WEBVTT - How a CEO’s Faked Results Led to a $300 Million Wipeout

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Five years after launching his tech company in Indonesia, Gabron

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<v Speaker 2>Huseeifa found himself in deep money trouble. The startup he built,

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<v Speaker 2>E Fishery, that lets farmers feed fish from their phones,

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<v Speaker 2>was just three months away from running out of cash.

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<v Speaker 1>This company had less than nine thousand US dolars in

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<v Speaker 1>its accounts. It had been trying to raise money unsuccessfully

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<v Speaker 1>from the region's biggest and smallest investors.

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<v Speaker 2>David Ramley is a Bloomberg investing reporter based in Singapore,

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<v Speaker 2>and Gabron told David and a team of Bloomberg reporters

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<v Speaker 2>that back then in twenty eighteen, his company's one hundred

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<v Speaker 2>employees were counting on him, and he felt he couldn't

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<v Speaker 2>let his company go bust. On top of that, he

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<v Speaker 2>actually believed he had a good business. He just needed

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<v Speaker 2>more money and time to grow. But where was he

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<v Speaker 2>going to find the money? Gabron told Bloomberg he spent

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<v Speaker 2>a long time just staring at an Excel spreadsheet of

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<v Speaker 2>E Fishery's finances on his laptop. He thought long and

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<v Speaker 2>hard about what he could do.

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<v Speaker 1>What he started to do very slowly at first was

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<v Speaker 1>he just started to play with the numbers. It was

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<v Speaker 1>almost the thought experiment. He just started tweaking the numbers

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<v Speaker 1>to what he thought investors would want to see.

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<v Speaker 2>And once he started, he just kept going. Within an hour,

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<v Speaker 2>he had done what years of hard work couldn't turn

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<v Speaker 2>his business into a winner, at least on paper. He

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<v Speaker 2>hit the send button to show his investors and he

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<v Speaker 2>was certain he'd get caught. Only he didn't.

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<v Speaker 1>Actually, what happened was his existing investors were extremely excited,

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<v Speaker 1>while the others who had previously said but not really interested,

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<v Speaker 1>was suddenly extremely keen. He went from being someone that

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<v Speaker 1>no one wanted to being someone who was how did

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<v Speaker 1>for investment opportunities in the space of a few months

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<v Speaker 1>thanks to that one spreadsheet.

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<v Speaker 2>So Gabron kept on faking the numbers year after year,

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<v Speaker 2>and investor's money kept rolling in. By twenty twenty three,

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<v Speaker 2>E Fishery had become one of the hottest startups in

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<v Speaker 2>Southeast Asia. It was valued at more than a billion

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<v Speaker 2>dollars and had raised millions from some of the world's

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<v Speaker 2>biggest money managers, including SoftBank, Sequoia India and Southeast Asia,

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<v Speaker 2>and Singapore's State investor Temasek, but the more money he got,

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<v Speaker 2>that bigger his lies became.

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<v Speaker 1>Once he tweaked the numbers, everything looked good on paper,

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<v Speaker 1>but the reality was he still didn't have those numbers,

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<v Speaker 1>so he had to come up with them. What happens

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<v Speaker 1>is the claims become too big and the expected growth

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<v Speaker 1>becomes too big for that method to work.

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<v Speaker 2>Gabron's house of cards eventually came crashing down after a

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<v Speaker 2>whistleblower report last November blew apart his entire scheme. Some

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<v Speaker 2>top investors lost hundreds of millions of dollars. A subsequent

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<v Speaker 2>internal investigation found that in the first nine months of

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<v Speaker 2>twenty twenty four, E Fishery claimed revenues of more than

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<v Speaker 2>seven hundred and fifty million dollars, while the true number.

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<v Speaker 1>Was just a fifth of that.

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<v Speaker 2>David and his colleagues spoke to over twenty e Fishery investors,

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<v Speaker 2>staff and clients, and Gibraun himself to piece together this

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<v Speaker 2>insider account.

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<v Speaker 1>I wanted to know what made this guy go from

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<v Speaker 1>being a relatively honest Phish farmer slash student to someone

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<v Speaker 1>who had cost investors hundreds of millions of dollars while

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<v Speaker 1>still living a relatively modest lifestyle. He doesn't have private jets.

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<v Speaker 1>He's driving a Hyundai Ionic five. What we're trying to

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<v Speaker 1>find out is how did he do it? But the

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<v Speaker 1>big question I thought was why.

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<v Speaker 2>This is the big take Asia From Bloomberg News. I'm Wanha.

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<v Speaker 2>Every week we take you inside some of the world's

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<v Speaker 2>biggest and most powerful economies and the markets, tycoons and

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<v Speaker 2>businesses that drive this ever shifting region. Today in the

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<v Speaker 2>show The Rise and Fall of e Fishery, how did

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<v Speaker 2>a young entrepreneur from Indonesia create such a headache for

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<v Speaker 2>some of the biggest investors in the world and what

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<v Speaker 2>does it say about the risks of venture capital investing

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<v Speaker 2>in Southeast Asia. Gibron Huzaifah was raised near the slums

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<v Speaker 2>of East Jakarta. He's the son of a homemaker and

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<v Speaker 2>a construction worker. He did well in high school and

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<v Speaker 2>went on to study biology at the Bundum Institute of Technology,

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<v Speaker 2>known locally as the MIT of Indonesia, and that's where

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<v Speaker 2>he picked up interest in aquaculture.

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<v Speaker 1>The reason why he took an aquaculture class is because

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<v Speaker 1>he heard the lecturer gave easy a's that's it. He

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<v Speaker 1>wanted an easy credit on his transcript, so he signed up.

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<v Speaker 1>But he actually got inspired, in his words, inspired by

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<v Speaker 1>the story of aquaculture in Indonesia and its potential.

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<v Speaker 2>Indonesia is the third largest seafood producer in the world,

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<v Speaker 2>after China and India. The fishery sector was worth around

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<v Speaker 2>twenty seven billion dollars in twenty twenty one, that's according

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<v Speaker 2>to a World Bank report. And young Gebron saw an opportunity.

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<v Speaker 1>He wanted to be the Raja Leile, the king of

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<v Speaker 1>catfish in Indonesia, and so he hustled. He started speaking

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<v Speaker 1>with people who had hundreds of fish ponds and were

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<v Speaker 1>pretty big in the industry, and he asked them like,

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<v Speaker 1>what do you need? What is the issue? And they said,

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<v Speaker 1>you know, at some point, as you get bigger, your

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<v Speaker 1>issue becomes feeding the fish. Because feeding fish requires both

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<v Speaker 1>regularity as well as precision, and you need big farms.

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<v Speaker 1>It takes a long time to get from one side

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<v Speaker 1>to the other. It'd be great if I had a

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<v Speaker 1>machine that could do that for me.

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<v Speaker 2>So Gabron went off and made a prototype of an

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<v Speaker 2>automated fish feeder. The initial machine was scrappy. Imagine an

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<v Speaker 2>old school milkcan upside down with a spinner that's actually

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<v Speaker 2>a retrofitted CD player, spitting out fish food. For months,

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<v Speaker 2>Gabron traveled across Indonesia to rural villages trying to sell

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<v Speaker 2>his machine.

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<v Speaker 1>He had the early prototype strapped to the back of

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<v Speaker 1>a motorbike and he would take that down various lanes

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<v Speaker 1>to the ends of nowhere and rural farms, going from

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<v Speaker 1>farm to farm trying to sell that machine to people.

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<v Speaker 2>His persistence paid off slowly, some farmers began buying or

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<v Speaker 2>renting the machines. Meanwhile, Gabron enrolled himself into multiple startup

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<v Speaker 2>competitions in Jakarta, which gave him access to the venture

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<v Speaker 2>capital community, and that paid off too.

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<v Speaker 1>His first pre Series A investments came from a highly

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<v Speaker 1>niche Dutch aquaculture specific and investment firm called Aquaspark, as

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<v Speaker 1>well as a local VC. The entirety of the pre

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<v Speaker 1>Series A was just seven hundred and fifty thousand US dollars.

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<v Speaker 2>The money wasn't enough. The company was burning through cash.

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<v Speaker 2>Investors weren't buying Gabron's pitch for new funds, so he

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<v Speaker 2>went back to the well to his first investor, Aquaspark.

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<v Speaker 1>Aquaspark believed in the model enough that they were willing

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<v Speaker 1>to stump up one point five million dollars for his

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<v Speaker 1>Series A round, but it came with caveats. The first

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<v Speaker 1>two thirds of the money would be sent over, but

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<v Speaker 1>the last one third, five hundred thousand dollars wouldn't be

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<v Speaker 1>sent unless he could find other investors for the rest

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<v Speaker 1>of the round.

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<v Speaker 2>But how would he convince those other investors. They had

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<v Speaker 2>all turned him down already. When Gabron asked other Indonesian entrepreneurs,

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<v Speaker 2>he got answers that were vague and coded. Gabron says,

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<v Speaker 2>the way he heard it, the tip was essentially to

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<v Speaker 2>fudge the numbers.

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<v Speaker 1>In twenty eighteen, as he's facing the conundrum between basically

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<v Speaker 1>losing everything in his eyes or fudging the numbers like

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<v Speaker 1>everyone else he speaks to in his community, and providing

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<v Speaker 1>exactly what the investors want to see, continuation growth and

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<v Speaker 1>a poff to actually making a sustainable business, he chose

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<v Speaker 1>the letter.

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<v Speaker 2>Gabron was sure he'd get caught, except he didn't. Investors

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<v Speaker 2>were keen to come on board. In the end, the

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<v Speaker 2>Series A round was a huge success. The company raised

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<v Speaker 2>more than four million dollars in total, but Gabron had

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<v Speaker 2>just replaced one problem with another. The investors he'd brought

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<v Speaker 2>on expected him to grow and attract even more investments,

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<v Speaker 2>so Gabron decided to keep faking the numbers. That created

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<v Speaker 2>a whole new set of math problems. That's after the break. Gebron,

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<v Speaker 2>whose Ipha, may have lied through his teeth about the

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<v Speaker 2>success of his e fishery business, but he still knew

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<v Speaker 2>how to tell a good story, one that hooked investors

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<v Speaker 2>big time. Here he is talking about his ambitions to

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<v Speaker 2>bring the company's tech to fish farmers all around the world.

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<v Speaker 3>We're really excited about the future because we're pioneering this sector.

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<v Speaker 3>We're technically creating this category of fish tech, of aquaculture

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<v Speaker 3>technology that then has a really big upside on building

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<v Speaker 3>the market and building the sector even further. For us,

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<v Speaker 3>its sky is the limit.

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<v Speaker 2>The story appealed to an investment community obsessed with the

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<v Speaker 2>idea of impact investing, a way to generate social or

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<v Speaker 2>environmental benefits while making money, And after the success of

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<v Speaker 2>that first round of funding, the money kept coming. In

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<v Speaker 2>twenty twenty two, after a flurry of interest SoftBank, Temasek

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<v Speaker 2>and Sequoia India pumped more money into the company, valuing

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<v Speaker 2>it at four hundred and ten million dollars. But the

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<v Speaker 2>more funds Gebron raised, the more creative he had to get.

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<v Speaker 2>To cover his tracks. He asked farmers to move their

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<v Speaker 2>existing business onto his platform in exchange for a commission fee.

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<v Speaker 2>He began to operate with two sets of books. David

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<v Speaker 2>You and the Bloomberg team spoke to Gabron extensively on

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<v Speaker 2>how it all went down. Did he tell you about

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<v Speaker 2>what was going through his mind as he was fudging

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<v Speaker 2>these numbers?

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<v Speaker 1>Gebron told us that his moral compass was quite mathematical.

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<v Speaker 1>In his exact words, if the number of impacts that

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<v Speaker 1>I can create at a given time outsizes the potential

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<v Speaker 1>risk and damage that might be created, then it's still

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<v Speaker 1>a net positive and you should still do it as

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<v Speaker 1>long as it's a net positive.

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<v Speaker 2>As evaluatestions got higher, Gabron found new and bigger ways

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<v Speaker 2>to make the numbers add up. That included setting up

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<v Speaker 2>at least five subsidiaries and thousands of fake accounts to

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<v Speaker 2>make artificial purchases for me.

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<v Speaker 1>One of the key red flags was the lack of

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<v Speaker 1>impact that his business was having on the feed industry.

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<v Speaker 1>If you have tens of thousands of farmers who are

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<v Speaker 1>buying fish feed on your platform, that should have a

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<v Speaker 1>seismic impact on the fish feed industry of Indonesia. But

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<v Speaker 1>some of my sources were saying that they were speaking

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<v Speaker 1>to the fish feed providers, and they in turn were

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<v Speaker 1>very confused because there was almost no impact.

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<v Speaker 2>Last year, rumors began to surface on social media pointing

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<v Speaker 2>to inaccuracies in sales numbers, and then in November came

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<v Speaker 2>an allegation of financial misconduct.

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<v Speaker 1>The real straw that broke the camel's back was a

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<v Speaker 1>whistleblower report that basically said the numbers that investors are

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<v Speaker 1>getting did not match up the real numbers inside the company.

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<v Speaker 2>The report, sent to an E Fishery board member, brought

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<v Speaker 2>the whole thing crashing down on Gabron. In December, he

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<v Speaker 2>came clean to his colleagues and investors. He was suspended

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<v Speaker 2>and replaced, but the damage was already done. He had

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<v Speaker 2>inflated revenue by almost six hundred million dollars in the

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<v Speaker 2>nine months through September of last year. More than three

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<v Speaker 2>hundred million dollars of investor money was gone. Gabron denied

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<v Speaker 2>taking any of it. He said he agreed to speak

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<v Speaker 2>to Bloomberg to state publicly he didn't steal money, and

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<v Speaker 2>claims it was all paid out to employees, business partners,

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<v Speaker 2>and creditors. David E Fishery had the backing of some

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<v Speaker 2>of the biggest investors in the world. I mean, we're

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<v Speaker 2>talking about Japan's soft Bank and Singapore's Temasek. The accounting

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<v Speaker 2>firm Grant Thornton audited E Fishery's financial statements in twenty

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<v Speaker 2>twenty two. How is it that Gabron was able to

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<v Speaker 2>get away with this.

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<v Speaker 1>And for so long? So I think something important to

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<v Speaker 1>remember is that Indonesia is an incredibly difficult market to

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<v Speaker 1>operate in because you don't have a single land mass,

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<v Speaker 1>you have seventeen thousand islands spread out. One key problem

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<v Speaker 1>was it's really hard to find these farms without E

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<v Speaker 1>Fishery support, and that in turn gave Gibron the chance

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<v Speaker 1>to quote unquote brief the local area managers about the

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<v Speaker 1>numbers that would have been expected to come out of

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<v Speaker 1>that part of the world.

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<v Speaker 2>SoftBank, Temasek, and Sequoia, India and Southeast Asia declined or

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<v Speaker 2>didn't reply to Bloomberg's requests for comment. A spokesperson for

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<v Speaker 2>Grant Thornton said it's deeply concerned over the allegations and

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<v Speaker 2>is working to understand the full extent of the situation.

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<v Speaker 2>There was another factor that worked in Cabron's favor, a

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<v Speaker 2>surge and investor interest in impact investing with a particular

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<v Speaker 2>focus on his part of the world.

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<v Speaker 1>At the time that E Fishery was getting a lot

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<v Speaker 1>of money from globally investors, Southeast Asia was incredibly hot.

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<v Speaker 1>E Fishery was a real gem. This is a business

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<v Speaker 1>that's doing impact investment work. It's helping farmers, it's using technology,

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<v Speaker 1>and I wouldn't say this is all impact investing. They

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<v Speaker 1>all thought profitable business, higher revenue growth, hockey stick projections,

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<v Speaker 1>emerging market. They all want to put an allocation into

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<v Speaker 1>Southeast Asia.

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<v Speaker 2>The fallout from E Fishery has resurfaced questions about whether

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<v Speaker 2>the traditional venture capital model really works in emerging markets.

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<v Speaker 1>There's a reason why you haven't seen the scale of

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<v Speaker 1>investing in Indonesia that you see in China or the US.

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<v Speaker 1>This really brings to question whether or not the unit

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<v Speaker 1>economics of Indonesia makes sense for a lot of business

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<v Speaker 1>models that have been brought there. The average middle class

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<v Speaker 1>citizen of Indonesia does not spend the same amount of

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<v Speaker 1>money in sheer dollar terms that the average middle class

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<v Speaker 1>citizen of China or Australia do.

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<v Speaker 2>Now, investors are still trying to figure out how to

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<v Speaker 2>wrap up the E Fishery business. Most of the staff

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<v Speaker 2>have been laid off. Many of the fish feeding devices

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<v Speaker 2>were sold to recyclers for about six dollars each, and

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<v Speaker 2>that's according to people familiar with the matter. The illusion

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<v Speaker 2>that Gabron built over thirteen years took less than three

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<v Speaker 2>months to collapse.

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<v Speaker 1>And as for Gabron, at the moment, a lot of

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<v Speaker 1>his life looks much like it did at the start

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<v Speaker 1>of E Fishery. He's selling frozen seafood. He's trying to

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<v Speaker 1>help former colleagues create fish farming collectives so that they

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<v Speaker 1>can continue the business in some way, shape or form,

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<v Speaker 1>and he's trying to work out what his options are.

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<v Speaker 1>There is an investigation underway, so they could well be

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<v Speaker 1>more consequences for him.

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<v Speaker 2>This is the Big Take Asia from Bloomberg News. I'm Wanha.

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<v Speaker 2>This episode was produced by Young Young and Naomi m.

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<v Speaker 2>It was edited by Patty Hirsch and Emily Cadman. There

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<v Speaker 2>was additional reporting by Olivia Poe and Forrest Makdar. It

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<v Speaker 2>was fact checked by Eddie Dwan and mixed and sound

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<v Speaker 2>designed by Taka Yasuzawa. Our senior producer is Naoli Shaven.

0:16:13.720 --> 0:16:17.880
<v Speaker 2>Our senior editor is Elizabeth Ponzo. Our deputy executive producer

0:16:18.000 --> 0:16:21.600
<v Speaker 2>is Julia Weaver. Our executive producer is Nicole Beamster Bower.

0:16:21.880 --> 0:16:25.000
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0:16:25.040 --> 0:16:27.840
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0:16:27.880 --> 0:16:29.200
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