and. Yeah. Uh, but I, I just I just wanted to go to Boulder. So I went to Boulder, I applied and they got in, and I [00:06:30] think I found out by October that I was in or something. Oh, yeah. Really early. And so I just had the rest of the senior year to have fun.

Caleb Newquist: Oh, cool. Yeah. As someone who grew up in Nebraska.

Jonathan Weil: And now Nebraska's helmet stands for. Right.

Caleb Newquist: Uh, knowledge, I believe.

Jonathan Weil: Yeah. Did you hear the story about the Nebraska fan who was four days late for the game in Boulder?

Caleb Newquist: No. Tell me.

Jonathan Weil: He got on the highway and saw the sign that said Clean Restrooms Ahead. So he did.

Caleb Newquist: How many of these you got?

Jonathan Weil: You got like, I could go I could be here all week with this. We [00:07:00] had t shirts made up with all of these jokes too.

Caleb Newquist: So yeah. So yeah, I grew up in Nebraska.

Jonathan Weil: Growing up in Nebraska, you were saying?

Caleb Newquist: Yeah. No, I well, so I grew up there. So of course in those days it was the 80s. So I'm a bit younger than you, but like I was taught or I was raised that the only, the only rival that Nebraska had growing up was Oklahoma. And we're talking about football here, obviously, but for those who are not athletically inclined, we're talking about football. And so see you who we also played every single year. And see you hated [00:07:30] Nebraska. It was like one of those things where I just remember, see, you hated us, but we were just kind of like above it.

Jonathan Weil: You're indifferent. Yeah. Bill McCartney chose Nebraska as a rival in Nebraska. Wasn't even aware.

Caleb Newquist: Yeah, no.

Jonathan Weil: Nebraska was. Then we got good and suddenly we were beating them and they. That's right.

Caleb Newquist: It was the late 80s.

Jonathan Weil: They were concerns.

Caleb Newquist: Yeah, it was the late 80s, early 90s and you all, like, beat us like two out of three years or something like that. Like, you had this, like, kind of this, this kind.

Jonathan Weil: Of two years in a row. And then there was a tie.

Caleb Newquist: Yeah, right. That's right. [00:08:00] And I remember those games. I remember those games. And it was just like. And I remember Nebraska losing. And it was like devastating because.

Jonathan Weil: Of the century.

Caleb Newquist: Yeah. It wasn't supposed to happen. And so and then you and so you then you were at sea. You then when they won the national title in 90. Right. Yep. That must have been great.

Jonathan Weil: It was I, I was at the Orange Bowl both years because I grew up down there. It was perfect for that. Oh, yeah.

Caleb Newquist: Yeah. Perfect. Cool. Yeah. Great. Time to be at CU. Um. It's still. It's still a pretty [00:08:30] good time to be at CU even today. It's amazing up there. Yeah.

Jonathan Weil: Cpe credit for this, right?

Caleb Newquist: Oh, yeah. We're getting to the good stuff.

Jonathan Weil: Okay.

Caleb Newquist: Everybody be patient. No worries.

Jonathan Weil: Not rushing.

Caleb Newquist: Okay. So see you. See you continuing with the journalism stuff and then law school and so like so the journalism stuff didn't dissuade you from still the kind of the early dream of going to law school becoming a lawyer.

Jonathan Weil: No, I knew I if I was ever going to do it, I should do it soon. Yeah. [00:09:00] And most importantly, I wanted some form of graduate level education.

Caleb Newquist: Yeah. Okay.

Jonathan Weil: And I look at I wouldn't recommend going to law school unless you actually intend to practice law. Mhm. But if you're going to start and get halfway through it and decide you don't want to practice law, you should still finish law school and finish what you started and get your license.

Caleb Newquist: Yeah.

Jonathan Weil: And do it properly. Which is that was the scenario I was in my second year of law school. I knew this was really interesting, but I didn't want to do insurance defense or something like that for the rest of [00:09:30] my life. So, um, I but I was going to finish what I started. Okay.

Caleb Newquist: So in law school, I know, you know, most you went to SMU, right? Yep. Yeah. Okay. And how'd you like it there?

Jonathan Weil: Loved it.

Caleb Newquist: Yeah. Cool.

Jonathan Weil: Still in touch with the folks there?

Caleb Newquist: Oh, nice. Nice. Yeah. Um, now, I know I didn't go to law school. Um, I but I do know that the virtually every program has an accounting course and of course, securities law and stuff like that. Did did that kind of stuff. Is that was that your [00:10:00] first introduction to that kind of stuff? And is that how you kind of got this new bug? Um, before before graduating?

Jonathan Weil: Well, I interned for the Journal. Well, when I was in college, I interned for the local papers, the Daily Camera, and then and the Denver Post. And that got me an internship with the Wall Street Journal and the Washington bureau right after college. Okay. Gotcha. And that was turning into a job. Uh, I graduated college a semester early, so I had an internship for the first half of 1992 with the Journal in D.C., and I was covering economics. [00:10:30] So there's a little bit of, you know, the doing stories with dollar signs in them and percentage signs and that type of thing that I really hadn't done very much of when I was in college or, or high school. Um, so that got me a little bit. But when I after first year of law school, I decided I didn't want to practice law that, you know, in my mind, well, I don't care about grades then anymore. So I'm going to go take all of the hardest possible classes in fields that I would have never otherwise thought about taking just [00:11:00] because there's nothing to lose, right? This is a chance to get exposed to things that I normally wouldn't. So I like looked at the. I had never taken that much. I took an accounting class when I was in college. One. Yeah. And I just for kicks, I had this idea that I should be able to read city council budgets or, you know, some vague notion like that. But in law school, I took I took tax, I took corporate tax, I took securities regulation. And I'm still in touch with one of [00:11:30] my old professors, Mark Steinberg, who who still teaches at SMU. Um, I took a commercial paper, you know, just every single class that journalists would get, you know, kind of like, uh, they drank their milk to their cold milk too quickly. Um, you know, you get all the types of subject matter that give a lot of non-wall Street Journal reporters brain freeze.

Caleb Newquist: Yeah.

Jonathan Weil: And, um, and that's what I did for second and third year. I took construction law. [00:12:00] You know, just anything that was business and finance oriented that seemed, you know, because it was stuff that I didn't think I had enough exposure to. And so that's. But, uh, after law school, there was one story in particular. I took an internship just to get my toe wet again at the Dallas Morning News, just for the summer. And I was doing a story about this, um, movie chain called Cinemark. I don't know whatever became of it. Yep. But there was a lawsuit going on, [00:12:30] and then one party was suing the other party, and then the CEO, the CEO of Cinemark, which was publicly traded, was taking the position that the CEO had some secret handshake deal over something or another with the other person they were litigating against. And just like my the instruction I had just kicked in immediately, I said, well, okay, secret handshake deal. And this sounds like it was really important. Oh, yes. So where's the 8-K? And, [00:13:00] you know, the the guy on the other end of the phone was like, you know, he said, well, I'll get back to you on that. And there was not an answer. Right. And called back later and he said, well, how did you know to ask that question? I said, well, Professor Steinberg's class, so. I took securities regulation for Mark Steinberg. Right.

Caleb Newquist: And an investigative reporter was born.

Jonathan Weil: Well, yeah. I mean, there's, um, it's [00:13:30] nice when you can marry the skill sets. Yeah. In ways that, uh, and I've when you do that one thing, I, you know, also learned young is I always like to go after stories where in to use the language of business, there's a high barrier to entry because it means you're going to have more time, you're going to have less competition, and chances are you'll have, um, you'll be able to really make sure you can do it right. So I always [00:14:00] gravitated toward, uh, complexity.

Caleb Newquist: Yeah.

Jonathan Weil: And, um, stuff that other people didn't want to, you know, invest the time in. And it's funny, uh, you might remember the name Abraham Briloff.

Caleb Newquist: Yeah.

Jonathan Weil: Uh, Baruch.

Caleb Newquist: Guy. Right?

Jonathan Weil: Yep. Uh, rest in peace. May his memory be a blessing. Uh, he died about 10 or 12 years ago. Um, he was one of my mentors when I got to New York. Uh, accounting. Accounting [00:14:30] professor emeritus at Baruch. And, um, he explained to me that, you know, you're learning one story at a time. All these different tricks about the way financial statements get prepared and the like. He goes, that's not much different than the way it's that we teach our accounting students the case study method, which isn't really much different than the way you learn the law in law school. You know, one case at a time. Yeah, you read one case. You read one case study at a time. With journalism, it's [00:15:00] one story at a time, every story. And then once you've done enough and you've done enough reps, you get to the point where you know you've done enough reps that you know the difference between a new trick and something that's not a new trick. And you know, this is a new trick. I've never seen this trick before. And you and you're able to spot that just because of pattern recognition and being able to spot that. Oh, this is actually a new and creative approach to to presenting one's facts [00:15:30] or numbers.

Caleb Newquist: Yeah. Inventory or accounts receivable or whatever it is. Yeah. So okay. So law school, you got a couple internships under the belt. I mean, you're already making an impact. Like, you know how to, you know, to ask about a case. So you go you you you, you. Your first job out of school was in little Rock, right?

Jonathan Weil: Became the Arkansas Democrat Gazette. Okay? The Journal wouldn't take me back immediately. They said, go cut your teeth. And after I graduated [00:16:00] law school. Yep. Um, took the internship at the local paper just to get my toe wet again. Yeah. And, uh, the folks at the Journal were saying, ah, show us you're not some kind of a dilettante. You got to go cut your teeth all over again and, you know, go go somewhere. Um, break some stories and keep in touch and, you know, let us know if you stay with this business. Yeah, but it was a it's a great paper. I just had a great time there. And, uh, was there for about a couple of years, and then, uh, [00:16:30] the journal took me back.

Caleb Newquist: Okay. So so you're at the Journal in, in Texas and about what year is this?

Jonathan Weil: 97.

Caleb Newquist: 97. Okay. So, um, at this point, did you know what Enron was?

Jonathan Weil: No, I knew it existed.

Caleb Newquist: Okay.

Jonathan Weil: It was funny. They hired me to do a regional version of heard on the Street. Okay. Called heard in Texas. All right. Stocks column. When I had been the last year, I was at at the Democrat Gazette, I was a political reporter, [00:17:00] um, having all sorts of fun with Mike Huckabee's, uh, finances.

Caleb Newquist: Oh, yeah.

Jonathan Weil: Nice. It was those stories that got me at the Journal. Um, he was a governor at the time.

Caleb Newquist: Yep.

Jonathan Weil: Uh, but they hired me to do this. To do this regional version of heard on the Street. And there had been a couple of very good heard writers who had been doing that before me, and it really showed their ability to find stories that the markets didn't know about it, move stocks regularly. [00:17:30] Um, and when they hired me, I didn't know what a p e ratio was.

Caleb Newquist: So yeah.

Jonathan Weil: I had to figure it out. But, um, I've been a reader of the Wall Street Journal when I was a kid, and I'd worked for it before. So, you know, I when I, you know, talked my way into them hiring me. I remember telling Paul Steiger, who was the managing editor for the paper, he said, well, you know, I think any good reporter should be able to cover any beat. You know, you should if you're if you're good at covering the school board, you'll probably be good at covering science, probably be good [00:18:00] at covering sports. And if you're telling me you want me to write a column, uh, okay, I'll figure it out. That's what we're supposed to do. We're all jacks of all trades in the end.

Caleb Newquist: Yep. And so then. So it's the late 90s. And so by this point, you'd heard of Enron, but, like, it was like it was just this hot notable company at the time, right. Like it was on the upswing back then. Yeah. Yeah. And huge presence in obviously Houston. And [00:18:30] so then what's so, um, Um, so tell us the story about like, how does how does all of a sudden the Enron how does how does Enron become a story? How did it become a story for you?

Jonathan Weil: Well, I think you're talking about a story I did September 2000.

Caleb Newquist: Okay.

Jonathan Weil: Uh, it was the last story I did for Texas Journal, so I had already been there for a few years. And the.com, just to set the stage some [00:19:00] the.com bust, uh, the peak was March 2000, and there is this. And then it cracked. And by the time we got in the summer, people were looking for new themes. And, um, one of the themes was that served as a tailwind for all the energy traders Enron, Dynegy, El Paso, Duke, Williams, you name it was. Well, and this is when people at the Wall Street Journal is funny. I was looking back at old stories and saw in one that we used to capitalize the terms new economy and old economy back in the late 90s.

Caleb Newquist: Oh, really? [00:19:30] Oh, funny.

Jonathan Weil: Yeah, there were old economy companies, old economy stocks. New economy companies. New economy stocks.

Caleb Newquist: God, that made it into the style guide, huh?

Jonathan Weil: Yeah, yeah, we don't do that anymore. No. Um, I that eventually had an expiration date on it. Um, but the. The, the bull case, to the extent it hadn't existed already on Enron in particular, was that. Oh, it's the perfect marriage of the old economy and the new economy. Oh, we just had the bust of the dot coms. Yeah. And here there's, you know, perfect marriage, [00:20:00] the old economy, new economy, their energy, their fast, their pipes, their they're going to they're going to trade bandwidth. And so their stocks were rocketing at that time. And uh, so how that story came about uh, somebody summer of uh, 2000 never said whom or never said who. The persons never wanted to be known. Um, someone in the investment management business is the way I described him to, uh, Malcolm Gladwell [00:20:30] said to me, you really ought to take a look at Enron and Dynegy and see how they make their numbers and see where their earnings come from. And so I did, and it took at that time the language to describe what they were doing, the language we have now to describe what they were doing. Things like level one, level two, level three, assets and liabilities. That language didn't exist then.

Caleb Newquist: Right.

Jonathan Weil: People didn't. The term mark to model was not really widely understood, [00:21:00] much less, you know, something like Mark to make believe.

Caleb Newquist: Yeah.

Jonathan Weil: Yeah.

Caleb Newquist: That's right.

Jonathan Weil: To explain you know, Mark to market accounting was not something that people had great awareness of because I don't think even derivatives were being marked to market yet. Right. At least not. There wasn't a requirement. Sure. They hadn't been in effect. They hadn't. Those rules hadn't gone into effect yet. But once you figure. And then there is another, you know, factor that served [00:21:30] as a conference here. Um, the the accounting beat position had just come open in New York. Okay. At the money investing section for the journal. And I really wanted to do that. And I wanted to come to New York and, and be the accounting beat reporter for the National Paper and the editor at the time, great guy, Larry Ingrassia. We're we're still in touch. Great friend. Um, and I don't remember if he remembers a story, but he said, look, I've read all I've read your stories since you've been, you know, down in Texas [00:22:00] and you've had a great run on, uh, exposing a lot of frauds and starting investigations, and. But I've never heard of any of these companies. How about you tear apart the books of a company I've heard of before, and then we'll talk about the accounting beat. And I had Enron and Dynegy on the shelf, so that kind of gave me extra motivation. Yeah. To, uh, to start digging on those. And, um, once he could figure out that, you know, if you want to talk a little geekspeak here. Yeah. What? That the line on their [00:22:30] balance sheet. Under the current assets. Current liabilities. Long term assets. Long term liabilities. Risk management activities. That was the name of the asset and the liability. Once you can figure out that all those meant were unrealized losses and unrealized gains.

Caleb Newquist: Yeah.

Jonathan Weil: Oh, and then if you took the net change in those four numbers every quarter, you could tie it back exactly to a single line item on the operating cash flow statement. I didn't figure all this out myself. My friend in [00:23:00] the investment management business had shown me. Look, here's the arithmetic, and this is how you can get to the point that, um, these are their unrealized gains. And you can take that as a percentage of any pretax number you want. And in their case, you know, the particular quarter that I happen to be writing that I wrote about it in September. Um, it Dynegy it was their unrealized gains were some massive percentage of their Ebit, their earnings before interest and taxes. [00:23:30] Yep. At Enron they exceeded Ebit at El Paso. They didn't give you enough numbers to be able to tell. Hmm. Uh, so actually thought El Paso was, um, probably, you know, the craziest of them all. And the funny thing is, you could learn more from reading. You could learn more about Enron's accounting practices and risks. This was true for for El Paso, too. From reading Dynegy's 10-K and 10-q.

Caleb Newquist: Yeah.

Jonathan Weil: Because [00:24:00] Dynegy's disclosures and their footnotes, they cautioned about how much volatility there would be in these numbers that, um, there was all these different risks. They gave um, detailed time horizons for the duration of the contracts could go out 30 years. Um, Enron would give you an average like two years. And but, you know, then you could kind of. But because you knew that Dynegy was doing 25, 30 year contracts, you knew that Enron was doing 25, [00:24:30] 30 year contracts, right? And then, you know, you'd have to, but you'd have to confirm that with Enron, you couldn't just like, look up their filings and see that, right? Um, so, you know, Enron, when they would describe their valuation methods, they would just leave it as management's best estimate. Um, Dynegy had like two pages explaining, like all of the all the risks and pitfalls. So anyway, um, that's how the story came about. The headline [00:25:00] ran. The headline on it was energy traders Cite gains, but some math is missing, right? September 20th, 2000. Coming up on 25 years since that ran, uh, it had uh, it when that story came out, the stocks got impacted that week. There were sell side notes coming out, uh, trying to debunk the piece. Yep. Um, executives weren't particularly happy about it.

Caleb Newquist: Right. Of course.

Jonathan Weil: Enron and Dynegy. The Monday the story ran, both flew up. You [00:25:30] know, teams of executives to talk to talk to me that day.

Caleb Newquist: Aha.

Jonathan Weil: I had been asking him questions for, you know, a week or two at that point, but they didn't. We were, you know, it wasn't like the Wall Street Journal where you never today where you never know when something's going to come out. Our Texas Journal came out on Wednesdays, so we couldn't necessarily you know, we couldn't necessarily head fake them. Yeah. Um, it was either coming out soon or not. Uh, but once they realized, no, we're actually going through with the story. Uh, yeah. They flew people up, and [00:26:00] it was. Those were some fun conversations, I bet.

Caleb Newquist: Yeah. Okay. And so then, as I mean. And the rest is history kind of. Right. I mean, that's that that was kind of I mean, it's it's it's it's literally in your bio on the journal that's like you, you were one of the first, if not the first person to just start calling attention to this stuff. And that was that's when things started to unravel. And so then so.

Jonathan Weil: Then let me correct you on one [00:26:30] thing. Yeah. There was a reporter in there is a reporter in 1992 at Forbes. I'm sorry, I don't remember her name offhand. I know she passed away some years ago when Enron first implemented what we would call Mark to market accounting, because the SEC gave him a gave him permission to who wrote a short essay for Forbes criticizing this. And if you read Kurt Eichenwald's book Conspiracy of Fools, he chronicled this exchange of letters back [00:27:00] and forth between her and Ken Lay after that came out. As far as I know, she never she, neither she nor anyone else until 2000, wrote anything about Enron's mark to market accounting.

Caleb Newquist: Oh, wow.

Jonathan Weil: And the funny part is, so, you know, the first, you know, the the language on that site, it was the first to challenge their accounting practices during during the.com bubble. That's it is somewhat narrowed. Yeah, [00:27:30] there is but you know that that's a that's a nod to the Forbes reporter in 1992 who was based in Houston, as I recall. Who did that story? Yeah. Um, but that story did. There was a chain of reaction about a month after that story, and I didn't know him at the time. A guy named Jim Chanos, someone faxed him the story, and he read it and did his work and then got short, as I recall, uh, Enron, [00:28:00] Dynegy and Williams. And then he told another reporter about it at fortune, and she wrote a report about it.

Caleb Newquist: Bethany McLean write.

Jonathan Weil: In, I think, February or March of 2001, the stock was already, I think, down to 60 was it was close to, I don't remember what Enron, what Dynegy shares were at. I think Enron was just above 85 and the all time high was around 90.

Caleb Newquist: Yep.

Jonathan Weil: When she wrote her piece, I think it was in the 60s, maybe low 60s. It had an impact. And then Peter and then, [00:28:30] um, but before that, Jim had given the name, as I recall, learning later, Jim had given the name at his at a conference he has for his friends, uh, in the short selling community, maybe a month or so before Bethany had done her piece. So he kind of wasn't. I wouldn't call it public, but he had gone, you know, on the record with a group of friends, you know, in a in a semipublic in a I wouldn't call it a public forum, but in a small forum. Right. Getting, you know, getting his marker down. Um, and he was [00:29:00] kind enough years later, uh, 2002, when he had called under oath, uh, the House Energy and Commerce Committee, they asked him to come testify, uh, you know, postmortem about, you know, about Enron and what he saw that others didn't. He was very kind in his testimony to site. And we can look that up on the web site. That story said that this is where we got the idea. Reading Wall Street Journal Texas Journal, Jonathan Weil. Energy traders cite gains, but some math is missing. But [00:29:30] there was, as I recall, there was somebody at that conference who was writing a newsletter named Mark Roberts off Wall Street Consulting, who after that conference wrote his own very long form report.

Jonathan Weil: And he was the first one to identify the related party transactions in a publication. I had completely missed the related party transactions that were disclosed in the proxy, in part because I just missed the fact when they referred to Andrew Fastow as a senior Enron, you know, executive. [00:30:00] I mean, I just I completely I missed it. Today. I would never miss that. Right. And I'll tell you a story about Lehman, uh, where that that was a lesson learned. That came in handy, but with. Anyway, after the point being that, you know, just keeping the chronology going after Mark's piece, and I don't, uh, I don't know if I don't remember if he quoted Mark, but Peter Eavis when he was at Street.com writing a column, um, getting in the summer. Now he's at the times nowadays, [00:30:30] uh, he wrote a piece about the related party transactions, and that was the first piece that anybody ever written about the related party transactions. But then also that spring, you know, with hindsight, we know these things. As I recall, uh, the regulators in California were were finally figuring out how the ruling, how the rolling brownouts were happening and they were getting a stop to them and electricity prices were cracking and people didn't necessarily know, uh, how these opaque numbers at Enron worked, but they knew that earnings went up and the stock went up [00:31:00] when electricity prices and natural gas prices were soaring, and when they cracked and they could see electricity prices were cracking, then the stock went down.

Jonathan Weil: By the time spring 2000 was happening, you know, was, uh. Excuse me. By the time we got into spring 2001, I should say. Um, people could see electricity prices are cracking. The rolling brownouts seem to have, uh. They seem to have figured those out, or at least cutting back the number of them. And, um, what? We didn't [00:31:30] know until I wasn't aware of it until later at the Arthur Andersen trial, uh, after Enron and Andersen had both failed, um, that there were these things called the Raptors. And if you making. I'll just try to boil this down. At the risk of being simplistic, once Enron stock price fell below 60 bucks, there were going to be in a death spiral. Yeah. And so once they fell because they had and what we couldn't see, you know what I didn't know what nobody knew until after the bankruptcy filing was that [00:32:00] they had taken on all this off balance sheet debt.

Jonathan Weil: 10 billion. Doesn't sound a lot today when you're talking about, you know, market caps in the trillions, right. Tech stocks but 10 billion of off balance sheet debt. Uh, and Enron I think the peak market, their market cap there was $80 billion. But still the Babe Ruth of accounting scandals. Right, right. Uh, once. Anyway, once that stock fell below 60 bucks, it was going to be a death spiral because in part, they were pledging their own common, unissued common shares right, as collateral for off balance sheet debt through these crazy, [00:32:30] uh, off balance sheet transactions with their own senior executive officers who had stakes in those off balance sheet partnerships that Enron was doing deals with. You know, we didn't. But once you put it all together, it's like, why did the mark to market numbers matter? We really we really didn't even know the full scope of it until after the bankruptcy. Why did they needed the off balance sheet debt? Because they weren't generating cash. They had to borrow. They couldn't show people what they were borrowing. That's how that they were funding themselves. [00:33:00] Anyway, skilling resigns in 2001 after after being CEO for just like six months or so.

Caleb Newquist: Mhm.

Jonathan Weil: He went on the record telling, um, I can't remember if it was our reporters or somebody else. He cited the stock price. I mean, who does that?

Caleb Newquist: Yeah.

Jonathan Weil: Ken Lay has to come back as CEO. And then one of the things I don't think people appreciate is the impact that nine over 11 had on the whole chronology, but people were becoming aware, you know, especially after the.com [00:33:30] bust, that there were problems throughout the books of corporate America. Yeah. There have been plenty of scandals already. Waste management, you know, just to name one. When nine over 11 happened, it was like. And then earnings season started the next month. And it was like one of the first stages of normality back in the capital markets again. You know okay well it's time for, you know three key earnings calls and earnings calls were kind of a new thing because regulation FD regulation fair disclosure had just come into play.

Caleb Newquist: Yeah. [00:34:00]

Jonathan Weil: Um so there were earnings calls and you could tell on the tone of, of the calls with some of these companies where the numbers were really Controversial or becoming controversial. That on the buy side in particular, and even on the sell side to some degree, there is just a new impatience with anybody blowing smoke at them. If for at least a brief moment in time, the relationship between the street and management was, [00:34:30] please don't sugarcoat anything. Tell me what's actually happening. And the moment that people were, you know, caught or known to be playing games, there just was no patience for it at that moment. That contributed a lot to Enron's failure, especially in October 2001 when my colleagues, John Emshwiller and the late Rebecca Smith were doing. They had a series of stories of three in particular in 2001, where they really put [00:35:00] a spotlight on those related party transactions. What we now know is, like Ljm or the partnerships named after the Star Wars characters they'd got in some of the actual documents. And the. And then there is this mysterious $1.2 billion shareholder equity reduction. That turned out it was just an error, but people really fixated on it because the company couldn't give a good explanation for what it was about, other than it had to do with Fastow and his crazy partnerships.

Caleb Newquist: Right.

Jonathan Weil: So, but for a young reporter, I was [00:35:30] 31 at the time when Enron collapsed. It was a very good lesson in watching how with what ultimately was a financial services company, Enron. Confidence can disappear in a moment. And when that can when that happens, there's a run.

Caleb Newquist: Yeah.

Jonathan Weil: And those and that was not a too big to fail company.

Caleb Newquist: Right.

Jonathan Weil: Um, there were some who tried to make it too big to fail, but it didn't work.

Caleb Newquist: Yeah.

Jonathan Weil: And, [00:36:00] um, you know, once, once that confidence is destroyed. Gone.

Caleb Newquist: Yeah. Let me ask you this, and then we'll move on. Um, looking back on it now, do you think those guys skilling lay, you know, the other people that were involved, were they victims? Were they kind of just victims of their own success and they just believed the hype machine? Or were they were they were they greedy bad dudes? Like, do you [00:36:30] do you have a sense of that or do you have an opinion about.

Jonathan Weil: I don't want to give opinions on it, but let me just give observations. Of what? The observations.

Caleb Newquist: Yeah. Um.

Jonathan Weil: I think people viewed Skilling and Fastow and Lay and others who went to jail through the same prism that they viewed Michael Milken and the Dennis Levine, Ivan Ivan Boesky and the characters of the Wall Street scandals of the late 80s. It's like, uh, [00:37:00] these are corporate crooks. They make things worse for everybody. They and they don't get caught often. They don't get convicted often, but when they do, they go to jail. And that's the way it's supposed to work.

Caleb Newquist: Okay.

Jonathan Weil: That was the culture. The culture changed after oh eight.

Caleb Newquist: Yeah.

Jonathan Weil: After oh eight. Nobody went to jail. No senior executive from any company that failed or got bailed [00:37:30] out went to jail. At least the ones that people think. There was one trader from Credit Suisse.

Caleb Newquist: Yeah.

Jonathan Weil: Um, who mismarked his books so he could get a higher bonus.

Caleb Newquist: Right. But nobody knows who Taylor, Bean and Whitaker were, right?

Jonathan Weil: I mean, that's you remember?

Caleb Newquist: Well, no, I do, but like, regular people had never heard of CBW.

Jonathan Weil: Right. And whatever the bank that was that, you know, that it took down based in Montgomery, Alabama, nobody from colonial or whoever. Yeah, nobody from there went to jail either. Right. Even though it actually failed and the FDIC sued the auditor for [00:38:00] and got, you know, a half billion dollar settlement. Right. So, okay, so when nobody goes to jail after a much bigger scandals occurred, you know, seven, eight years later.

Caleb Newquist: Yeah.

Jonathan Weil: Um, then people start to ask questions like, well, is it fair that, uh, that Jeff Skilling went to jail and nobody from Lehman Brothers did?

Caleb Newquist: Right.

Jonathan Weil: And I'll leave it to others to decide whether it's fair.

Caleb Newquist: Yeah.

Jonathan Weil: Um. It's [00:38:30] inconsistent.

Caleb Newquist: Right.

Jonathan Weil: Because with the likes of. And again, I'm just trying to be observational and just trying to be analytical here. I don't want to be engaging in opinion mongering. That's not my current job title.

Caleb Newquist: That's right.

Jonathan Weil: Um, but when you look at the likes of Fannie and Freddie or Lehman Brothers.

Caleb Newquist: Yep.

Jonathan Weil: Or any financial institution that fails, uh, usually it's because people look at the numbers on the balance sheet [00:39:00] and realize these aren't the right numbers. Not only that, even even dumb old me can look at these numbers and see these numbers are not right. If I know that these numbers are not right, everybody else knows these numbers are not right. I have to get out and confidence goes. Yeah. And the way confidence might stay is that you look at and say, well, I know these numbers aren't right. And I know everybody else must know that these numbers aren't right. Well, [00:39:30] I'm a bondholder, so the government's got my back. If the bank is or insurance company is big enough. Right. But I'm an equity holder now. Now I own basically a, you know, a call option or something or something. Right. But, you know, the bailouts are not there for equity holders, generally speaking. Sometimes it works that way. Yeah. But what was so, uh, I think frustrating to a lot of people who thought they knew what the rules were. Post zero [00:40:00] eight is that that's why Fannie and Freddie and Lehman and others after them failed. That's why IndyMac failed before them. People could look at the numbers and say, there's no way that the management could be believing these numbers. So they run them and then they wonder, well, I know that they put out numbers that were there were no good. Why didn't anybody go to jail? People used to go to jail for accounting fraud. If they put down numbers they didn't believe. You know, we're supposed to have these certifications and all these different.

Caleb Newquist: Yeah. This is in the post [00:40:30] Sox world.

Jonathan Weil: Yeah. We're supposed to have all of these checks and balances and processes and and they still put numbers down that nobody believed and they couldn't have believed. And so why didn't anybody go to jail? And I think that's, you know, I'm not going to say whether anything's fair, but there's a there's a consistency question.

Caleb Newquist: Right.

Jonathan Weil: And just from a policy standpoint, um, it looked like after zero eight that there was a policy decision that, uh, [00:41:00] we don't want to. It could cut a couple different ways. We don't want to do anything that would risk undermining confidence in the economy or America's financial institutions. Any worse than it already has. Yeah, there are costs to that, like rule of law. And we'll eat those. Another view might be that, um, especially if for anybody who ever read Hank Paulson, the former Treasury secretary, his memoir that came out shortly after the financial crisis, it was pretty clear from reading his [00:41:30] book that the senior management of Lehman was on the phone with him every day. So if you were going to go, and I'm sure it was the same thing at all, the major banks just deducing it had to have been a Fannie and Freddie. So one might take the approach that, well, if they ever took a senior manager for Lehman Brothers and, you know, had a trial and put him on the stand, the first thing that would happen is, well before he put me on the stand, let's call Hank Paulson and ask Hank Paulson, did you know, did this senior executive or board member at Lehman [00:42:00] tell you every day, you know, what their financial position was like.

Jonathan Weil: You were on the phone with them every day, he said, you know, we were in this book, as I recall. You know, they were getting regular updates. Yeah, of what was happening. So the defense pretty good one. Uh, is that well, our regulator and there and higher up in the government, they knew everything that was going on. It was as it was happening. We were candid with them because we had to be. They demanded it. Yep. Um, there were anecdotes that came out about [00:42:30] how the government, whether from the fed or other agencies, would call up bank CEOs and say, we don't want this disclosure coming out on this day, or we don't want this disclosure coming out on that day. So, you know, there are a lot of complicating factors for why there were inconsistencies in the approach toward law enforcement, uh, from one era to another.

Caleb Newquist: Yeah. So let's level set a little bit. By this time, because we're talking [00:43:00] 070809 you've you're not at the Journal anymore. And we're right. I know we're jumping over a lot. We're jumping over.

Jonathan Weil: So I left the journal.

Caleb Newquist: And socks but like but yeah. So you get to so you end up at of all places. You end up at Bloomberg. And then you do get to peddle some opinions.

Jonathan Weil: For a while I was I was an opinion columnist for seven years for Bloomberg News.

Caleb Newquist: And that was that must have been fun.

Jonathan Weil: A lot of fun, especially the first two years I got there. I started doing that in 2007.

Caleb Newquist: Right. So great timing. Yeah. Bit of luck. I [00:43:30] mean, yeah, part of it's luck, right? You just it so happened like current events happened when they happened and and you had you, you had the platform.

Jonathan Weil: Well to inform your perspective more about my perspective. Uh, with the exception of Bear Stearns, I had written about just about the accounting practices and questionable ones. Yeah, of just about every financial institution. You know, that all the majors that and Fannie and Freddie and others [00:44:00] brokers that that went bust or needed a bailout or got, you know, had to get, you know, taken out in a take under, uh, with the exception of Bear Stearns, I pretty much hit them all on their accounting. So it wasn't like you couldn't say that. Well, it's only with hindsight bias that someone might question their accounting. You had those issues then, too.

Caleb Newquist: Right.

Jonathan Weil: Particularly at Fannie and Freddie.

Caleb Newquist: Yeah.

Jonathan Weil: Um, and I remember at Freddie the issue there was the same issue that [00:44:30] Fannie and Freddie had had years earlier during earlier scandals with, uh, cash flow hedges. I know that I'm really getting at your audience's hearts when I start to talk about cash flow hedges. Yeah. Um, Freddie Mac was so cash flow hedges, you basically are doing derivatives contracts, and the thing you're hedging hasn't happened yet. You're hedging future transactions. In Freddie's case, they were hedging transactions that they are [00:45:00] forecasting out 30 years.

Caleb Newquist: Yeah.

Jonathan Weil: And they told you this in the disclosures. And it reminded me of the conversations I had had with Enron. Um, and I framed the column this way, too, at that conversation, at that conversation with Richard Causey, the chief accounting officer, and 6 or 7 other people that had run flew up before that story in 2000, ran. I let them do have their say for like a few hours and didn't really ask that many questions, except the most [00:45:30] important, because we we agreed about the numbers. They looked at my numbers. They said, your numbers are fine. It's all about how you interpret them. So I didn't really ask that many questions. That's all I really needed to know at that point. But I let them have their say and let them. I wanted to hear them out. And then we got to the end and I said, I got some questions. And it was very simple. I said, okay, so and this will tie back to Freddy in a second, I swear. But do you have a long podcast? So I'm going to.

Caleb Newquist: Yeah We do.

Jonathan Weil: It's gonna avail myself of that. Okay. Um, so here's here's some questions I've got, uh, you've [00:46:00] been to Enron's been doing the energy trading. For how long? Well, we were the pioneers, I know. For how long? Nine years, 1991. We started. Okay. We were the pioneers. Yeah, I get that. Okay. And you're forecasting transactions or. Excuse me? You're doing contracts and marking to model marking to market your contracts out 20, 25, 30 years. Yes. That's correct. And your experience in this business which you're the pioneer is nine is nine. Nine.

Caleb Newquist: Nine years.

Jonathan Weil: Okay. So based upon your nine years of data in which you're a pioneer, you're [00:46:30] you're marking to model future cash flows going out 20, 25, 30 years. Yes. But you know, the average contract is two years okay. But some go out 20, 2530. Yeah. Okay. Um, were your models telling you last year the California electricity prices would be going berserk this year, and we'd be having rolling brownouts? Well, you know, this is one of those 100 year flood events. You know who could have possibly foreseen that? There's you know. No, of course not. They weren't telling us that the electricity prices would be going berserk. Okay. Fair enough. [00:47:00] Um, who do you think's going to win? Uh, this is September 2000, six weeks before Election day. Who do you think's going to win Bush or Gore? Oh, you know, the race is really tight. Polls are close. Uh, it's kind of hard to tell. Don't you think it matters a lot to your mathematical models? They're telling me, by the way, they're the people doing their mathematical models are the valuations. These were all like Caltech, MIT, Stanford, Harvard Wizards, you know, physics, you know, you name it. Rocket scientists. Um, were your mathematical, was it? Don't you think it would matter to your mathematical models if a if a Democrat [00:47:30] environmentalist wins or if a Texas oilman wins? Well, yeah, I see your point. So the point being that I left the room that day just based upon those questions. It's like if I think that they are doing the numbers in good faith, I don't know what basis they would have to do them. Right. Fast forward to 2008. Eight when I'm calling Freddy, how can you forecast transactions 30 years into the future?

Caleb Newquist: Right.

Jonathan Weil: And then have hedges on them? [00:48:00] Yep. And then lose money on hedges hand over fist and use the cash flow designation to keep those losses out of net income and thus out of core capital, which is regulatory defined. You're actually in their case, it was congressionally defined. And they say, well, we know we're going to have to do the transactions. We know we're going to have to issue debt. I say, but you don't know the terms. And I'm reading right here in the standard, it says you have to know the terms of the transactions before you can designate something [00:48:30] as a hedge for that transaction. Well, we stand by our accounting. Great. I stand by my column.

Caleb Newquist: Yeah, right. So I want to the other thing that I think that's important here is that you pointed out over many years, over many columns that auditors were complicit in this accounting the whole time. And you had seen complicit.

Jonathan Weil: You know, not in the opinion mongering.

Caleb Newquist: Okay, fine. Fine. But like but.

Jonathan Weil: You certified the financial [00:49:00] statements. Yes. Right.

Caleb Newquist: They they signed off on it. They signed off on it. Right. Saying complicit was maybe a little bit loaded I apologize.

Jonathan Weil: Um, I'm just trying to keep out of trouble. Caleb.

Caleb Newquist: No, I know, I know, no, and I am acknowledging that John is staying out of trouble, and I am using the language that is maybe not Wall Street Journal approved. Um, but you had you had the experience of seeing what had happened with Enron and Andersen and not just Andersen and Enron, but Andersen and Waste Management [00:49:30] and Andersen and Worldcom, like you had seen how the role of auditors almost a decade before, kind of essentially repeating itself in oh seven, oh eight, oh nine and you had written at, you know, at that time, you had you didn't say, I mean, you you had choice words for the audit firms during that time as well. It wasn't just it wasn't just the accounting. There was there were there were big prominent [00:50:00] firms with, uh, you know, reputations that were saying, no, this is fine. And so when you would write about them, like, what? What were those conversations like?

Jonathan Weil: Well, the auditors generally don't talk about their clients, so there weren't many conversations I'd call. I'd always seek comment.

Caleb Newquist: Yeah, right.

Jonathan Weil: Uh, but two observations that I think are handy here. Before Enron, you know, fortuitously, about a year before Enron, uh, [00:50:30] the SEC, when, uh, my old friend Lynn Turner was the chief accountant, came, came out with new rules that said, you have to disclose auditor fees. And so we got starting in early first half of 2001, the proxy statements came out. We started seeing all these different fees for audit fees and for non-audit fees. And I can remember really extreme examples like Raytheon, where Dennis Kozlowski was the chairman of the audit committee. You might remember him from Tyco.

Caleb Newquist: Yep. Tycho.

Jonathan Weil: Tycho, [00:51:00] Raytheon at the time was paying like I'm ballparking here $1 million for the audit and $60 million for information technology consulting.

Caleb Newquist: Right, right.

Jonathan Weil: So, and there was a scandal for a couple of years at that point. Well, look, the auditor's independence is compromised because look how much more they're getting paid for non-audit work versus audit work. And that's a good storyline. You know, that's reasonable.

Caleb Newquist: Yep.

Jonathan Weil: After I sat through the Andersen trial for two months in Houston, they got indicted on a [00:51:30] single count of obstruction of justice, convicted, thrown out an appeal at the Supreme Court, but the firm was dead by then. The brand name has been revived since. There might even be an IPO in the works with tax advisers and the like, but sitting through the two months of the Arthur Andersen trial, and I still remember, I think the audit fee was like ballpark numbers, again, $25 million a year, and the non-audit fee was $27 million. So based upon, you know, based upon whether or not OFI was more that's, you know, Escandalo.

Caleb Newquist: Um, [00:52:00] yeah.

Jonathan Weil: But when you anybody who sat through the two months of that Arthur Andersen trial, I think I'll just speak for myself came away with the view. You know, we had it wrong. Uh, in that stereotype. Yeah. At least in the case of Andersen and Enron, it wasn't just non-audit fees that corrupted Andersen. It was any fees, right? It was the sheer size. $52 million fee per [00:52:30] year.

Caleb Newquist: Yep.

Jonathan Weil: Uh, it was a sheer size of the dollars. And we saw that with, uh, there were emails that came out about, like, the engagement the senior leaders and the engagement team and top folks would get together and have calls about, uh, and they would do this with every client. We just saw what they had for Enron. Um, all right. Do we want to continue to retain Enron as a client this year? Here are the positives. Here are the negatives. This is nothing particularly there was nothing particularly distinct in that respect about Enron, except [00:53:00] one of the things I noticed. Well, they sure pay a lot in fees is one of the things I remember.

Caleb Newquist: Right?

Jonathan Weil: So anyway, that kind of informed my thinking about, um, you know, eight years later that I'm not just looking for, you know, it really doesn't matter if it was in that instance, at least if it was not our fees or audit fees. I mean, there's a the notion of auditor independence. You know, there's a there's a construct [00:53:30] that the law requires investors to buy into. And that is that to believe that the audit firm is independent, you have to believe that Uh, audit fees have no impact.

Caleb Newquist: Have no impact. Yeah. Are not a factor at all. Yeah.

Jonathan Weil: So and for a while that was a you know, I think there are still people who can say, well you know, it beats all the other systems. Um, but [00:54:00] you know, that was, that was revealing to me sitting through that trial. And then a couple other another point for any, you know, anybody who was doing journalism or investing through that time period or was in the profession, um, when the government bailed out the largest audit clients of the big four accounting firms that also functioned, practically speaking, as a rescue of the accounting firms themselves.

Caleb Newquist: Yeah.

Jonathan Weil: Especially when the government [00:54:30] refrained from bringing, uh, claims by the SEC or much less criminal cases where they alleged violations of GAAP. Gap. The scarcity of allegations of gap violations made it difficult for plaintiffs, law firms and others to be able to prove Scienter Tenby cases because they couldn't piggyback on the government. Right. They couldn't piggyback on government evidence that came out in court proceedings. It's [00:55:00] not that, you know, if somebody if you if one were to think that, oh, somebody printed bogus numbers on a balance sheet of a bank. One might think, well, there's probably some good evidence. You know, that'd be interesting to review. Um, you know, that would explain why that happened. But when the government, uh, decided as a matter of policy that it wasn't going to bring those types of cases, well, uh, there is no greater beneficiary just, again, being observational. There's no greater beneficiary [00:55:30] than the major accounting firms.

Caleb Newquist: Right.

Jonathan Weil: Yeah. Because, um, you know, where are you going? To sue over.

Caleb Newquist: Right.

Jonathan Weil: To get past motion for summary judgment. If you're on the civil side, you know plaintiff's securities firm, you have to, uh, you pretty much already have to have done discovery. But you're not allowed to do discovery until you get past the motion for summary judgment. So, so so there you go.

Caleb Newquist: One other thing I think [00:56:00] before we move on, another fun thing, and this is this is kind of how you and I well, I don't I don't remember how we first got acquainted, but one of the fun things well, I will I'm going to probably talk about this in my introduction a little bit, but like you were one of the few people, the reason that you even got on my radar, you know, late 2000 was you were one of the few people that were writing about the accounting profession. You were writing about accounting, but you're also writing about accounting firms. You were one of the few people that were doing it with any kind [00:56:30] of regularity. And that's how you got on my radar. It was like you and Floyd Norris. Like that was basically it, right? Like. Or was there is am I forgetting somebody?

Jonathan Weil: There are others. Gretchen morgenson would write periodically, and we had other people at the journal who were covering the beat.

Caleb Newquist: Yeah.

Jonathan Weil: Yeah. But yeah, for from 2000 to 2000 through the end of 2005, I was I was the accounting beat reporter for the Journal. I was a senior. We had more than one for a while during the Enron. I think we during the after the collapse of Enron, we had like 50 people covering accounting stuff at any given time. [00:57:00] Every I mean, you had 80% of telecom, like went bankrupt, 80% of energy trading went bankrupt. Uh, Arthur Andersen had concentrations in both of those. So all of our telecom reporters became accounting reporters, and all the reporters became accounting reporters and other sectors, too. So but yeah, that was my job. I was that was my beat. And uh, it. Yeah.

Caleb Newquist: But from like a, from a, as a columnist, you and Floyd Norris were like the two people. I just remember reading in the late 2000 more [00:57:30] than anybody else. And then, you know, Francine had like the blog world had been emerging by that point a little bit. And so that's when kind of Francine started writing more. Um, although that was, you know, the blog the the legacy, the legacy kind of writing and then the blog writing, there was definitely a distinct world, and I was definitely in the blog world and, um, but, uh, she's.

Jonathan Weil: Terrific and she's still at it.

Caleb Newquist: Oh, yeah. She is. Oh, yeah. Yeah. And, um. Well, so are you. So like so. But you had this. You had this. The, the other thing [00:58:00] that I wanted to mention before we move on is that you had the and you just you you sent me an old column just a couple days ago, but you did this fun little thing. You probably. I mean, it comes through in your writing because also, if you have never read John's stuff, John is a good writer. He's fun to read, and I think that's part of the reason I liked I Took to You back in those days. Um, and yes, I'm buttering you up, but I'm actually being truthful, like, John's a great writer, but you kind of.

Jonathan Weil: Gleason was the greatest publication [00:58:30] ever.

Caleb Newquist: Oh, now now we know. I don't think anyone at the Journal signed off on that statement. So in terms of.

Jonathan Weil: Like, I'm sorry, I expressed an opinion, I yeah, but it was strictly an opinion about a journalistic enterprise. I should say it's not second best to the Wall Street Journal.

Caleb Newquist: Second best. Right, right.

Jonathan Weil: You're very I don't want to engage in puffery there too much.

Caleb Newquist: That's right. You're very kind. But, um, one thing, uh, that I, I have to mention, I want to hear you talk about a little bit was in, [00:59:00] in in the late, uh, I guess it would be the late 2000, early 20 tens you started kind of gleefully. Because at this point, let's. I'll just level set for the audience. It's it's it's a post Sarbanes Sarbanes Oxley world. We have the PCAOB which is the auditor of the auditors to keep it very simple. And they would issue these reports of the they would they would select audits that were done by the big audit firms. And they would give [00:59:30] essentially give them grades, except they didn't give them grades. They wrote these long ass reports and, um, and but they never named. They never. They never said who the the businesses being audited were by the audit firm. And you, uh, didn't like that. You didn't like it one bit. And on a number of occasions, you puzzle, you were able to puzzle together who the businesses were. And the one that you sent me was specifically for Motorola. The auditor was KPMG [01:00:00] and Motorola was the client. And through not only filings, but I think public statements and a couple other couple other puzzle pieces, essentially, by the process of elimination, you were able to figure out who it was, and you did that a number of times. And I'm just curious where how did that how did that first idea, the idea to first do that, how did that, like, germinate? Did someone suggest to you it's like, is there a way that you could puzzle this out? Or did you just was it happenstance? I'm just curious how you [01:00:30] stumbled onto that idea and how you kind of got to run with it.

Jonathan Weil: I'll give you the medium length version.

Caleb Newquist: Yeah, medium length is great. Yeah.

Jonathan Weil: The very first time that the PCAOB put out inspection reports on the on the major accounting firms, I couldn't tell you offhand if it was 2002, 2003, but there was some little teeny tiny issue. Doug Carmichael was a chief auditor at the time, and it was some violation about lease [01:01:00] accounting, and maybe there was an eitf pronouncement involved. But at that time, they used to note in a footnote on the inspection report for any firm where they looked at the inspection, if they found a violation of GAAP, they would give the details of what the violation was. They would give the time period of what the violation was. And then often, if not regularly, in the footnote, they would say that this [01:01:30] registrant. This company restated its financial statements as a result of this finding. And so the very first time they did a release of inspections, inspection reports on the big four, there was just one issue that they just hammered on. And then we let my colleague, who was covering the accounting beat at the time, she and I went and pulled every restatement we could for that particular issue. And we had in the story. These are the first inspection reports they've done. The whole idea is to inform [01:02:00] and protect investors. Here's what they found. We're able to go back and look and see. Well, here are the two dozen companies or whatever it were. And we listed them who restated on this one little issue, and there's no way that they would have ever restated all at the same time if it hadn't been for the PCAOB and its inspection reports.

Caleb Newquist: Right.

Jonathan Weil: And we could piece that together. And the Pcob was indifferent to whether we could piece that together. They're like, you know, great. Use public information to go play detective and figure out who the companies were. It wasn't hard. Right, [01:02:30] Ralph? We're all you know for that. They had made a policy decision early on that they were not going to release the names of the companies where they found accounting errors doing their inspections. The law, on my view, my read of it. And I think you've seen me quote the language enough times. It is within the discretion of the board to put whatever detail about a given inspection is necessary. You know, in their judgment, for the public [01:03:00] to be able to understand what the findings were. Now, they took the position that initially they actually put this in writing, that Sarbanes-Oxley expressly forbade them from naming names. And I would just in those columns, just keep quoting the language of the statute that I think a plain reading being observational here. Right, right. Is a plain reading would say that. No, it says it's in your discretion. So that means it's in your discretion. It means that [01:03:30] there's not a prohibition.

Caleb Newquist: Right.

Jonathan Weil: Now. Of course, the accounting firms and their clients would be very upset if they put the names in the inspection reports. From the standpoint of, uh, imagine if you live in New York City and you, uh, where there's a very aggressive, uh, restaurant inspection team who'll go into every sushi and every time you get a restaurant inspection in New York City, you can go look up the names of the restaurants and [01:04:00] what they found. And if there are rats in the kitchen at the sushi bar on 58th and fourth or, you know, whatever, um, you can put the name, you know, with, with the findings.

Caleb Newquist: Yep.

Jonathan Weil: So my view on this and then over time, uh, they continued to put in. Well, we found this. It had to do with this issue at this issuer. Issuer a, uh, during this time frame. And here is the issue. And there'll be a footnote that, uh, well, the [01:04:30] issuer restated the financial statements, and I would and sometimes if it was a if it was a company worth caring about, I'd do a column about it. Mhm. And uh, and then ask the Pcob, why don't you just put in the names of the companies. Because from the standpoint of that, you know, a journalistic judgment here, investors, the public would be interested in knowing that information because it's material.

Caleb Newquist: Yes.

Jonathan Weil: That's right. You have, you have uh, a de facto, you know, a quasi government agency, government for constitutional purposes going in. They know about [01:05:00] audit accounting violations and thus audit violations that are material in nature. It hundreds of companies and they don't tell anybody what they were. I think just like any just like any journalist covering the Pentagon or any other branch of government, you want to try to find out what government secrets are.

Caleb Newquist: Right.

Jonathan Weil: Because the public is interested in knowing what that what those are. Especially if it's in with the government's discretion to disclose [01:05:30] that information. That's just journalism 101. So that's why I kept on doing those columns. Yeah. The Motorola example and I flagged it to you because I think it's just newly relevant.

Caleb Newquist: Yeah.

Jonathan Weil: Um, given what's happening with Congress and the Pcob right now. Um, that was like the most the facts there were the, the, the wildest of any of the examples that I ever turned up. And I think I ended up getting like 7 or 8 columns along these lines. And sometimes they would come up because, well, they did the inspection of [01:06:00] the Japanese audit of XYZ big four accounting firm, and they found, um, violations of GAAP or IFRS or whatever at at two issuers. Well, they only had two issuers as audit claims. Yeah. So you know exactly who they were.

Caleb Newquist: Yeah. Right. Right.

Jonathan Weil: Um, there were a few like that in Bermuda, Japan, some of these other countries. It was off in other countries where I'd find be able to to piece together the examples like that. But the Motorola One stood out because it was such a big. It was a micro strategy type situation. I mean, [01:06:30] I'm going I'm dating myself. I'm going back to like, Michael Saylor, MicroStrategy, late 90s.

Caleb Newquist: Yep.

Jonathan Weil: Where they had, you know, end of the quarter, they book a contract, they book revenue for a sale. That happened like a few hours after the stroke of midnight at the end of the quarter. They put in the prior quarter, and if they hadn't, you know, dated it the way they did, they would have missed.

Caleb Newquist: The.

Jonathan Weil: Numbers. Yeah. And that's what and the way this came out with Motorola and this was all in the public record. And for the record, Motorola at the time said their accounting was fine. And I don't remember [01:07:00] if KPMG had a comment.

Caleb Newquist: But I just read the column and they did not comment.

Jonathan Weil: Okay.

Caleb Newquist: Yeah.

Jonathan Weil: Uh, so, you know, in Motorola's self defense, Motorola said everything was fine. The Pcob had said, um, that there was a contract that didn't get inked until after the quarter closed by a few hours. And if it hadn't been, and then this came about because there was a class action lawsuit brought by investors against Motorola. Kpmg, just all the usual defendants and [01:07:30] I don't even know how it turned out. But what was important to me was that there was a deposition that came out in discovery, where the engagement partner on that for Motorola confirmed that, you know, issuer X, whatever one it was, was indeed Motorola. Yeah. Okay. We no longer can have disputes about, you know, we no longer have a mystery about who the mystery client was. Now we can go back. And what was happening in that queue, you know, in that quarter, what was happening, you know, in that 10-K. What can we look back [01:08:00] on? How important was this? Did the did the Pcob know about this? And just as luck would have it, the chairman of the PCAOB at the time, I think it was Jim Doty, had just given a speech anonymously describing how horrific this fact pattern was at this, uh, you know, at this company that had had the same auditor for 50 years, Which matched the number of years that Motorola had been. The auditor had been audited by KPMG. And, you know, just again, I [01:08:30] don't want to I don't want to get comical, but just being observational here and trying to. Yeah, um, lay the groundwork for what's, you know, the there was just a House committee that voted by majority vote to, uh, to eliminate the public accountant, public company accounting Oversight board. And I do think, um, I have a hunch that if the board had been, uh, identifying the names of issuers all of these years. [01:09:00]

Caleb Newquist: Yeah.

Jonathan Weil: That more investors would have come to appreciate what they do.

Caleb Newquist: Yeah.

Jonathan Weil: And rely upon them and not want them to go away because they consistently told investors valuable information about the financial reporting practices at the companies whose audits the board inspected.

Caleb Newquist: Yeah.

Jonathan Weil: And you know, that's a that's a policy decision they chose a long time ago. It's like it's like the one place [01:09:30] we don't get a look at their enforcement activities because unlike enforcement activities at the SEC, all the proceedings are closed door until they're over with, which is a little unusual in American jurisprudence.

Caleb Newquist: Right?

Jonathan Weil: Uh, the auditing standards, they really haven't written very many over the years. They just took the AICPA standards and they've added, you know, they've kind of stapled a couple here on, you know, every now and then, but they really haven't done much. Uh, they've [01:10:00] done some I don't want to completely dismiss it, but that, that that's one area where I think if they had been a reliable, consistent source, just like restaurant inspectors.

Caleb Newquist: Yep.

Jonathan Weil: That there might be more people just mom and pop everyday people who had heard of them before.

Caleb Newquist: Yep.

Jonathan Weil: Uh, and if not mom and pop people, institutional investors who would say, you know, this is a valuable source of information for us.

Caleb Newquist: Right.

Jonathan Weil: There's a valuable check on [01:10:30] them, just like, you know, restaurant inspectors.

Caleb Newquist: That's right. The grades hanging in the windows.

Jonathan Weil: Yeah.

Caleb Newquist: That's right. Yeah. Um, we're going to come back to that in just. We'll come back to current events in just a minute. But like so I want to just quickly, you know, you took a break from journalism, um, starting in about 2014. Is that right?

Jonathan Weil: Yes.

Caleb Newquist: Yeah. And you went and worked.

Jonathan Weil: I went to work for Jim Chanos. You went to.

Caleb Newquist: Work for Jim Chanos?

Jonathan Weil: That's right. Associates.

Caleb Newquist: Right.

Jonathan Weil: As an analyst.

Caleb Newquist: I [01:11:00] know, you know, we we talked off the record, uh, a little bit, but you can't go into details about your work there. But like, broadly speaking, like what? This phase of your career.

Jonathan Weil: Like, we didn't talk off the record about that. I just told you I couldn't.

Caleb Newquist: We didn't. Oh. You just. Yeah. You're right. You just you just told me. But I know you can't. I know, I know, you can't go into detail about it, but like, broadly speaking, like that phase of your career, like, were you just kind of applying all this, all this expertise and stuff that you were good at, just kind of in a [01:11:30] it was a different application of that kind of work. Right?

Jonathan Weil: Well, yeah, I mean, I came in with one set of skills.

Caleb Newquist: Yep.

Jonathan Weil: And I left with more skills.

Caleb Newquist: Okay, good.

Jonathan Weil: I they, I can talk very, a little bit very broad strokes. Yeah. Of course when I got there, uh, Jim and the partners took the approach that, um, you know, you've been you were a journalist a long time. We're now we're going to teach you to be a proper analyst. And [01:12:00] so you're going to have to learn how to do everything all the other analysts do, whether it's, you know, building models or whatever.

Caleb Newquist: Okay.

Jonathan Weil: And so, you know, it wasn't just, you know, playing journalism at a hedge fund.

Caleb Newquist: Okay. Yeah. Yeah.

Jonathan Weil: Yeah. And then there was another fund I was at for a year after that. Uh, Cardinal investments. Kpmg's also named. Yeah. Based in Dallas. But I stayed in Hoboken for that. And then, um, and I was there for a little while, and then, uh, journalism came calling [01:12:30] back. Yeah. Or I came calling back to journalism.

Caleb Newquist: So then. So then. So your experience or your experience in the hedge fund world, like you say, you became a proper analyst looking back on that. Like what? When you when you come back to journalism. Like what kind of tools or what kind of what what do you what do you what what made what makes looking at this stuff fresh? Like what? How do you look at things differently than you did before that experience?

Jonathan Weil: I [01:13:00] don't know that I look at things differently. It's just every experience that you have just, you know, adds to your perspective and to your into your toolkit. Um, I every year that goes by, you know, you kind of can spot what's new and what's not.

Caleb Newquist: Yeah.

Jonathan Weil: Uh, the very first story. I don't know if you were going to bring this up, but just as an example, um, the very first story that I did when I came back was about it was November 22nd. I [01:13:30] came back from my brief 17 year absence from the Journal. Yeah. Um, it was November 22nd, and I had already had my eye on, uh, unrealized losses on bond holdings at all of the largest banks and regional banks in the country. And so the first, first week or two of November is the 10-K is a 10-q. Data was rolling in. I had already been looking at the fair value footnotes for these companies, and, uh, ended up doing a story that three of them, [01:14:00] uh, the poster children we picked were Silicon Valley Bank B of A and Wells Fargo and Silicon Valley Bank was the worst of all. And, um, their unrealized losses on their, um, debt securities, which in their case were mostly agency mortgage bonds. The fair losses on that exceeded their equity. Was anybody going to care?

Caleb Newquist: Not good.

Jonathan Weil: Yeah. And it was one of those things where, you know, we didn't know. We hadn't seen bank runs in so long. We didn't know there was going [01:14:30] to be bank run four months later. Right. Sometimes investors, uh, you know, can remain, you know, willfully oblivious for a long time. And the stocks were down. Um, but again, so, um, it's kind of like with the Enron story in, uh, 2000, where, again, I was talking about we didn't have the language to describe then what we do that we do now. Um, that story [01:15:00] took me three months to do because 2 or 3 months to call it two months, it took two months to do because I was learning stuff from scratch. I was learning stuff about accounting like, oh, well, when you change this liability or this asset, this is where it shows up in the cash flow statement. If it's non-cash, you know, basic, basic stuff. I was young, I wasn't yeah, I was five years out of law school. Right. I was and you could ask basic.

Caleb Newquist: You could ask the quote unquote dumb questions. And it was.

Jonathan Weil: Fine. Well I can still ask those. Oh, good.

Caleb Newquist: Oh, people, oh, people don't say, John, [01:15:30] you should know. You should know that there's nothing to see here. I imagine you've heard that a lot over your, over the years.

Jonathan Weil: Yeah. Um, but so the difference between now and then is that story that I did then I think I could probably knocked it out in two days.

Caleb Newquist: Yeah.

Jonathan Weil: Because there's just the foundation, is there.

Caleb Newquist: Yeah.

Jonathan Weil: The analysis once, once I saw for the first time and, you know, kicking myself still that in that first story, uh, in November 22nd that we didn't put first Republican because [01:16:00] I had the numbers on First Republic. I knew they were bad. Yeah. But, you know, when you're writing for a broad audience, you start thinking in terms of, well, we're writing about, you know, if First Republic there the unrealized losses were on loans and not bonds. So do I want to bring them in here? Because really I'm trying to make the broad macro point using the best examples. If I start talking about this one really great example, but it's about loans, am I going to muck things up?

Caleb Newquist: Right.

Jonathan Weil: So I left it out. Silly me. I should have done a completely separate story [01:16:30] just about them.

Caleb Newquist: Sure.

Jonathan Weil: Right. Um. Or a complete. Yeah. I should have done a completely separate story just about SVB and First Republic because they popped like nobody else. Right. Um, but instead, you know, First Republic became a Silicon Valley bank or SVB became one of the three poster children, and it was a B of A in Wells Fargo. The numbers were bad, but I mean, they're too big to fail, so.

Caleb Newquist: Too big to.

Jonathan Weil: Fail. Completely different analysis than SVB was.

Caleb Newquist: Yeah.

Jonathan Weil: Um, and I probably [01:17:00] did at that time. Didn't way I knew their deposits had shrunk a lot. I didn't I wasn't framing it in terms of deposit flight. Yeah, because as a journalist, you know, we're very conscious about the impact that our stories can have. We don't want to describe it as flight unless we really know it's flight.

Caleb Newquist: Yeah.

Jonathan Weil: In hindsight, we know it was flight. Um, but the point being that when I was doing the initial analysis, the first time I saw the Silicon Valley, uh, footnotes for the two Q number. [01:17:30] I didn't I didn't need too much to get up to speed.

Caleb Newquist: Right.

Jonathan Weil: To know how to do that story. Yeah. And I had had enough reps that I knew how to write that story simply.

Caleb Newquist: Yep.

Jonathan Weil: Without needing to hand-wring about it a long time. So, you know, that's where the getting old part comes in.

Caleb Newquist: Yeah. It's there. There are upsides to it for sure. Yeah. So let me ask you this. I mean, this has been fun and great and [01:18:00] I love talking to you. What, um, what do you think? Just a couple of things to wrap up like. What is it about? Oh, well, one first thing. What? When it comes to, like, corporate malfeasance, I don't. I'm not going to make you say fraud, but sometimes it's fraud. Sometimes it's just.

Jonathan Weil: What's the name of the show again?

Caleb Newquist: Oh, my. Fraud. Uh, the, you know, the the interpretation.

Jonathan Weil: I wish you hadn't told me that.

Caleb Newquist: Oh, man. Sorry, [01:18:30] sorry, sorry. Anyway, um, got to do your diligence, John.

Jonathan Weil: Like my bad.

Caleb Newquist: You don't cover the media. You don't cover the media. Uh, you're not on the media beat. But anyway.

Jonathan Weil: I did write about, uh, Warner Brothers discovery a few months ago.

Caleb Newquist: Oh, yeah. Really? Oh, man.

Jonathan Weil: A lot of goodwill. I cracked a joke in the story that, uh, they also used to be the broadcaster of the Goodwill Games.

Caleb Newquist: Oh my gosh.

Jonathan Weil: So there is. There are really good. I love a good accounting joke. Yeah, I [01:19:00] got to make that accounting joke in an accounting story.

Caleb Newquist: So it's Nebraska jokes and accounting jokes. I haven't read, I haven't, you know, I don't think you're in Nebraska. Jokes make it into your stories. But that's okay. Um, yeah. Yeah. Someday.

Jonathan Weil: Someday we'll get a Lincoln.

Caleb Newquist: Yeah.

Jonathan Weil: There you go. How is that for a pun?

Caleb Newquist: Hey, um. Man. God, you're on fire. Okay. What? What is it about? Corporate malfeasance, [01:19:30] financial reporting fraud. However you want to, like, you know, all this stuff. What? You know what hasn't changed? What are. What are people? What what what are the lessons we haven't learned, John, that are still coming up?

Jonathan Weil: I don't know. There are lessons unlearned. Uh, there are no new stories. There are only new investors. Right? There are new or, you know, in the newsroom joke. It's there are no new reporters. There are no new stories, only new reporters.

Caleb Newquist: Yeah. [01:20:00]

Jonathan Weil: Um, there's human nature.

Caleb Newquist: Yeah.

Jonathan Weil: And you can put her on any number of different guardrails or systems or controls, you know, fancy language like controls.

Caleb Newquist: Yep.

Jonathan Weil: Um, and dress it up. But in the end, you know, we have, uh, we have cycles of business. Even if the even if governments want to try to occasionally outlaw them. Uh, we have booms and busts.

Caleb Newquist: Yep.

Jonathan Weil: Things come and [01:20:30] go. Yep. Human nature generally doesn't change. Um. We hope the world's leaders don't blow us up.

Caleb Newquist: Right.

Jonathan Weil: And before they do, uh, things come and go. And. But people generally stay the same. And so you can't, you know, there's there's the story is there are people who do good things, and there are people who do bad, good things, and there are good people who do bad things. Yep. And get caught. There are good people who do bad things and don't. There are bad people who do good things, [01:21:00] and there are sometimes bad people who do good things and want everybody know about the good things so that they won't look at the bad things. That's from Marianne Jennings. Seven Signs of Ethical Collapse.

Caleb Newquist: Yeah, I was gonna.

Jonathan Weil: Say that.

Caleb Newquist: Sounds that sounds.

Jonathan Weil: Like Sam.

Caleb Newquist: That sounds like Sam Antar.

Jonathan Weil: Well, yeah. Well, yeah. Or Sam Bankman-Fried.

Caleb Newquist: Sam Bankman-Fried. That's right.

Jonathan Weil: Yeah. You know, putting, uh, ftx's, uh, name on the Miami Heat's arena. That.

Caleb Newquist: That's right.

Jonathan Weil: Yeah. Um, you [01:21:30] know, to their by the way, I would highly recommend to anybody that if you want to understand more about the way I look at these things, read Marianne Jennings seven Signs of Ethical Collapse. Oh, it is a wonderful. It's one of many fraud frameworks that I've read over the years, but it is a terrific one, and it's very simple. And you don't even need to read the book. You just need to read the seven signs and then you want to read the book.

Caleb Newquist: I am, I am, I'm, I'm jotting this down.

Jonathan Weil: You should have her on your [01:22:00] show if you haven't already.

Caleb Newquist: Oh my.

Jonathan Weil: God. I've never spoken to her. I just am an admirer.

Caleb Newquist: Um, I mean.

Jonathan Weil: But let's just read them aloud. Uh.

Caleb Newquist: Pressure to maintain numbers.

Jonathan Weil: There you go.

Caleb Newquist: Fear and silence.

Jonathan Weil: Culture of fear and silence.

Caleb Newquist: Culture of fear. Yeah. This is. This seems to be a.

Jonathan Weil: Shortened, shortened version.

Caleb Newquist: A shortened version, but youngins and bigger than life. Ceo week. Board of directors. Conflicts of interest. Overlooked or unaddressed innovation like no [01:22:30] other company, Enron. Goodness in some areas atones for evil in others.

Jonathan Weil: Stadium curse charitable donations.

Caleb Newquist: Yeah.

Jonathan Weil: So yeah, I look for things like that. If you've got all of those things, I want to read your footnotes.

Caleb Newquist: Yeah. No kidding. Okay. Um, I guess then my final question is, uh. Are you. So with all [01:23:00] that, you know, the cycles and, and, you know, um, you know, just different, different flavors of the same story. Like, does anything surprise you these days?

Jonathan Weil: Um, yes and no. I'm surprised every day by things.

Caleb Newquist: Yeah.

Jonathan Weil: But I think we've I think we've seen a lot in our lifetimes. Yeah. So it [01:23:30] does anything get my dander up anymore? Um, I try to just be a spectator and enjoy chronicling the spectacle.

Caleb Newquist: Yeah, that's a nice place to end.

Jonathan Weil: It's, uh, you know, maybe. Yeah. Imagine if you're a journalist and you're assigned to go, you know, cover the circus. Yeah. Go write about the circus. You know, I've, um. I guess you could say that, [01:24:00] uh, for a while. For a while, I joined the circus.

Caleb Newquist: Yeah.

Jonathan Weil: But then I. But then I jumped back out and, uh, started covering it again. Uh, is it more.

Caleb Newquist: Is it more fun being on the outside?

Jonathan Weil: Um, I think they're both fun. I enjoyed doing what I was doing as an analyst. I mean, it's a quiet life. You're under, uh, fluorescent lights all day, reading ten kHz and ten kHz and, um, you know, staring at your screens. I mean, we do travel [01:24:30] and talk to people also. Yeah. Uh, but, you know, you're really tied.

Caleb Newquist: You're not on deadline.

Jonathan Weil: Well, depends. Yeah.

Caleb Newquist: It depends. Okay.

Jonathan Weil: Fair depends what's happening in, you know, in the markets or. Yeah. Um, or how you're positioned. But, you know, you're there are a lot of things you can do as a journalist. You can't do if you're, you know, working for an institutional investor.

Caleb Newquist: Yeah.

Jonathan Weil: Or if you're working, you know, if you're if you're actively managing anything.

Caleb Newquist: Yep.

Jonathan Weil: Uh, there's there are people [01:25:00] you can't talk to. There are conversations you can't have with people even that you can talk to. You're trying to stay the journalist. You can call anybody anytime, go anywhere. As long as you know they'll let you in.

Caleb Newquist: Yeah, right.

Jonathan Weil: Uh, there's we don't, you know, we just gather facts and print them.

Caleb Newquist: Ask questions? Yeah.

Jonathan Weil: Yeah. Um, I would have never been able to come on your show when I was, you know, working for one of those other places.

Caleb Newquist: Right? Right. [01:25:30] Let me ask. Oh, so I just thought of something.

Jonathan Weil: I love doing all of it.

Caleb Newquist: Yeah. Let me ask you this. Um, do we need more people to do the kind of work that you do or do you like.

Jonathan Weil: No, we. I want no competition.

Caleb Newquist: That's right. You want you, like.

Jonathan Weil: Just tell them to stay away.

Caleb Newquist: Yeah, yeah, yeah.

Jonathan Weil: Go find other lives.

Caleb Newquist: Right? Right.

Jonathan Weil: Um, I, I don't, Um.

Caleb Newquist: Or maybe, maybe I'll phrase it differently. Like, is it, is it counting still kind of this overlooked [01:26:00] area where there are just oodles and oodles of stories to be told?

Jonathan Weil: Well, interest. And again, I don't just write about accounting. There are.

Caleb Newquist: Of course.

Jonathan Weil: Of course. Uh, I think I think every journalist, no matter what their beat, should take some time to learn the language of business.

Caleb Newquist: Yeah.

Jonathan Weil: Um, I think any journalist in covering business should be able to read financial statements.

Caleb Newquist: Yep.

Jonathan Weil: I don't think there's a shortage of that at the Wall Street Journal. [01:26:30] Right. Um, there are other news organizations. Uh, and I'm not going to tout their horns, but there are other news organizations, too, where I don't think there's a shortage of those types of people.

Caleb Newquist: Right.

Jonathan Weil: At most news organizations, I think there is a shortage of those types of people. Yeah. So, um, but I would encourage, you know, anytime we have, uh, anytime that I've gotten to know any of the young people here who come as fellows or interns. I always, in some cases, I gave them copies of the book. I always tell them to go get a copy of Howard [01:27:00] Schultz Financial Shenanigans, just as an intro, to appreciate that this stuff can be fun. You know, if you like covering car wrecks, if you like covering the police blotter, you'll love accounting.

Caleb Newquist: Yeah.

Jonathan Weil: Um, it's just if you like watching American Greed, you'll like, you know, you'll like watching. If you like watching professional wrestling, you'll love, you know, learning about accounting. Yeah. You know, how did they, uh, how did they manage to, you know. Well, so another let me give you one [01:27:30] other story. Um, and there's another story that I tell people all the time. Young reporters and and old reporters, too. Have you ever heard of a company called Max Internet Communications?

Caleb Newquist: I don't think I have.

Jonathan Weil: It was a Dallas based company. Uh, the SEC called it a fraud. I wrote about it, I think February 2000. One of my favorite accounting anecdotes in the.com bubble. I think the market cap might have gone up to 800 million or so. It was big for the [01:28:00] time, for a little Dallas company that just had little, like add on cards that they would stick into computers to help with the sound system or something.

Caleb Newquist: Yeah.

Jonathan Weil: And their revenue over three quarters went from like $100,000 to 1 million to 10 million. And the accounts receivable went from $100,000 to 1 million to 10 million. And the cash went from 10 million to 1 million to $100,000. And 99% [01:28:30] of the revenue was to this company that was their former Brazilian subsidiary. That's true. The revenue was coming from. And you would ask the guy, I asked the guy, and I'd let him give a dog and pony show about their product for a couple hours. And.

Caleb Newquist: Patient man.

Jonathan Weil: Yeah. And, you know, he they had a it was a great stereo system that they had that they, you know, played for me. There was some Schwarzenegger movie they put on, I can't remember what. And I said, so where's the cash? And his Australian guy won't try to imitate his accent, [01:29:00] but, uh, he said, well, it's a sore subject. It's in Brazil. We're trying to get it. Oh, okay. That's on the record. Comment. The SEC pounced within a couple months after the story came out. It didn't trade for very long after the story came out, as I heard in Texas column went to zero. One of those columns that my friend Larry Ingrassia. I have never heard of this company. Nice story. I've never heard of this company. Right, right. Show me. You can write a story about a company I've heard of. Well, again, I've never said who my friend in the investment management business was who [01:29:30] gave me the idea to go, you know, suggested I go look at Enron and Dynegy's financials and see how they make their earnings. But, um, I got the idea for max internet communication. I got the idea to go look at the energy companies earnings. And the same person who suggested I go look at the at max internet communications.

Caleb Newquist: Yeah.

Jonathan Weil: So the point being that, um, when you get a good idea from a good source, whether that [01:30:00] source is an insider or an outsider, just making observations, uh, you should probably do it.

Caleb Newquist: Yeah.

Jonathan Weil: Even if it's even if the company, as long as it's a good story, even if it's not the biggest story in the world, you should probably go do that story because you never know what it'll lead to.

Caleb Newquist: That's right.

Jonathan Weil: If I hadn't done the story about Max Internet Communications, which you'd never heard of before, that person probably would have said, oh, you know how to have fun with this type of stuff. Let me tell you about this other story over here that, you know, [01:30:30] turned out to be pretty epic.

Caleb Newquist: Yeah. Big story. Well thanks, John. I hope you had fun.

Jonathan Weil: And a lot of fun. Thank you for having me on. Oh, yeah. It's an honor. I appreciate it.

Caleb Newquist: There you go. Jonathan Weil. Check out Jon's reporting in the Wall Street Journal if you are a subscriber. Their paywall is very [01:31:00] rigid. It is impossible to get around, so if you're not a subscriber, you probably can't read Jon. Uh, but if you are, go read Jon. He's he's doing great work over there. Um, you can still read his original report on Enron from September 20th, 2000. If you have a subscription. That link to that article is in the show notes, if you would like to read that. Um, and also the column that he and I discussed, uh, identifying Motorola as one of the anonymous companies and that PCAOB [01:31:30] inspection of KPMG, that column, he was in Bloomberg when he wrote that. But that's also in the show notes, if you care to read that. And anyway, usually we talk about lessons learned here, but I think, you know, we learned a lot listening to Jon, I think. But the one thing that I think that's been sticking in my brain since I talked to him. Was that the the the the analogy or the comparison to like restaurant, you know, health inspections where if you go if like if you're, if you're in New York or if you're in Los Angeles and there's other [01:32:00] places that do this, but every restaurant you go by the their, their health inspection grade is like right by the door, like it has to be prominently displayed so that you know, whether they, you know, what grade they got on their health inspection.

Caleb Newquist: Um, that is, you know, the fact that you can do that for a restaurant makes a lot of sense. It doesn't make much sense if, uh, you can't do that for the audits [01:32:30] that companies people invest in if you can't get a grade on their audit. That seems kind of weird. I don't know, but that's what I've been thinking about. And, um, anyway, that's it for this episode. And remember, you wouldn't like it if restaurant health inspections were on a pass fail grading scale. So you shouldn't settle for audit inspections being pass fail. If you want to drop us a line, send us an email at OMG fraud at com or hit [01:33:00] me up on LinkedIn. If you've got comments, questions or suggestions for a show, whatever. Oh my fraud is created, written, produced and hosted by me. Caleb Newquist Zach Frank is my co producer, audio engineer, and music supervisor. Laura Hobbs designed our logo. Rate review and subscribe to the show wherever you listen to podcasts. If you listen on earmark, you can get CPE there, you can get a little CPE, or you can get a lot. If you want a lot, you got to pay for it. Just know that. Okay. Okay. Join us next time for more [01:33:30] swindlers and scams from stories that will make you say, oh my fraud.