It’s been a rough week for US commerce secretary Wilbur Ross. On Nov. 5 the Paradise Papers, a giant leak of documents, revealed that he had a stake worth millions in a company with ties to people close to Russian president Vladimir Putin. On Nov. 7, Forbes reported that Ross, who has spent 13 years on its Forbes 400 billionaires list, was in fact not, and probably never had been, a billionaire.
Forbes estimated Ross’s wealth last year at $2.9 billion. So did Bloomberg. But in federal filings submitted before he joined Donald Trump’s cabinet this year, Ross declared only $700 million in assets. He later told Forbes $2 billion had been transferred to a family trust where it didn’t have to be declared. After a month of investigating, Forbes concluded (and the Commerce Department later confirmed to it) that the money had never existed.
Forbes’ investigation is harsh about Ross’s duplicity. But it also shines a light on such publications’ wealth-estimating methodologies, long criticized as too reliant on how much rich people say they are worth. And it invites a bigger question: If Ross could deceive Forbes and Bloomberg for years, how many of the other numbers in lists of the world’s rich people can we trust?
Two case studies: Ross and his boss
How did Forbes get the numbers on Ross so wrong? “It seems clear that Ross lied to us, the latest in an apparent sequence of fibs, exaggerations, omissions, fabrications and whoppers that have been going on with Forbes since 2004,” the magazine’s Dan Alexander writes.
It all began when a Forbes reporter mistook Ross’s personal wealth for the amount of money others had put in his investment fund. The reporter added him to the Forbes 400 in 2004 with an estimated wealth of $1 billion, or “nearly four times as much as he was likely worth,” Forbes now writes. Ross did nothing to correct the mistake, and Forbes seem to have done little to try to corroborate the figure. “Everyone that I knew that worked with Wilbur knew it wasn’t true,” a former colleague of Ross told the magazine for this month’s story.
Ross continued giving Forbes inflated accounts of his wealth on a regular basis. By 2013, another Forbes reporter had cottoned onto the original mistake, but “Ross strung us along,” Alexander writes:
[He led] us to believe he would provide evidence of his assets, but never did. Just months later, he was insisting that he was even richer, and Forbes continued to largely fall for it. “2.75 [billion] is a bit low but probably close enough,” he wrote in an email around the start of 2014. In September, he was arguing for a valuation of $3.45 billion but begrudgingly accepted a smaller figure: “3.1 [billion] is low, but I understand why you wish to be conservative.”
Unfortunately, this wasn’t a one-off. Just look at Ross’s current boss: president Donald Trump.
Journalist Tim O’Brien detailed the decades-long dance between Trump and Forbes in his 2005 book TrumpNation: The Art of Being the Donald and a piece (paywall) for the New York Times magazine. The pattern is jarringly similar: Rich person lies, Forbes believes them. Trump’s “propensity for inflation, matched with Forbes’s aversion to hiring the sizable staff it might need to assess accurately the wealth of each of its designated 400, got Donald on the magazine’s inaugural list in 1982,” O’Brien wrote.
One of Trump’s favorite tactics to up his number was to insist “on impossibly high figures for his net worth and then, in a faux fit of complaining, settled for an estimate that Forbes convinced itself was conservative—even though it was often wildly high anyway,” O’Brien writes.
Forbes’ figures on Trump’s wealth make some extraordinary jumps, O’Brien points out. Between 1982 and 1983, a year of heavy recession, Trump and his father’s fortune doubled. Between 1986 and 1989, Forbes judged Trump’s wealth as having leapt from $700 million to $1.7 billion “during a four-year period when he was borrowing huge sums to buy money-losing properties,” O’Brien writes.
In later years, Forbes commented on Trump’s intense lobbying to push up his valuation. “We love Donald,” it wrote in 1999, when it valued him at $1.6 billion. “He returns our calls. He usually pays for lunch. He even estimates his own net worth ($4.5 billion). But no matter how hard we try, we just can’t prove it.”
For 2004, when Forbes put Trump’s wealth at $2.5 billion, O’Brien quoted three anonymous sources “with direct knowledge of Donald’s finances” to estimate the real figure was between $150 million and $250 million. Trump sued O’Brien; a judge threw out the case in 2009 and an appeal failed in 2011.
The problem of relying on liars
Part of the difficulty in estimating people’s wealth is that unless they hold all their money in publicly listed stocks or other assets whose value is easy to estimate, it’s hard to know about everything they have—or don’t have. Peter Newcomb, then a senior editor at Forbes, told O’Brien the publication “works hard to ensure the accuracy of its data but that it also relies on information provided by those whom it surveys” (O’Brien’s phrasing, not Newcomb’s).
In a statement to Quartz 1, Forbes said that “There have been rare instances… in which people have blatantly lied to us in efforts to move their fortunes up or down.” But in a TV interview two years ago, Forbes editor Randall Lane suggested those instances weren’t so rare. “There’s a lot of lies,” he said. ”Half lie higher and half lie lower.”
For 36 years, Forbes has been chronicling the fortunes of America’s and later the world’s richest, and we update the valuations of more than 2,000 billionaires on a daily basis, while investigating hundreds more prospects—work that takes months of digging. We pride ourselves on constantly working to make each estimate better. When possible, we meet with the billionaires and candidates in person or speak with them by phone. We also interview their employees, handlers, rivals, peers and attorneys. Uncovering their fortunes requires us to pore over thousands of SEC documents, court records, probate records and Web and print stories. We also take into account all types of assets: stakes in public and private companies, real estate, art, yachts, planes, ranches, vineyards, jewelry, car collections and more. We also factor in debt, and whether they have partners. Publicly-traded holdings are relatively easy; valuing private companies and assets is far trickier. Some candidates provide us with paperwork and backup materials, while others don’t cooperate. Either way, we use our own estimates, valuing private companies based on comparable public companies, where possible. There have been rare instances in the history of the list in which people have blatantly lied to us in efforts to move their fortunes up or down. We try to spot those cases as soon as possible and report on them immediately to our readers. The reporting on Wilbur Ross shows how committed we are to uncovering new information year after year, and our willingness to set the record straight when we do get new information.
Bloomberg, meanwhile, notes that there are various ways to estimate how much closely held (i.e., not publicly listed) assets are worth. But, it says, “When ownership of closely held assets cannot be verified, they aren’t included in the calculations” of a billionaire’s net worth. So how did it “verify” that Ross owned assets he never had?
The company is slippery about answering this question. In an analysis published for the high-paying subscribers to its news terminal, Bloomberg reported that “About $2.63 billion of Ross’ wealth is in a diverse portfolio, according to a Bloomberg analysis and a financial disclosure dated Jan. 15, 2017.” That’s the disclosure that valued him at $700 million, meaning that nearly $2 billion—the same $2 billion Forbes concluded didn’t exist—is ascribed to “a Bloomberg analysis.”
What was that analysis? The report has only this to say: “Recovery funds have probably generated about $900 million of this, based on private equity performance data compiled by Bloomberg… The balance was accumulated during five decades on Wall Street, including profits from Faulkner, Dawkins and Sullivan… as well as profits, salaries and bonuses Ross earned since then from Rothschild, WL Ross and Invesco.”
Reading between the lines, this suggests that Bloomberg calculated Ross’s wealth by assuming that he owned the assets he said he did, and using generally accepted methods to estimate what they were worth. Bloomberg declined to comment further on where it got the information.
Why lie about being a billionaire?
As Lane, the Forbes editor, suggested, there are different kinds of lies, with different motivations.
Why lie higher? Trump and Ross’s stories are telling. Trump amassed the richest executive branch the US has ever seen, ostensibly to replace impractical politicians with savvy businessmen. His own image as a billionaire, which distracted attention from his litany of failed business ventures, was also crucial for boosting faith in his self-funded presidential campaign, and later for drawing wealthy Republican donors.
For an entrepreneur, meanwhile, being a public billionaire can help in business. The most common shared quality among entrepreneurs is access to capital. Unlike people who mostly inherited their wealth, self-made CEOs like Ross derive most of it from the value of their companies. Being a billionaire is free PR that can boost confidence in your company’s value, bring in further investors, and support future ventures you may start.
Why lie lower? Public billionaires are bombarded by charities for money, thrown into the limelight, and, nowadays, almost expected to follow the lead of titans like Warren Buffett and Bill Gates in pledging most of their wealth to charity. (Steve Jobs got plenty of flak for not giving to the needy.) Over time, the US tax system has, in fits and starts, made it harder for the super-rich to bequeath wealth.
These warring incentives suggest billionaire lists in general may not be all that truthful. “This [Forbes] 400 billionaire ranking, by construction, underestimates heirs and overestimates the fraction of entrepreneurs,” argues Thomas Piketty, an economist who believes that income inequality is an inevitable byproduct of capitalism. “Heirs are more difficult to spot…especially if they don’t want to be on the list. Whereas entrepreneurs always want to be on the list.”