As part of a divorce settlement, the debtor offers you shares he owns in a private company, but he refuses to turn over the company’s financial information. Because the company is private, the value of its shares is not public information. You would like to determine how well the company is doing before you accept the settlement offer.
The cost of publicly-traded shares is easy to find, but uncovering the value of shares in a private company can be far more difficult. As always, we suggest starting with a search of the public record. SEC records will not reveal much meaningful information on private companies, as they are exempted from many SEC disclosure rules. Media reports, however, can tell you whether the company just scored a lucrative government contract or was implicated in a scandal. Media can also fill out the bare bones of a private placement filing you may find in SEC filings.
The next step in your inquiry should be a litigation search. These can reveal whether the company has filed for bankruptcy, breached contracts with its suppliers, customers or employees, or infringed on any intellectual property rights. As we explained in our posting here, you can also search for patents, trademarks and copyrights held by the company or its employees, if you know their names.
Once your public records search is complete, it’s time to pick up the phone. Interviews with former employees can be especially revealing, and you may be surprised which employees can give you the best information. You can also speak with analysts or other professionals who work in the company’s industry, and who may have a sense of how it’s doing.
In one of our recent cases, we were tasked with investigating the financial soundness of a private company. We knew from media reports that the company had raised millions in private placements in 2011. In a phone interview with the company’s former administrative assistant, we discovered that she was one of many people fired in a wave of layoffs that came only months after the private placement. We took this as a bad sign. We also spoke with financial analysts who were based in the company’s home town and who were experts in the industry in which the company operated. They had never heard of the company or its products.
While we were not able to give our client a dollar amount, we were able to provide her with strong evidence that the company was faltering, or, at the very least, it was not thriving.