Mr Alireza was recruited by Noble Group four years ago after he left Goldman Sachs. His first day as CEO of this large physical trader was his first day in the commodity business. The learning curve has been a particularly painful experience for the company’s shareholders: the share price fell by 76%. Noble dramatically underperformed the other traders that can be short or long commodities. The trader even underperformed many producers that are structurally long.
Although Mr Alireza played a major role in Noble’s collapse, the dubious accounting practices, especially the commodity contracts fair values did not start with him. The level was already suspiciously high under the previous CEO, Ricardo Leiman. He also found Noble in poor shape after his predecessor made investments in sugar assets at the very wrong time. However, Mr Alireza could have walked away from a company increasingly dependent on accounting alchemy to hide bad results. Instead, he manipulated the financial statements even more aggressively, and the fair values grew even faster. The auditor, Ernst and Young, allowed Noble to discreetly exploit every accounting loophole to give a fundamentally misleading representation of its profitability. Noble was able to “manage” its bottom line, something CEOs dream of. The board of directors, the institutional investors, etc. were particularly passive. Mr Alireza received not less than 75 million stock options.
Problems started in February 2015 with our reports. Mr Alireza vigorously defended his company, hired infamous spin doctors Bell Pottinger, multiplied defamatory statements, and embarked on a full-scale campaign against “malicious” researchers and short sellers. Capital markets watched this embarrassing show for one year: a former Goldman Sachs working in a trading firm who complained that the market was unable to value things correctly. Yancoal overvalued by 48 times its market value on Noble’s balance sheet? No problem: it’s because it’s illiquid. The commodity contracts suddenly impaired by $1.1b while the company had been immune to impairments? No this does not mean they were overvalued, absolutely not…
Mr Alireza’s reaction to criticism was particularly aggressive and many investors immediately understood that something was wrong with this company. For the journalists who were asking critical questions, Noble had one answer: a letter from its lawyers. Even an NGO received legal threats. For the press, it has been very difficult to cover this company normally. Mr Alireza claimed he wanted to defend shareholders against Iceberg. In reality, he wanted to stifle free speech. If he had any respect for his shareholders, he would have disclosed the remuneration he received for his extremely poor performance. Noble does not comply with the Singapore Governance Code’s recommendation to disclose individual remuneration of senior management.
Mr Alireza is not done with Noble. Some statements made by the former CEO create some legal exposure for him. From misleading declarations on the financials to defamatory statements about us, we have always been surprised by how careless Mr Alireza was when he spoke in public.
The firing of the CEO was long overdue. However, this does not solve the financial crisis at Noble.