LITIGATION SUPPORT & FORENSIC ACCOUNTING CASE STUDIES

Client:Senior Lenders
Agent and Three Primary Participants
Company:Paper Converter & Manufacturer
Revenue:$550,000,000
Loan Size:$150,000,000
  • Uncovered diversion of funds of approximately $29 million.
  • Identified “bill and hold” invoices of $21 million.
  • Discovered over-valuation of finished goods inventory of $30 million.
  • Identified and quantified unprocessed credit memos of $8 million.
  • Analyzed 53 bank accounts for preference payments, sources of deposits and other unusual transactions.
  • Reconciled and verified borrowing base certificates provided by the Company to lenders.
  • Established cash receipts projection system.

 

Client:Senior Lender
Eleven Participants
Company:Health & Beauty Aids, Fragrance
& Pharmaceuticals Distributor
Revenue:$600,000,000
Loan Size:$200,000,000
  • Identified fraud totaling $1.2 billion and the various schemes to support this fraud.
  • Provided evidentiary trail to the SEC, USPI, and the US Attorney resulting in arrest warrants of principals.
  • Identified impact of fraud on lenders’ reported collateral.
  • Assisted counsel with the identification of “insiders” and “outsiders” who participated in the fraud.
  • Together with counsel, correlated discovered fraud into audit deficiencies.
  • Worked with counsel to develop various theories and related documentation to maximize recovery from insurance company and outside auditors.
  • Helped counsel to draft complaints against the company’s auditors.
  • Participated in preparation for and deposition of auditors.
  • Compiled underlying data and prepared insurance loss claim.

 

Client:Senior Lender
Agent Bank & Three Participants
Company:Food Manufacturer and Distributor
Revenue:$250,000,000
Loan Size:$50,000,000
  • Uncovered borrower’s 10-year scheme to defraud $50 million from lenders.
  • Identified $7 million of funds diverted to principals.
  • Analyzed management’s adjustment of $46 million of the total $58 million of accounts receivable and $12 million of the total $26 million of inventory presented in borrower’s borrowing base certificate.
  • Assisted counsel in correlating discovered fraud into audit deficiencies related to financial statements provided to lenders.
  • Together with counsel, drafted complaints against and prepared and participated in depositions of the company’s auditors.
  • Assisted counsel in winning the largest recovery in the case, a settlement adverse to the Company’s auditors arising from the lender’s reliance on their negligent misrepresentations.

 

Client:Mezzanine Lender
Company:Manufacturer
Revenue:$30,000,000
Loan Size:$5,000,000
Preferred Stock:$3,000,000
  • Discovered and documented fraudulent activities conducted by majority owner whereby approximately $4 million was redirected to another company owned by majority owner.
  • Provided affidavits to the courts explaining our findings.
  • Assisted counsel with the preparation of their case and cross-examination of witnesses.
  • Provided expert testimony on behalf of the minority owner and lender.
  • Court ruled in favor of minority owner and lender resulting in the payoff of loans, accrued interest, buyout of the minority equity plus a normal return on investment.

 

Client:Senior Lenders
Company:Computer Parts Distributor
Damages:$3,000,000 to $9,000,000
  • Provided expert testimony related to non-GAAP methods of revenue recognition used by defendant to defraud plaintiff.
  • Provided expert testimony related to disclosures in defendant’s financial statements that support contractual positions taken by plaintiff.
  • Provided expert testimony related to costs capitalized by defendant that support consideration provided by plaintiff under term of contract.

 

Client:Senior Lender
Company:Electronic Components Manufacturer and Distributor
Revenue:$300,000,000
Loan Size:$25,000,000
  • Discovered, documented and proved $20 million of fraudulent activities by borrower, including: check kiting, inventory and accounts receivable cycling with collusive related parties, and iterative purchasing and selling of non-existent inventory.
  • Identified $1 billion in fraudulent accounts receivable and related payments designed to defraud creditors to related parties of an aggregate $100 million.
  • Provided comprehensive evidential packages and forensic analyses to counsel to prosecute claims against (1) the owners for fraud and (2) the debtor’s auditors for negligent misrepresentation.
  • Provided expert testimony for a State Superior Court lawsuit and for core Bankruptcy Court matters.
  • Provided trial exhibits to counsel to graphically summarize and simply represent the complex forensic findings of an extensive investigation into fraud, concealment and misrepresentation.
  • Established that the debtor was insolvent when it entered into a loan and security agreement with lender, more than a year prior to its bankruptcy petition.
  • Undertook a liquidation analysis. Performed a physical inventory and prepared the debtor for liquidation by auction.
  • Organized and supervised security and private investigation activities producing extensive ex parte evidence of fraud and other bad acts including contemporaneous violations of Court orders, lawful stipulations and debt covenants.

 

Client:Senior Lender
Company:Textile and Clothing Importer
Revenue:$80,000,000
Loan Size:$25,000,000
  • Uncovered methods used by owner to defraud lender of $20 million, including falsified Letters of Credit (L/C) purchases, sales and cash receipts.
  • Located evidence to support claim against former lender.
  • Discovered fraudulent inventory shipments and shipments at values inflated by at least 100% on borrowing base certificates.
  • Developed evidentiary data and exposed auditing deficiencies to support claim against borrower’s outside accountants for opinions on prior years’ financial statements.
  • Assisted counsel in drafting complaints against the company’s auditors.
  • Provided litigation support services in lawsuits against auditors.
  • Advised counsel regarding other third-party claims.
  • Provided evidentiary support for the rejection or cancellation of open L/C commitments.
  • Assisted in collecting over $1 million of accounts receivable.
  • Liquidated FF&E and closed borrower’s premises.
  • Inspected 3rd party warehouses and consolidated inventory to a neutral warehouse.

 

ACCOUNTING MALPRACTICE CASE STUDIES

Client:Senior Lender
Agent and Three Primary Participants
Company:Food Manufacturer and Distributor
Revenue:$250,000,000
Loan Size:$50,000,000
  • Uncovered borrower’s 10-year scheme to defraud $50 million from lenders.
  • Assisted counsel in correlating discovered fraud into audit deficiencies related to financial statements provided to lenders.
  • Together with counsel, drafted complaints against and prepared and participated in depositions of the company’s auditors.
  • Assisted counsel in winning the largest recovery in the case, a settlement adverse to the Company’s auditors arising from the lender’s reliance on their negligent misrepresentations.
  • Identified $7 million of funds diverted to principals.
  • Analyzed management’s adjustment of $46 million of the total $58 million of accounts receivable and $12 million of the total $26 million of inventory presented in borrower’s borrowing base certificate.
  • Evaluated sales documentation and related evidence to determine validity and collectibility of the $46 million of adjusted accounts receivable balances.

 

Client:Senior Lender
Eleven Participants
Company:Health & Beauty Aids, Fragrance
& Pharmaceuticals Distributor
Revenue:$600,000,000
Loan Size:$200,000,000
  • Identified fraud totaling $1.2 billion and the various schemes to support this fraud.
  • Provided evidentiary trail to the SEC, USPI, and the US Attorney resulting in arrest warrants of principals.
  • Identified impact of fraud on lenders’ reported collateral.
  • Together with counsel, correlated discovered fraud into audit deficiencies.
  • Helped counsel to draft complaints against the company’s auditors.
  • Participated in preparation for and deposition of auditors.
  • Assisted counsel with the identification of “insiders” and “outsiders” who participated in the fraud.
  • Worked with counsel to develop various theories and related documentation to maximize recovery from insurance company and outside auditors.
  • Compiled underlying data and prepared insurance loss claim.

 

Client:Senior Lender
Company:Electronic Components Manufacturer and Distributor
Revenue:$300,000,000
Loan Size:$25,000,000
  • Discovered, documented and proved $20 million of fraudulent activities by borrower, including: check kiting, inventory and accounts receivable cycling with collusive related parties, and iterative purchasing and selling of non-existent inventory.
  • Identified $1 billion in fraudulent accounts receivable and related payments designed to defraud creditors to related parties of an aggregate $100 million.
  • Provided comprehensive evidential packages and forensic analyses to counsel to prosecute claims against (1) the owners for fraud and (2) the debtor’s auditors for negligent misrepresentation.
  • Provided expert testimony for a State Superior Court lawsuit and for core Bankruptcy Court matters.
  • Provided trial exhibits to counsel to graphically summarize and simply represent the complex forensic findings of an extensive investigation into fraud, concealment and misrepresentation.
  • Established that the debtor was nearly insolvent when it entered into a loan and security agreement with lender, more than a year prior to its bankruptcy petition.
  • Organized and supervised security and private investigation activities producing extensive ex parte evidence of fraud and other bad acts including contemporaneous violations of Court orders, lawful stipulations and debt covenants.

 

Client:Senior Lender
Company:Textile and Clothing Importer
Revenue:$80,000,000
Loan Size:$25,000,000
  • Uncovered methods used by owner to defraud lender of $20 million, including falsified Letters of Credit (L/C) purchases, sales and cash receipts.
  • Located evidence to support claim against former lender.
  • Discovered fraudulent inventory shipments and shipments at values inflated by at least 100% on borrowing base certificates.
  • Developed evidentiary data and exposed auditing deficiencies to support claim against borrower’s outside accountants for opinions on 2000 and 2001 financial statements.
  • Assisted counsel in drafting complaints against the company’s auditors.
  • Provided litigation support services in lawsuits against auditors.
  • Advised counsel regarding other third-party claims.
  • Provided evidentiary support for the rejection or cancellation of open L/C commitments.
  • Assisted in collecting over $1 million of accounts receivable.