A fascinating interview with the chief fact checker for The New Yorker in the Columbia Journalism Review here got us thinking about the distinction between checking the veracity of facts and finding new ones.

Our firm does both, dealing mostly with the former in due diligence and the latter with asset searches.asset search forensic accountant

The New Yorker’s Peter Canby said that people mistakenly think “the world is divided into facts and opinions, and the checkers just deal with facts.” The more complicated reality, according to Canby, is “fact-based opinions….The way you construct an argument, if there are egregious missing ingredients to it, then it’s something we bring up.”

It’s the reference to “missing ingredients” that got our attention, because an asset search is a hunt for just that: something you think should be there but isn’t. Sometimes people want to call in a forensic accountant to look for the missing assets, and sometimes those accountants succeed.

We’ve written before about the timing between investigation and forensic accounting, in How Investigation Helps Forensic Accountants. Our point there was that “where we can offer help is to find entire new companies that Wife and her accountants (forensic included) did not know existed.”

Of all the tricks in hiding assets, the one that forensic accountants have the hardest time with is finding companies with no paper trail linking them to the companies the accountants already know about.

It’s one thing if Husband’s real estate company rents space from a Nevada LLC, and that Nevada LLC turns out to be controlled by Husband.

But what if Husband has been able to sever all links between his known companies and his secret ones, in effect conducting a parallel business life?

Then, a whole new mindset takes over. We are not doing a forensic investigation, but a right-from-scratch asset search. We look not at the mystery company in the records and instead go out and track down a new company among the billions of facts on line and in paper registries.

It’s not verifying, but a different kind of exercise, and doing it right can be worth thousands or millions of dollars.

What’s wrong with using a forensic accountant in your hunt for a spouse’s hidden assets? Nothing, provided you hand that accountant all the pertinent information you can. We’ve mentioned the need for these professionals frequently on our site, and this Forbes article by Jeffrey Landers explains similar reasoning.forensic accountant divorce

The problem with forensic accountants can be timing. We are often brought into an asset search after a forensic accountant has been hired. The accountant has the sense that something is amiss but beyond being able to testify that the numbers don’t add up, things are at a standstill and the pressure to settle continues to mount.

Our firm is not made up of accountants, and we are not able to testify that the books and records of eight companies controlled by Husband are probably not reflecting all income generated.

But where we can offer help is to find entire new companies that Wife and her accountants (forensic included) did not know existed.

How can this happen? For the simple reason that forensic accounts are trained to look at what is in front of them and to decide if it makes sense. They can tell if money has been stolen, but are on less firm ground in deciding where that money went. What did it buy? Where might it be sitting today?

Our strength is in taking a fresh look at a person and trying to find everything he owns.

If our client tells us not to bother looking for assets outside a person’s state of residence, we look anyway. If our client tells us about a piece of property that was sold last year, we make sure it really was sold. If it was, we try to see who bought it, because it could be that Husband sold it to a company he, a friend or relative controls.

So by all means, hire a forensic accountant if you need one. Just remember to make sure an investigator with a wide scope has taken a look. No point in examining “all books and records” when there could be millions stashed in a company you know nothing about.

In an unusual move for a divorce case, a Queens judge added Benny Tal’s business partners as defendants in Benny’s divorce action because the three men had colluded to hide Benny’s assets from his wife Michal.  As Michal told the New York Post, “It’s like a dirty soap opera. There’s so much fraud going on, we now have a divorce proceeding involving a husband, wife and his two business partners.”

Hidden Assets DivorceBenny, along with his two business partners, owned a lucrative parking garage in Manhattan through a company called Kura River Management, Ltd.  As part of the Tals’ divorce proceeding, the judge ordered a valuation of Kura River.  Benny’s business partners obstructed the valuation after the appraiser discovered that Kura River had hidden at least $100,000 in cash from Michal and from the tax authorities.

In the meantime, Benny and his partners met with an attorney whose license had been suspended to discuss ways to hide Benny’s money.  They decided that the partners would buy Benny’s $1.6 million stake in the company for $250,000, in violation of the court’s restraining order.  Benny then promptly took the cash and ran.  When the judge had him arrested and dragged back into court, Benny claimed that he had squandered all of the money on bad investments.

We have seen countless cases in which the non-moneyed spouse (in our experience, this is often the wife) thinks that her husband runs a fairly straightforward, lucrative business.  Come divorce time, the husband says he’s destitute and the business is hemorrhaging money.  With some digging, you can often find out whether the husband may have taken steps to make his company look less profitable on paper.

In this case, we would have started by investigating whether Benny had any other companies he could have used to hide income from his parking garage business.  We would also have interviewed former employees, litigation opponents, or others who had done business with Benny and Kura River to ascertain how much cash business the company did, how diligently they managed the company’s books, and whether they had side companies or accounts that they used to hide cash.  Then, we would have taken a close look at the finances and lifestyles of his business partners.  We would also look for any real property, vehicles, aircraft, or other purchases Benny might have made so that he could plausibly claim that he spent all of his money on bad investments.   A good divorce lawyer can then use that information to send targeted subpoenas and recover Benny’s and Kura River’s hidden assets.

© Sbukley | Ne-Yo Photo Dreamstime.com
© Sbukley | Ne-Yo Photo Dreamstime.com

Grammy award winner Ne-Yo and several professional athletes are among those set to testify in federal court against the principals of Ohio-based sports drink company Imperial Integrative Health Research & Development. Preston Harrison and Thomas Jackson are charged with defrauding investors out of $9.5 million. Harrison’s wife, Lovena Harrison, was hit with related tax fraud charges.

Imperial Integrative Health Research & Development made OXYwater, a drink they claimed was highly-oxygenated and would improve energy and mental clarity. Jackson and Harrison allegedly misled investors about the expertise of the company’s staff, as well as the company’s sales and profits. Federal prosecutors claim that, all the while, Jackson and Harrison were diverting company funds into their own accounts, and Lovena Harrison was hiding their ill-gotten income from the IRS.

Due diligence is always an essential first step before investing in a company. Just because the company is private does not mean that you need accept the information they give you at face value. While independently verifying information about sales and profits is difficult, it is not impossible. Former employees, investors, or people who had disputes with the company are often willing to share information. A few well-crafted interview questions posed to a disgruntled ex-employee or former litigation opponent might supply you with all the information you need.

You can also find out crucial information about the company’s principals and employees by searching the public record. In this case, had investors done even a cursory public record search, they would have seen that both of the Harrisons and Jackson all had multiple lawsuits (many involving nonpayment of debts), judgments, and tax liens against them in the past. This information may or may not have influenced the investors’ decision to put money into the company, but I, for one, would think twice about handing over my savings to someone whose financial choices had repeatedly landed them in hot water.

According to Bloomberg, the co-founders of Ezra Holdings, Ltd., a Singapore-based offshore marine company, reached a confidential settlement resolving their lengthy legal battle over $164 million in marital assets.  Much of the dispute centered around ex- wife Goh Gaik Choo’s claim that ex-husband Lee Kian Soo had dissipated marital assets.

Goh alleged, that after she filed for divorce in 2008, Lee and the couple’s son Lionel colluded to dispose of Lee’s assets.  Lee transferred a sizable amount of Ezra stock for 45 Singapore cents per share to son Lionel.  The problem was that market value of the shares was nearly triple that at the time.  When called upon to explain the transfer, Lee told the court that he transferred the shares for 45 cents because he was born in 1945.  The court didn’t buy this rationale and ordered that Lee pay Goh a hefty sum but did not award her monthly maintenance as she had requested.  The settlement resolved both sides’ appeals.

We’ve blogged about transferring assets to friends and family here before. This case is an excellent example as to why every asset search should start with a look at the public record.  Many times this look should include a review of records on people close to the debtor.  This includes securities filings, litigation records, real property records, media reports and more.  Reviewing securities filings can be particularly enlightening in cases like this one.  Ezra Holdings is publicly listed on the Singapore Stock Exchange.  The Singapore Stock Exchange tells you the top 5 owners by shares held in a listed company.  Lee’s son Lionel is the top Ezra shareholder at nearly 23%.  A comparison of his ownership stake in given years would probably tip you off that Lionel had been amassing shares of the company, prompting a closer review of his securities transactions.  To the same effect, had Lee been listed as a top 5 owner in one year and disappeared off the list some time later, this would tend to indicate dissipation of assets.

In the US, directors of a public company and its beneficial owners of 5% or greater must file forms with the SEC indicating the number of shares they have and when their ownership stake changes.  We tend to find extremely valuable information in these forms which is why we always make sure to save plenty of time to dig through SEC records when we’re searching for assets.

Of course, not every company is a public company and private companies might require more digging.  But there is still a lot of value to be had in doing a public record search and uncovering all that you can before moving on to latter phase investigative techniques or bringing in forensic accountants to dissect financial records.

Grandchildren of the late Judge Leander Perez, a segregationist political boss who ruled Plaquemines Parish, Louisiana from the twenties until his death in 1968, recently filed a so-called “legacy lawsuit” against several large oil companies for allegedly polluting land on which the family held mineral rights.  The glaring problem with the plaintiffs’ case is that Perez stole the mineral rights in question from the Parish he controlled for over 40 years.

Although it was no secret that Perez was crooked, exactly how Perez and his family amassed their $80 million fortune remained a mystery until 1987.   Suspecting Perez’s misdeeds, Plaquemines Parish later brought a lawsuit against him and his family.

The Parish could prove nothing until one of their lawyers decided to try sifting through the records from Perez’s son’s divorce.  In the file, the Parish lawyer found a scrap of paper that referred to a company called Delta Development Inc.  Delta Development Inc. turned out to be the company the Perez family had used to receive their oil royalties for decades.

Our big break in a case often comes from the unlikeliest of places.  We always tell our clients to try to think outside the box when developing an asset search strategy because you don’t know what you don’t know.  It just might be worth getting that old case out of archives or interviewing that former secretary.

In fact, much like in the Perez case, we rcently uncovered offshore companies holding assets at issue in a commercial litigation by reading through the public divorce filings of one of the defendant company’s executives.  Our clients, who previously had no reason to suspect that their adversaries were conducting business through offshore companies, can now craft discovery demands that could reveal what we suspect may be a much larger network of hidden offshore companies and assets.

A London judge has ordered oil trader Michael Prest to pay his wife over $600,000 in support and alimony payments or face jail time.  Prest’s case gained attention last year for a landmark U.K. Supreme Court ruling permitting Yasmin Prest to pierce the corporate veil to reach assets that Michael had placed in trusts held by his various offshore companies.  The ruling represented the first time the British courts pierced the corporate veil in a divorce case, and ultimately led to Yasmin obtaining a 17.5 million pound divorce award.

Prest claims that he does not have sufficient funds to pay the award because his company, Petrodel Resources Ltd., is no longer operational.  Yasmin asserts that, despite his claims of poverty, Michael still lives a lavish lifestyle, spending hundreds of thousands of pounds per year on luxury travel.

As we wrote here, when conducting matrimonial asset investigations, especially those involving self-employed spouses like Michael Prest, our first step is to look for companies owned by the spouse, his family, and his close associates.  If the spouse makes no mention of income from these companies in his net worth statement or if he has not disclosed his interest in them during the discovery process, then their mere existence can be a sign that the spouse is using his companies to hide money.

Once we find the spouse’s companies, we can then search for assets owned by those companies, not just by the spouse.  We may find real property, stock holdings, aircraft, boats, or any of a wide range of assets that can be uncovered in a public record search.

We were once able to find a side company owned by a lawyer husband in which he had stashed an entire thoroughbred horse farm.  We also found the value of the horses, the trucks, the barns, and even the tractors on the property, all through searching the public record.  In addition to what we uncovered, our client was also able to request broad discovery of all of the husband’s hidden companies and their assets, including trusts and bank accounts.

Last week, Curtis Harold DeBerry, owner of the Texas-based Progreso Produce Company, was arrested and accused of cheating investors, business partners and banks out of millions of dollars over the past few years.  He now faces up to 30 years in prison.

According to the criminal complaint, DeBerry hid assets by transferring money to his children, and diverted assets meant for creditors to pay for his own luxury items (including a yacht).  One of the more egregious allegations in the complaint is that he bilked a fruit wholesaler out of over $8 million.

We regularly come across people that are hiding assets in their family members’ names or in secret companies.  We recently found that a debtor had placed all of his North Carolina companies in his nephew’s name, and then used those companies to buy up loads of property.  We always think outside of the box when we’re doing an asset search.  We’re well equipped to look for assets in the names of people close to the debtor using our proprietary commercial databases and by scouring the public record.

On the flip side, in many cases, our clients would not have needed an asset search if they’d done some more diligence prior to entering into the bad business deal.  This looks to be the situation here with the fruit wholesaler.  Sure, it costs money to do diligence, but a few thousand dollars to save $8 million seems more than worth it.

In this case, Fruit wholesaler, Eclipse Berry Farms, LLC, and Progreso entered an agreement to grow and sell strawberries together.  According to a civil complaint, to induce Eclipse to sign the agreement, Progreso showed Eclipse 42 leases with strawberry growers in Zamora, Mexico where the strawberries for the joint venture were to be harvested.  Eclipse then sent over $8 million to Progreso for growing, producing and packaging the strawberries.

According to the complaint, after the contract had been signed and money advanced, Eclipse sent a quality control person to Mexico to actually take a look at the strawberry harvesting land and operations.  It was then that Eclipse learned that Progreso did not have any leases with strawberry growers in Mexico and had instead been haggling with local strawberry growers to buy strawberries at a very low price.  Ultimately, Progreso used about $2 million of Eclipse’s funds to purchase strawberries in Mexico, but kept the balance of the $8 million for itself.

Though it was prudent for Eclipse to eventually send a quality control person to Mexico to check on the strawberries, it would have been wiser to send someone down prior to investing $8 million in the first place.  A few phone calls to the counterparties on the strawberry leases might have even been enough to put Eclipse on notice of Progreso’s alleged fraud.  Had they discovered that Progreso did not have any leased strawberry land, they would have never advanced the money, and wouldn’t now be stuck duking it out with other creditors to get pennies on their dollars back from Progreso.

Recently, Bloomberg reported that Abdul Taib Mahmud, the former ruler of the Malaysian state of Sarawak, retired in February with a billion-dollar family fortune.  Although not much has been known about Mahumud’s family fortune, some details have recently surfaced as a result of Mahmud’s son’s divorce.  The court handling the divorce was presented with a forensic accounting of the son’s assets, which included stakes in 49 companies.  His ex-wife also claims he may have interests in 85 additional companies abroad.

We usually blog here about how to find assets during your divorce.  Today, we’re writing about how looking at divorce (and other) records can provide a picture of financial wealth outside of the divorce context.  Abdul Taib Mahmud’s case is a great example as to why, for most all of our clients, we propose to conduct fairly extensive litigation searches.   This does not mean a search conducted solely online.  Sure, litigation records are sometimes available online, but most times, you have to look for them in person in order to do a thorough search.

Divorce records are rarely available online and are sometimes fully or partially sealed.  That said, when you do hit upon them, they can have very probative information about a person’s finances and character and are, more times than not, worth retrieving.

In addition, housing court records are usually not available online.  Our clients are sometimes hesitant to retrieve records pertaining to landlord/tenant disputes thinking they won’t be relevant to their case.  However, we’ve fetched housing court records in the past and have found that, on occasion, exhibits to filings include photocopies of personal checks used to pay rent.  Our clients may not care that their adversary wound up in housing court, but, in an asset search, knowing where your subject banks is invaluable.

Finally, while litigation records themselves tend to have a lot of useful information, you should also view them as gateways to further information.  Some of our favorite people to interview are our subject’s past litigation opponents.  They often tell you information that is not in the court records and know what it is like to have been through a lawsuit against that person.   If they obtained a judgment, they might even have important information regarding your opponent’s assets.

According to the New York Law Journal, yesterday, a Brooklyn jury convicted former Brooklyn prosecutor, John Headley, of fraud and misconduct over his misuse of New York City Transit Authority funds.  Headley’s company, Advance I.M.E. Co., was hired by the transit authority to obtain medical records and expert witnesses for the authority.  However, Headley did not reveal that he was the principal in Advance I.M.E. Co.  Rather, he used the name James Douglas to get around inevitable conflicts of interest he had in taking on the work–he was dfraud, nyc transit, John Headley, money trainating the transit authority employee responsible for selecting and paying vendors and he also worked as outside counsel to the transit authority on other matters.

So what was Headley’s defense?  He claimed that he masked his ownership in the company to hide assets from his wife in their then-imminent divorce proceedings rather than to bilk the transit authority out of money.  We haven’t seen this type of defense before—usually people don’t want to admit to hiding assets from their spouse.  Given his conviction on six counts, the jury may not have bought it.

If, indeed, Headley was hiding assets from his wife at the time of their divorce, hopefully she was hip enough to his tricks to hire an investigator.  We frequently help our married clients uncover hidden assets and it is not uncommon for one spouse to hide money in a secret company as Headley claims he did.  Using proprietary databases and other resources, we regularly find secret companies, unknown to one spouse, and position our clients to get all the information they need in discovery.

We also help clients find company affiliation information by using databases and individual secretary of state records, among other means.  In this case, it does not appear that “Advance I.M.E. Co.” is registered to do business in New York, however, the indictment indicates that “Advance I.M.E. Co.” may be a fictitious name for Headley’s company.  It states that Headley opened a business checking account at Bank of America in the name of “DBA Advance I.M.E., Co.”  We often find evidence of fictitious names in our databases and run searches at the county level to determine a company’s true legal name.  Had there been some form of vendor verification or approval process, outside of the purview of Headley’s transit authority girlfriend, a few quick searches might have revealed that Headley was the principal of the company.