Asset searches can be an extremely valuable tool for attorneys, investors, executives and individual litigants, if conducted by an experienced private investigator with the proper skills and resources. In addition to tangible assets, financial accounts and revenue/income sources, a comprehensive search should also reveal liabilities, bankruptcies, liens and lawsuits, resulting in a complete financial profile that is both accurate and actionable.
Below are 10 top reasons to consider conducting an asset search:
1. Uncovering Embezzlement and Employee Fraud: Did your junior bookkeeper just buy a yacht? Did your purchasing agent pay off a 30-year mortgage in 30 days? If so, the company books may have been cooked. The perpetrators of embezzlement, corporate theft, and kickback schemes are often employees who have been living lavishly beyond their salary. On the flip side of that same coin, however, employees who have been experiencing severe financial difficulties may also be more likely to commit fraud, according to findings from the Association of Certified Fraud Examiners.
2. Investor Due Diligence: Multi-million-dollar investment frauds and Ponzi schemes have infamously masqueraded as private equity firms and hedge funds. Pump-and-dump schemes and chop stocks litter the lightly regulated OTC exchanges. Yet despite the clear risks, even experienced, accredited investors sometimes fail to kick the tires before investing in an unknown entity. Due diligence on an investment firm, portfolio company, or investment manager can be critical in uncovering red flags before funding is committed, compromised and lost.
3. Mergers and Acquisitions: Much of the legwork in today’s M&A due diligence is handled by ‘clean teams’ of attorneys and accountants poring over financial records in virtual data rooms. Yet executives and advisors often have questions that cannot be fully answered by the proffered financials. An asset search by an investigative specialist can provide added insights and increased transparency for properly valuating M&A targets.
4. Before Litigation: Litigation generally involves a major commitment of time and resources. Even a successful suit that concludes with a favorable judgment offers no guarantee of getting paid. Before filing a complaint for money damages, it is often advisable to know whether the defendant can cover the claim.
5. When Considering a Settlement: Having an accurate financial assessment of your legal adversary can be highly useful when the other side signals they are ready to settle a case. A clear perspective on their assets will help you decide whether to continue negotiations, prepare for trial, or sign at the dotted line.
6. Divorce: Contested divorce proceedings can turn into a lengthy, bitter battle when husbands and wives are unsure of – or unable to prove – the full extent of their spouse’s finances. There is an obvious and immediate financial motivation for identifying undisclosed and hidden assets. Yet there can also be significant legal leverage – and curried favor with the judge – if it can be proven that the other side has been misrepresenting their assets or acting in bad faith.
7. Recovering a Judgment: When the losing side in a lawsuit refuses to satisfy the final judgment, successful collection efforts will ultimately depend on being able to quickly identify their assets. At the most basic level, this process involves locating and levying bank accounts, garnishing employment wages, and securing liens against real property. Yet for more sizable judgments – and when dealing with evasive debtors who will try every trick in the book to make themselves ‘judgment proof’ – more intensive investigative avenues must be pursued, including identification of assets held in shell companies, brokerage accounts, trusts, and offshore accounts, as well as any fraudulent transfers to associates or family members.
8. Stress-Testing of Business Partners. Entering into a new partnership, joint venture, or major supplier contract can be an anxiety-producing proposition when there is insufficient knowledge about the extent of their debts and state of their financial health. With an independent asset investigation, business owners and executives can assess whether their potential partners have the necessary resources to fulfill their current and future obligations.
9. Probate Problems. Executors of estates are frequently faced with incomplete financial records. Nevertheless, they are typically required by the court to tally an accurate inventory of the estate’s assets. This may seem like an impossible undertaking if the decedent was the household’s primary breadwinner and family bookkeeper – particularly if there was no financial planner, estate attorney, or accountant who kept a second set of records. Asset searches on deceased individuals can prove more time-consuming and costly if the subject has been dead for more than a year. Yet it may be an unavoidable expense if the surviving spouse, adult children, and family advisors cannot provide the necessary answers.
10. Lending Money. Regardless of whether a loan is being provided by a bank or a private party, the lender has a common-sense obligation to consider the financial health of the debtor prior to releasing the funds. Long gone are the days of so-called ‘liar loans’ and ‘ninja loans’ (no income, no job, no assets) that fueled the housing-and-CDO heyday before the market crash. Many major lenders now require an independent evaluation of assets to quantify risk of default, while confirming the status of posted collateral.
About the Author: John Powers is director of Beacon Investigative Solutions. His articles on financial investigation and related matters have appeared in Huffington Post, AOL Money & Finance, Competitive Intelligence Magazine and The Legal Investigator. Email him at [email protected] or follow him on Google and at @JohnPowersPI.
About Beacon: Beacon Investigative Solutions conducts comprehensive asset discovery and financial background investigations for corporate clients, law firms, and government agencies.