Niel Mallorca Sumagaysay BSA-4 Robert Kiyosaki

I. Who is Robert Kiyosaki? Robert Toru Kiyosaki (born April 8, 1947) is an American investor, businessman, selfhelp author, motivational speaker, financial literacy activist, and occasional financial commentator. Kiyosaki is perhaps best known for his Rich Dad Poor Dad series of motivational books and other material published under the Rich Dad brand. He has written over 15 books which have combined sales of over 26 million copies. Although beginning as a self-publisher, he was subsequently published by Warner Books, a division of Hachette Book Group USA. His new books appear under the Rich Dad Press imprint. Three of his books, Rich Dad Poor Dad, Rich Dad's CASHFLOW Quadrant, and Rich Dad's Guide to Investing, have been on number one on the top 10 best-seller lists simultaneously on The Wall Street Journal, USA Today and the New York Times. Rich Kid Smart Kid was published in 2001, with the intent to help parents teach their children financial concepts. He has created three "Cash flow" board and software games for adults and children and has a series of "Rich Dad" CDs and disks. As a devout global financial literacy advocate, Kiyosaki has been a staunch proponent of entrepreneurship, education, investing, and that comprehensive financial literacy concepts should be taught in schools around the world. Kiyosaki also operates his own blog and maintains a monthly column on Yahoo Finance writing about his latest thoughts on global economics, investing, business, world financial markets, and personal finance. Source: <http://en.wikipedia.org/wiki/Robert_Kiyosaki>

II.

Why did he file bankruptcy? According to the Daily Mail, Mike Sullivan, CEO of Kiyosaki's Rich Dad Co., told reporters that

Kiyosaki declared bankruptcy because he would not put his personal assets towards the judgment. He said the judgment was far more than the value of Rich Global LLC. According to the Daily Mail, Sullivan said: "The dealings we had with the Learning Annex were with a company that hasn't been in business for a number of years. I am not surprised Learning Annex is upset and angry, the money doesn't exist in that company, and we can't bring money out of the group. We got hit for what we think is a completely outlandish figure." The bankruptcy does not mean that Kiyosaki has gone personally bankrupt. On the contrary, he only made a business move to protect his personal and business assets outside Rich Global LLC. Companies file for bankruptcy when their liabilities are in excess of net realizable value of assets. Kiyosaki, in a business move to protect himself from the full impact of the judgment, has simply moved

from doing business under the name of Rich Global LLC to doing business under the name of another company that he owns, Rich Dad Co. ABC News reports that according to the bankruptcy filing, Rich Global LLC's assets are $1.8 million, as against liabilities of nearly $26 million. Learning Annex is the company's major creditor with a claim of $23.7 million. According to MSNBC, Forbes has estimated Kiyosaki's personal wealth at about $80 million. Sullivan added for the benefit of Kiyosaki's fans who may think their guru had gone personally bankrupt: Robert and Kim (wife) are not paying out of personal assets." Source: Robert Kiyosaki, author of Rich Dad Poor Dad files for bankruptcy, Oct 13, 2012: <http://www.digitaljournal.com/article/334777#ixzz2MBXIifqY>

III.

Insights. Robert Kiyosaki known for his writings which have greatly introduced proper mindset we need in becoming wealthy, escaping the mentality of scarcity. Upon hearing such news about him filing a bankruptcy is somewhat an irony, a known as a financial guru now having difficulty in sustaining a business files bankruptcy. Going through the facts about this scenario we will understand why he did such and will be amazed. His choice of filing bankruptcy on BK provides us with a great lesson on wealth protection. As you can see, Kiyosaki did not file for personal bankruptcy but rather a corporate bankruptcy on one of its business, Rich Global LCC, and with that he was able to protect his wealth estimated to be roughly $80 million from litigators in this particular scenario. The former business partner sued Rich Global LCC for royalties claimed going back to 2002-2004, which Rich Global LCC contends that such agreement never existed. The jury eventually decided against him and awarded the plaintiff $23.7 million judgment against them. But, since Rich Global has not been active since 2009, the best decision was to file for its bankruptcy since the court paper shows that the company has an asset of $1.8 million hardly enough to satisfy the $23.7 million judgment. But because it is a corporate bankruptcy, Kiyosakis personal assets will be protected.

Collapse of Barings Bank

I. Who is Neck Leeson? Nick Leeson was an investment officer of Barings Bank London England. Mr. Leeson worked out of the bank's Singapore office. Mr. Lesson was accused of losing 1.3 billon dollars as a result of a risky derivatives investment with the potential of a 27 billon gain. To be fair to Mr. Leeson, he had made other investments that had made significant gains. Nick blamed senior management in London for the debacle and they blamed Nick. It should be noted that accounting safeguards were apparently not in place in the Singapore office. After capture, Nick was held in confinement for nine months in a Frankfort Germany prison and was eventually extradited to Singapore where the alleged crimes were committed.

Nick was sentenced to 6 1/2 years by the Singapore court for forgery and cheating. The result of the 1.3 billon loss was the financial collapse of one of the worlds largest banks. Source: <http://www.hrh.ch/whoiswho/nleeson.htm>

II.

What caused the collapse of Barings Bank? Nick Leeson opened a secret trading account that was numbered 88888 to facilitate his surreptitious trading. He lost money from the beginning. Increasing his bets only made him lose more money. By the end of 1992, the 88888 account was under water by about GBP 2MM. A year later, this had mushroomed to GBP 23MM. By the end of 1994, Leesons 88888 account had lost a total of GBP 208MM. Barings management remained blithely unaware. As a trader, Leeson had extremely bad luck. By mid February 1995, he had accumulated an enormous positionhalf the open interest in the Nikkei future and 85% of the open interest in the JGB [Japanese Government Bond] future. The market was aware of this and probably traded against him. Prior to 1995, however, he just made consistently bad bets. The fact that he was so unlucky shouldnt be too much of a surprise. If he hadnt been so misfortunate, we probably wouldnt have ever heard of him. Betting on the recovery of the Japanese stock market, Nick Leeson suffered monumental losses as the market continued its descent. In January 1995, a powerful earthquake shook Japan, dropping the Nikkei 1000 points while pulling Barings even further into the red. As an inexperienced trader, Leeson frantically purchased even more Nikkei futures contracts in hopes of winning back the money that he had already lost. Most successful traders, however, are quick to admit their mistakes and cut their losing trades. Surprisingly, Nick Leeson effectively managed to avert suspicion from senior management through his sly use of account number 88888 for hiding losses, while he posted profits in other trading accounts. In 1994, Leeson fabricated 28.55 million in false profits, securing his reputation as a star trader and gaining bonuses for Barings employees (Risk Glossary). Despite the staggering secret losses, Leeson lived the life of a high roller, complete with a $9,000 per month apartment and earning a bonus of 130,000 on his salary of 50,000. Source: Nick Leeson & the Collapse of Barings Bank: <http://www.stock-market-

crash.net/barings-collapse/>

III.

Insights There are many causes which have brought this effect to the Barings Bank and many parties

involved have their own responsibility regarding this failure, but the real emergence of the problem starts since the day that Nick Leeson joined the Barings Bank. Mr. Lesson was well performing his daily tasks in the settlement division of Barings Bank but after work in his private life he was not properly behaving. It might seem as invasion of privacy but in many

cases it is important for the employers (especially banks) to know if their employees get always drunk after work and become problematic persons for various pubs of the neighborhood. The character of an employee working for a bank is crucial. However, Mr. Leeson was a very successful employee at his job by properly handling settlement projects. He was assigned to travel as a settlement expert, in order to exploit new business opportunities around the world and even though during this time he was caught by the police and received a penalty of one year imprisonment for an incident at a Singaporean club, he was helped by his immediate supervisor through a good lawyer, in order to reduce its penalty to a fee of $200 and then he was appointed the General Manager of Singaporean branch of the Barings Bank in charge of setting up and running the trade operations. Therefore, beside the character of Mr. Leeson, since then another problem had emerged, which is the conflict of interest. It is against any banks regulations and compliances to have a same person having access to both front and back offices of a bank but Mr. Leeson was able to do this and he exploited this opportunity until the last day of his job. Consequently, the beginning of the collapse started when Ms. Wong, a newly hired phone clerk made a trading error by selling rather then buying the contracts and at that day the marked had soared by 400 points. Mr. Leeson calculated that to correct this error he must buy 40 contracts that at that days closing market price would have caused a loss of just 20,000 and most probably the Barings Bank would still exist now. But instead of correcting the mistake the day after, it was more attractive for Mr. Leeson to fire Ms. Wong and to open a fictitious account numbered 88888, where he could correct and resolve trade errors of not only 40 contracts but also 420 unmatched contracts for a single day, $70 billion loss on a day and thus, resulting in a position of not worse than Long 61,039 contracts of Nikkei 225. Moreover, it could not go worse than receiving margin call payments from Barings Bank in London up to $100 million over a one week period and still asking for a $40 million margin call on the day he left the bank (http://www.azarmi.org/forum/index.php?topic=935.0;wap2).