May 4, 2018 when the investigation of -unknown to the Greek public until then- Gabriel Grego head of the fund Quintessential Capital Management LLC (QCM), set fire to its foundations Folly Folly driving the powerful Koutsoliutsou family into trouble.

The news in America had become known only a day earlier. On May 3, 2018 Gabriel Grego, presented in New York his exhibition entitled “The other Parmalat” where he obtained a piece of the success story of the Greek company, revealing at the same time the unimaginable extent mechanism of falsification of financial data by Folli Follie. Of the giant company that shows a capitalization of 1.4 billion. dollar ., had a presence in international markets and filled with pride the Greeks who traveled abroad and I saw a brand crossing the Greek borders with claims.

Investors’ response to the report was immediate: they immediately sent the stock to the limit down. The administration’s response was correspondingly immediate, which it characterized “the publication of Quintessential Capital Management is non-existent, false, defamatory and misleading with the direct result of damaging the interests of the company and its shareholders. At the same time, he emphasized that “reserves to come back with a new announcement for the investing public with detailed refutations of the individually false information and facts mentioned in the publication in question “.

At the same time, Tzortzis Koutsolioutsos, then CEO of the group, spoke of “unfair attack” and “organized scheme of profiteers”, assuring ” the shareholders, the competent supervisory authorities, the cooperating banks and the employees of our Group, that I will receive. immediately all the necessary measures to restore the truth and trust to the company that counts 35 years trip computer ».

What QCM revealed

Lies, lies, lies: fake numbers of stores, fake revenue and profit figures, falsified figures about Chinese subsidiaries, “dark” auditors from China. although it was a retail sales company cash flow was despite the fact that increased sales appeared No, in fact, according to research by Gabriel Grego who revealed the following:

  • Smaller network of points of sale compared to what the company was saying. According to QCM in contrast to the 630 points of sale reported in the 2016 report, ” we found evidence for only 289 . The majority of the rest seem to have ceased operations ».
  • Many Folli Follie outlets in key strategic locations (eg New York, Tokyo, etc.) that the company featured on its site they were closed. He also mentioned that a large number of points of sale are of negligible size and in the process of liquidation.
  • Digital presence much smaller than expected.
  • Financial data. As the report specifically stated, “Folli Follie’s official figures show revenue and profit growth, but consistently negative free cash flow (…) The amount of accounts receivable and inventories of FF’s Asian subsidiaries appear clearly disproportionate to its competitors.”
  • For Chinese subsidiaries, QCM reported that Folli Follie was reporting $1 billion in revenue from Asia, while it identified only two Chinese subsidiaries, Fu Li Fu Lei and Binlianyun – which turned over just $40 million in revenue and together had only 50 points of sale.
  • Finally, QCM expressed the her concerns about auditors. As he mentioned, “after auditing the accounts for several years through Baker Tilly (an accounting firm), FF recently switched to Ecovis a relatively unknown company. In addition, the auditors consolidating FF’s sales in Asia, totaling approximately $1 billion, appears to be an obscure business with only two staff.According to senior Chinese auditors, this business may be inadequate for an audit of this size ($1 billion in sales, hundreds of outlets in many countries)“.

QCM Reveal for Folli Follie

And then came the collapse

The sequel finds Folli Follie having to prove that it has the millions in cash it claims to have, which although it would be a matter of hours for any company (which would simply present their bank statement copies) Folli Follie’s management failed to present.

What the company management was trying to do was buy time, giving promises that there is no problem and that everything would be resolved soon. In retrospect, it was also revealed that the Koutsoliutsou family traveled in the first days after the outbreak of the scandal to Hong Kong, the headquarters of the group’s Asian activities, where for a number of years it also maintained an ultra-luxurious apartment in one of the city’s skyscrapers. No one knew what the real reason for this particular trip was.

“All around”

On September 26, 2018, the Alvarez & Marsal consulting firm -which carried out a forensic evaluation of the companies of the Folli Follie group in Asia, presented the findings of its report: the group’s financial statements had been falsified for a number of years. The discrepancies between the financial statements and the figures resulting from A&M’s audit were literally chaotic:revenue of just $116.847 million compared to more than $1 billion the company reportedlosses of 44.7 million, with the company reporting profits of $316.44 million, reserves of just $33.9 million from the company’s reported $581.681 million, and bank balances at just $6.4 million. USD from USD 296.771 million that the company had announced.

The mechanism for falsifying financial data was set up in Asia. What workers called “merry go around” was a huge “carousel”, where turnovers were “rotating” between the different corporate entities and they appeared many times larger than they really were. A total of 27 Hong Kong-based companies were identified as operating as “vehicles” for this practice. At the same time, in this way the available funds of the bank accounts also increased virtually.

“I resign” – “It’s all my father’s fault”

The founder of the company then proceeded with a statement-challenge stating how “with great sadness and in the midst of the life-saving crisis for our Company, which I founded and served for 36 years, I resign from the position of Chairman of the Board of Directors. I asked my wife to do the same, with whom we served together Company all these years. Unfortunately, it was not possible to control the activities of the Asian group under my responsibility, resulting in the present unpleasant picture of the group’s finances is managing the crisis with the assistance of the other members of the Board of Directors and its renowned staff and I declare that I will assist them in their difficult task with whatever is deemed necessary“.

For his part, Tzortzis Koutsolioutsos, in a frantic effort, tried to separate his position from his father, declaring a few days later complete ignorance of the falsified financial data, claiming that “it’s all my father’s fault”…

At the end of 2018, the first prosecutions were carried out, after the express investigation by prosecutor Dragatsis. Dimitris Koutsolioutsos, his wife, their son and 11 members of the company’s management at the time were accused of criminal fraud against the investing public and money laundering.

Today, 6 years later, the episode “judicial development” has George Koutsoliutsos sent to prison to serve an 11-year sentence, and his parents Dimitris and Kate to serve out their sentences (17 years and 10 years respectively) with a wristband. in their home.