Arxis Financial was contacted to assist legal counsel in determining the validity of a fraud claim and the best approach to credibly establishing the claim. The victim was a network of inter-related entities that owned commercial property and undeveloped real estate. Significant cash flow from the entities was managed and controlled by one of the owners. The allegation was that millions of dollars had been fraudulently taken by the manager/owner. The initial contact by the law firm was to retain Arxis to do a preliminary forensic investigation to establish the equivalent of probable cause.
In this case not a single document was reviewed. No forensic accounting was done. No damage calculations performed. Instead, a series of simple questions established that all the elements of fraud could be easily proven – except one. In this case, the disbursements to the owner were recorded as loans and reported on internal financial statements and tax returns. Therefore, the core of the case would revolve around whether the loans were authorized and whether the disclosures to the other owners over several years constituted ratification or approval of the transactions. Significant work might eventually be done to verify the accuracy and completeness of the accounting and to establish whether additional money was taken through other forms (expenses, distributions, payroll, etc.).
The client was saved a lot of unnecessary accounting fees by redirecting the focus of the efforts away from an accounting and back to a legal question that would eventually be the core of the case.