Friday, 16 February 2007

Beat This as Worst Investment Ever

It was a doozy indeed, minus 100% return! Yup, I managed to invest a bundle in a TSX-listed company that went bankrupt. In the hopes that someone out there might avoid the same mistake, here's the story of Intelligent Detection Systems.

Once upon a time there was an ultra-aggressive entrepreneur named Mariusz Rybak, whose nickname, I have since learned, was the Baltic Barracuda. That alone might be some cause for concern, though one suspects other ruthless business tycoons have acquired colourful sobriquets from employees, associates and competitors. In retrospect, familiar problems appear to have sunk the company such as overly ambitious expansion, including into areas where management had little or no knowledge. The epitome of this was the plan to launch an online eCommerce portal to trade in mining equipment and services ... at the height of the Internet frenzy in early 2000. A dash of nepotism, in the form of Mr. Rybak's brother Andy as a top manager, could also have provided a warning sign. Yet the company actually had as its core a useful and successful product - bomb detection systems for airports - so it was easy to fool oneself. In fact, the detection product was acquired by another company and it still being sold today, six and a half years after the downfall. Again in retrospect, a strong-willed and aggressive CEO founder, was likely able to bend the board of directors to his unwise plans when the company was public. On top of that, the CEO liked to live high and well, with corporate offices in the big towers on Bay Street. And finally, in retrospect as well, a CEO who did not pay too much attention to "accounting details", as he said (see Bagnall article links below) when improprieties were uncovered by auditors.

Mr. Rybak did not lose his shirt however, as he now lives in a luxury condo in Monaco. And he did not lose his self-confidence or his talent for wreaking financial mayhem (or worse?), being subsequently one of the main protagonists in the even larger Langbar scandal that has garnered much attention over here in the UK. James Bagnall of the Ottawa Citizen wrote a couple of extended articles about the man and his exploits - in December 2005, December 2006. Is it an accident that the old IDS weblink points to a website about law enforcement?

The ancient Romans invented the appropriate expressions in Latin, MEA CULPA and CAVEAT EMPTOR. Every time I open my online account listing, I see that line with IDS and $0.00 market value beside the $xx,xxx book value to remind me.


larry macdonald said...

Great post. Reminds me of the tech stock I shorted just as the dot-com mania got started in 1999. I'll be linking to this post in my blog (after RRSP season), if you don't mind.

Outroupistache said...

You're very welcome to make a link. There's no embarassment like public embarassment to make sure I don't do it again!

My sympathies re shorting the tech stock. Even if one turns out eventually to be right about the over-valuation, one could be forced out of the position prematurely. Maybe you should run a contest for your readers along these lines? It would be popular. Misery loves company as they say. The prize could be autographed stock certificates in Bre-X or some such worthy.


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