A German manufacturing company is being investigated for fraud after allegedly conning the legendary US investor Warren Buffett into paying at least four times over the odds for its business by Photoshopping company orders and invoices.
In February 2017 a unit of Buffett’s Berkshire Hathaway Inc paid €800m (£715m) to buy Wilhelm Schulz, a family-run manufacturer of stainless steel based in Krefeld, western Germany – a rare foray into the world of family-run mittelstand companies for the tycoon, estimated to be the fourth-wealthiest person in the world.
After an anonymous tip-off by a whistleblower in May the same year, however, the US holding company began to question whether key documents had been doctored to create the impression of a booming business.
In reality, the company Buffett had just purchased was struggling and at risk of bankruptcy.
On 9 April a New York arbitration court ruled that the German company had systematically led investors astray in the run-up to the purchase and then tried to cover its tracks afterwards.
“This is not a close case,” the panel said in a 132-page ruling. “The evidence strongly points to fraud, and there is little in the record to suggest otherwise.”
Internal documents cited by the German newspaper Handelsblatt suggest some of Wilhelm Schulz’s employees inflated the company’s Ebitda – earnings before interest, tax, depreciation and amortisation – by simply scanning in letterheads of third companies and Photoshopping them to create fake orders and invoices.
At least 47 business deals that had helped create the impression of a company on the up were completely fabricated, said Handelsblatt.
The New York arbitration court agreed with Buffett’s company, Precision Castparts Corp, that the German business was worth no more than €157m, and ordered Schulz to make up the difference of €643m.
After the ruling in the US, a state prosecutor in Düsseldorf is now investigating the pipe maker, under suspicion of severe fraud for forging documents and falsifying balance sheets.
The former proprietors of the Schulz Group have rejected the allegations. In a statement, they said: “We are disappointed by the outcome of the arbitration procedure and consider its outcome wrong. We outright reject the allegation of fraud.”
The former proprietors filed a complaint against the ruling with a federal court for the Southern District of New York on 28 April and say they are confident they can show Buffett’s company was not financially damaged through the purchase of Wilhelm Schulz.