Litigation Support

Litigation Support Experience

Lotus Amity provide a wide range of litigation support and forensic analysis services.  Selected previous experience includes:

Financial records analysis. Analysis of thousands of financial documents and the preparation of court documents substantiating a $500m claim in relation to a large scale construction project dispute. 

Ownership of asset dispute. Dispute over the ownership of related party assets. Reporting on the actual treatment of assets, what should have been the proper treatment and the implied ownership as a result of the transactions.

Accounting fraud identification. Investigation into suspicions a bookkeeper might be misappropriating funds from the business. Procedures carried out to detect possible fraud and control weaknesses.

Solvency investigation. Investigation into allegations of impropriety by a service provider to one of the world’s largest iron ore producers. Analysis of financial information to assess whether the service provider was solvent and to identify abnormalities.

Earn-out dispute. Interpreting and calculating the earn-outs and profit allocations in accordance with the terms of an agreement under different scenarios.

Mediation – minority shareholder dispute. Assisting a minority shareholder in a construction business to extract the maximum share value, taking into account allegations of manipulation and abuse of the director’s loan account.

E-discovery. Assisting in a number of significant disputes where a large number of (1m+) documents were discovered. Preparing those documents for an e-discovery platform (Relativity) and then searching for, analysing and reviewing relevant documents for the legal team.

Litigation support. Providing lead support to a multi-billion-dollar claim, including quantifying damages, decision tree analysis, project management, indemnity exposure assessment and consideration of experts.

Lessons from Madoff

Uncle Bernie Madoff, at the time of his arrested in 2009, had a fund pretending to be worth USD$65bn.

Some of the key attractions of Bernie’s fund to investors was that:

  • Bernie offered consisted steady returns of about 12% a year, a good solid return. Not exuberant
  • Bernie gave the impression that he was exclusively dealing just with you, you were part of a VIP club (and don’t tell anyone)
  • Bernie had a long investing career and reputation and he also ran a bone fide stock trading business

Bernie offered a Split Strike Conversion strategy. The strategy simply involved buying blue chip stocks and puts and options to protect against some of the downside risk. What was strange about Bernie’s strategy was that each month he would sell the stocks, puts and options and convert the money to treasury bonds.

Some of the red flags of Bernie’s fund included:

  • No segregation of duty. Normally funds require a segregation of duty between the investment manager, the broker and the custodian. In Bernie’s case, there was no segregation of duty. He was all three. He looked after the money, made the investment decisions and brokered the deals
  • Despite being a $65 billion fund, it was audited by a tiny un-heard of audit firm which employed just one auditor (who didn’t have an audit license)
  • It made the consistent good 12% returns even when the markets were falling

But Bernie was making it all up.

Bernie worked backwards, looked at stock prices over the month and then created false purchase and sales documents for buying those stocks at the lowest prices and selling at the highest. When the auditors checked the trail of transactions they would go on to Bloomberg look up the price of the stock on the relevant day and confirm, yes, the price does tie up to Bernie’s broker document. That is to say, there was market evidence that the prices Bernie had for his transactions were bone fide.

The unusual thing is that this went on for over thirty years. Over that time the auditors, the investors and the SEC never ever checked with the central depository to see if Bernie ever actually bought any the shares he said he did. Which of course he didn’t.

The key lessons to be learned from Bernie are

  • Look for evidence. Look for third party evidence that the ownership of investments exists.
  • No segregation of duty? You’re asking for trouble
  • A one-man band auditor? Really, what do you think
  • Returns too good to be believed? Well they are

Simon Cook

Simon specialises in providing forensic accounting services. Prior to founding Lotus Amity, he was a Forensic Accounting and Corporate Finance partner with BDO Australia and led their National Forensics practice. He has worked as a forensic director for a major offshore forensic accounting practice which included assisting in multi-billion-dollar litigation in relation to the largest Bernie Madoff feeder fund. He has also held senior management positions with Deloitte and Crowe Horwath.