Clients who hire us for asset searches always want to know what we find. As often as not, the big news after an asset search is when we don’t find something we should be seeing but are not.

When someone is concealing the truth, they often put in place a lie to throw you off. One of the best ways to figure out if someone is lying is to ask yourself, “is this likely?”

Remember the Bernard Madoff Ponzi scheme? The people who managed not to get burned turned away from Madoff because of what they didn’t see:

  • No major accounting firm auditing what purported to be a multi-billion-dollar fund.
  • No independent custodian.
  • No regulatory filings in the last couple of years that reflected billions of dollars in holdings.

Computer programs are terrible at telling you what they should be seeing but are not, which is why so many investors never clued in to the Madoff risks that many experienced professionals noticed.

When we do an asset search, we are always on the lookout for what doesn’t make sense. In the past three years, we’ve seen the following:

  • A man who claimed to put no money in any financial institution, yet whose computer showed a browsing history at two-dozen brokerages. You can keep your money out of banks, but still on deposit with Schwab or TD Ameritrade. Next step: 24 subpoenas to those brokers.
  • A divorcing husband’s loss-making entity that did no business (zero sales) yet persisted in paying one employee $75,000 a year. And, bank accounts showed the business paid plenty of taxes.

Both of these fit the common scenario in divorce: appearing to have fewer assets that you really have. In the first case, the husband hoped to get money out of his brokerage after the divorce was final. In the second, the company may have been in partnership with another company that was holding back the first company’s share of the profits until after the divorce. The second company could also have been owned by the husband or trusted friend or relative.

As with the Madoff fraud, a computer program did not point to either of the divorce cases above and spit out a “High Risk” or “Possible Asset Concealment” result. Instead, both findings were the product of hours of slow and careful research.

The next time you wonder why an asset search takes hours and not just the feeding of a few names and numbers into a database, remember: Databases tell you (sometimes) what’s there – not what isn’t.

Finding assets can be satisfying work, but frustration sometimes comes in realizing that a client’s lawyers haven’t been asking the right questions in their depositions.

We have written repeatedly that getting bank account information without a court order is illegal (other than discovering it on a shared computer or in records lying around). When we are looking for assets before a lawsuit has been filed, getting at bank records is a long shot, and what we look for are banks and brokerage accounts our clients’ lawyers can ask about when the time comes for discovery.

But how unfortunate it is when a client has been through discovery, or perhaps has a divorce agreement the former spouse is cheating on, and we find out that the lawyers never asked the right question.

The right question involves not just what someone makes, but what a company may be paying a company that employs that person or that beneficially owned by that person. The right question might be: “we see that your Oklahoma company paid taxes in seven other states. Why? What activities has the company had there?”

Not long ago, a woman came to us and asked us to find out where her ex-husband is working. We found convincing evidence that he was still employed at the same company as he had been during the divorce. At the time, his boss had been deposed and told our client’s lawyer that the ex-husband was making a paltry amount of money.

This seemed unlikely given his title and his history of high compensation. When we looked at the deposition transcript, it turned out that the boss had never been asked about beneficial ownership of companies.

It can work this way: instead of paying Mr. Jones his full salary, it pays Mr. Jones a small amount of money so that Mr. Jones can look as if there’s not much money to go after. The real money goes to Alpha LLC, a company Mr. Jones controls. Alpha LLC may have an agreement with the company that it will supply Mr. Jones’ services, for instance.

Companies don’t care how they pay you as long as they account for all of their payments and withhold the right amount of taxes and other government payments. If they are public and Mr. Jones is a major executive, they may have to disclose the compensation arrangement in securities filings. But if they are private, they don’t have to tell you about those payments to Mr. Jones’ side companies, trusts, or other vehicles.

Unless of course they are under oath and you ask them.

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.

Want to know more?

  • Visit charlesgriffinllc.com and see our two blogs, The Ethical Investigator and the Divorce Asset Hunter
  • Look at my book, The Art of Fact Investigation (available in free preview for Kindle at Amazon
  • Watch me speak about Helping Lawyers with Fact Finding, here.

The New York Times was half right and half wrong when it reported that the boom in “trophy homes in the sky” is over. The right part:  It turns out that there is not an inexhaustible supply of people willing to spend $50 million or more on a condominium they may rarely visit.The Good Life: Limousine & Mansion

The wrong part of the story is that many of these apartments were anything but trophies: they were means to conceal the wealth of the apartment’s beneficial owner. Many were bought by limited liability companies with difficult-to-trace ownership, often using limited liability companies formed in Delaware.

In some cases, the demand for this real estate was the product of capital flight from overseas, but in others it was money from inside the United States.

In January of this year, federal authorities said they would more closely scrutinize large all-cash transactions in New York and Miami.

As we predicted at that time on our other blog The Ethical Investigator, in a post called Four Ways to Evade the New Rules on Luxury Property, the government’s extra scrutiny appears to have driven the buyers into some of the more than 3,000 remaining counties in the United States.

Nobody looking to hide $1 billion puts it all in one bank account. They spread it around to hedge their risk. In the days that I was a financial reporter interviewing private bankers in Hong Kong, they all had the same comment to questions about loyal customers. The clients usually claimed that all their money was with the banker being interviewed, but the bankers didn’t believe it.

As it goes with money in the bank it now goes with pricey real estate in New York. Why put $80 million into one apartment in one of only a dozen or so buildings when you have your pick of thousands of $2 million homes anywhere in the country?

We have been writing about tracking down real estate since this blog was founded, and nothing has changed since our original House Hunting: Tracking Down Real Estate in the U.S.

As we explained, figuring out the name of a shell company that holds real estate is a challenge that can sometimes be cracked, but all-cash transactions don’t have valuable information divulged in mortgages.

However, litigation does. Even very rich people fail to pay gardeners, movers and others who come back and sue them. Newspaper articles are useful too. If a Russian billionaire shows up in a well to do neighborhood, that’s often newsworthy. We can then work backwards from the address to find the name of the company that owns the property.

Want to know more?

  • Visit charlesgriffinllc.com and see our two blogs, The Ethical Investigator and the Divorce Asset Hunter;
  • Look at my book, The Art of Fact Investigation (available in free preview for Kindle at Amazon);
  • Watch me speak about Helping Lawyers with Fact Finding, here.