{ "docId": "019dd923-622c-750b-8b9d-39f11e449ba8", "docSlug": "2440e3a9300a", "documentTitle": "Allied Capital (ALD)", "authorId": "04_Greenlight_Capital", "authorName": "David Einhorn", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "activist_investor", "sourceTypeLabel": "Activist investor", "presentationDate": "2002-06-17 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 27, "pageCount": 27, "prevPage": 26, "nextPage": null, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 0, "notes": "This slide is a text-heavy research note page, likely from a short-seller report by Greenlight Capital.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b9d-39f11e449ba8/27", "deckHref": "/decks/019dd923-622c-750b-8b9d-39f11e449ba8", "deckJsonHref": "/decks/019dd923-622c-750b-8b9d-39f11e449ba8.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b9d-39f11e449ba8#slide-27", "components": [ { "bbox": null, "kind": "callout", "text": "From Greenlight's point of view, regardless of whether the scope of the audit has changed, whoever approved the Velocita debt and warrant valuations at cost at the end of 2001 and the other criticized investments and valuation methods did not provide appropriate critical scrutiny.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-ee3c-76df-9654-5954baef5bda", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.7, "x": 0.15, "y": 0.64 }, "kind": "paragraph", "text": "Now everyone is left to management’s word that they have “asked Andersen if a change in opinion language in any way reflected a change at Allied Capital. Their answer is no.” Greenlight does not know why management did not get Andersen to put this reassurance in writing and file it with the SEC.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "09c47b69-50a8-452f-913f-da2cd33f44ed", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.7, "x": 0.15, "y": 0.73 }, "kind": "paragraph", "text": "From Greenlight’s point of view, regardless of whether the scope of the audit has changed, whoever approved the Velocita debt and warrant valuations at cost at the end of 2001 and the other criticized investments and valuation methods did not provide appropriate critical scrutiny.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "353864ca-2100-47d9-8f4e-2f2af2b7d7f4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.7, "x": 0.15, "y": 0.48 }, "kind": "paragraph", "text": "On the May 29th conference call, management attempted to blame Arthur Andersen. According to Ms. Sweeney, “When our audit opinion was issued, we inquired as to why the language had changed. We understood, based upon explanation by our auditors, that they had simply conformed their opinion language to the new 2001 audit guide. We thought this meant that the guide had changed, thus requiring new opinion language.”", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3f8693c3-ca39-43f7-abd9-b8d9552aa665", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.7, "x": 0.15, "y": 0.09 }, "kind": "paragraph", "text": "Since the additional assurance is at the discretion of the auditor, Greenlight does not know why Arthur Andersen changed the language, but Ms. Sweeney’s and Merrill Lynch’s explanation are not factually correct.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "456ed237-24a3-495e-a8a4-cc01a2df8a36", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.7, "x": 0.15, "y": 0.16 }, "kind": "paragraph", "text": "Greenlight called this matter to the attention of Mr. Hughes, the author of Merrill’s report. While he conceded, “you have more facts than I do,” he suggested that rather than admitting the error, “What if we argue that Arthur Andersen changed its internal policy on this matter?” Is his job to analyze and present facts about his investment banking client, or make them up?", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5b7352da-e0af-42f9-ab88-6ba6adc5d3e5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.7, "x": 0.15, "y": 0.26 }, "kind": "paragraph", "text": "A week later, Merrill Lynch did publish an admission of its error. “We were mistaken. The audit guide changed in May 1997.”26", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "63bf243e-d58b-44e5-a323-5d24036c596b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.7, "x": 0.15, "y": 0.59 }, "kind": "paragraph", "text": "This does not explain why Allied sent pages from the 1993 guide to Merrill Lynch to assist Merrill in its inquiry.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "71919776-d10f-4f47-a269-5e1b40a745c0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.7, "x": 0.15, "y": 0.38 }, "kind": "paragraph", "text": "Sirrom was another client of Arthur Andersen LLP. At that time, Greenlight identified that the language in Sirrom’s audit letter changed in the same way that Allied’s has now changed. In Andersen’s January 12, 1995, letter to Sirrom, Andersen included the assurance worded identically as described above. However, Andersen removed this assurance from subsequent Sirrom audit opinions.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c664c73d-af73-4696-a163-52519ab4fa88", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.7, "x": 0.15, "y": 0.31 }, "kind": "paragraph", "text": "Sirrom Capital was a competitor to Allied in the late 1990s. Its stock eventually collapsed under the weight of its poor loans and aggressive valuations. Greenlight was critical of Sirrom Capital at the time.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d10b8ae3-f997-4188-82b6-a35d98c2aa15", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "\"you have more facts than I do,\" — Mr. Hughes; \"What if we argue that Arthur Andersen changed its internal policy on this matter?\" — Mr. Hughes; \"We were mistaken. The audit guide changed in May 1997.\" — Merrill Lynch; \"When our audit opinion was issued, we inquired as to why the language had changed. We understood, based upon explanation by our auditors, that they had simply conformed their opinion language to the new 2001 audit guide. We thought this meant that the guide had changed, thus requiring new opinion language.\" — Ms. Sweeney", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd952-ee3c-76df-9654-5ca7eddf8711", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.5, "x": 0.15, "y": 0.89 }, "kind": "source-note", "text": "26 “A Conversation with Allied’s Auditor,” Merrill Lynch Equity Research, May 29, 2002.", "attrs": { "numbered": true }, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d8487dfe-f8c0-4096-b69f-8f8841d7dc7e", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }