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Carlos Ghosn's own statement to the court appears to implicate him in wrongdoing

01-08-2019, 08:09 PM
So I’d like to dissect this situation with Carlos Ghosn, based on his own statement to the court.

“1.The FX Forward contracts
When I first joined Nissan and moved to Japan almost 20 years ago, I wanted to be paid in U.S. dollars, but was told that that was not possible and was given an employment contract that required me to be paid in Japanese yen. I have long been concerned about the volatility of the yen relative to the U.S. dollar. I am a U.S. dollar-based individual—my children live in the U.S. and I have strong ties to Lebanon, whose currency has a fixed exchange rate against the U.S. dollar. I wanted predictability in my income in order to help me take care of my family.
To deal with this issue, I entered into foreign exchange contracts throughout my tenure at Nissan, beginning in 2002. Two such contracts are at issue in this proceeding. One was signed in 2006, when the Nissan stock price was around 1500 yen and the yen/dollar rate was around 118. The other was signed in 2007, when the Nissan stock price was around 1400 yen and the yen/dollar exchange rate was around 114.
The 2008–2009 financial crisis caused Nissan's shares to plummet to 400 yen in October 2008 and to 250 yen in February 2009 (down more than 80% from its peak) and the yen/dollar exchange rate dropped below 80. It was a perfect storm that no one predicted. The entire banking system was frozen, and the bank asked for an immediate increase in my collateral on the contracts, which I could not satisfy on my own.
I was faced with two stark choices:
1. Resign from Nissan, so that I could receive my retirement allowance, which I could then use to provide the necessary collateral. But my moral commitment to Nissan would not allow me to step down during that crucial time; a captain doesn't jump ship in the middle of a storm.
2. Ask Nissan to temporarily take on the collateral, so long as it came to no cost to the company, while I gathered collateral from my other sources.
I chose option 2. The FX contracts were then transferred back to me without Nissan incurring any loss.”

First, he appears to be intentionally misleading the court using some financial terms.

If his intention was to hedge the USD value of his salary that he was receiving in JPY, he would not have any “margin” to speak of.

He would simply have options to purchase USD at a pre-determined rate in the future using his JPY salary. He could either exercise the option or not.

Instead, he appears to have been playing FX with a highly leveraged position (money borrowed from the bank) against JPY. High risk high return.
But JPY appreciated against USD to go below 80 Yen/$ during the financial crisis.
The bank gave an opportunity to Ghosn, as a VIP customer, to add collateral as he was over $15M in the red in his gamble, instead of just doing a margin call, which would happen to normal people like you and me, and resulting in most if not all of Ghosn’s money being lost.

So, what does he do? He has Nissan provide that financial collateral to the bank to cover the losses in his OPEN position against the Yen.

I suspect that maneuver itself, ethics aside, is illegal as you cannot simply switch over ownership of an open position in the FX market to another entity, which is what is being claimed. The Japanese regulatory body found this much later during their audit.

Ghosn claims to have only had two choices - either leave Nissan immediately to get his parachute to cover the losses in his open position against the Yen, or to use Nissan as his own personal piggy bank.

That’s not true, he could’ve just closed his leveraged losing FX position, and taken the losses, if he didn’t have enough collateral. This is what is called margin call. He gambled and he lost.

To me, it sounds like he was simply using his Nissan salary he was receiving in JPY as his play money to gamble in the FX market. When his position got squeezed, he used his status at Nissan to access Nissan’s money for his own personal use.

What’s fascinating is that he would make, what appears to be, such an obvious lie to the court, because as I said if he was doing what he claims to have been doing, there’d be no leverage on the position, and he’d not owe the bank any money.
He’d just opt NOT to exercise his FX forward option and use the real time exchange rate of ~80JPY/USD to get a lot more dollars for his JPY salary. He would have made MORE money instead of being down by $15M.

And what’s more, he appears to not think he did anything wrong.

I’m not an attorney, but it’s quite dumbfounding his attorneys allowed him to release such an obviously problematic statement that does not add up at all but rather implicates him in wrongdoing.


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