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A Pot of Gold

by Stanley Foodman on Categories: forensic accounting

A Pot of Gold
If You Want to Know What Happened, Follow the Money

Often, I hear that “If you want to know what happened, follow the money.” Recognizing the “pot of gold” permits a forensic accountant to decide how to follow the money. That said, does the mere existence of a “pot of gold” arouse dishonesty in otherwise “normal” people? Are some people prepared to risk their names, reputations and freedom for wealth and lifestyle?

After Hurricane Wilma passed through South Florida in 2005, a condominium association suffering physical damage from the storm received an award for the restoration of the association common areas and condominium units from its insurance carriers. Certain members of the association board of directors with authority to disburse the funds from insurance awards misdirected a significant share of them to the personal benefit of those board members. The misused monies were spent to upgrade and improve their own condominium units while restoration of common areas and units of other association members was neglected.
When other condominium unit owners filed suit to recover misused insurance funds, board members named in the suit as defendants invoked the condominium association’s board member errors and omissions insurance to pay for their defense.
The condominium association’s accounting books and records were manipulated and then “lost.” Those documents had to be reconstituted to determine the amount of misused resources. Shining a light on the involved board members, their mismanagement of the Hurricane Wilma association insurance funds and their liability for reimbursing the condominium association triggered a pattern of additional exploitation of their board member positions through the use of yet another insurance policy’s coverage for their own protection.

Simply, an available pot of gold proved irresistible to previously trusted members of the association board of directors. Although their personal reputations suffered and they were required to make restitution to the condominium association, they continue living in their units at the condominium association location.

During the accounting investigation of a matter referred to our office by a criminal defense attorney, the defendant seemed unable to honestly look into the mirror and was later sentenced to prison for the misappropriation of client trust funds awards resulting from personal injury settlements.
Throughout our analysis, the defendant resolutely stated that the indictment entered for the appropriation was merely the result of a series of accounting misunderstandings by the government’s investigators. The defendant repeatedly stated to us that the client victims had provided written authorization for what the government was misconstruing as the misuse of their settlement funds.

Upon forensic review, the consents were for the express use of partial settlement awards to fund the costs of continuing related litigation. After transferring the fee percentage authorized under attorney-client engagement letters, the defendant inappropriately channeled the remaining funds into financing a lavish lifestyle. Finally, the court system was blamed for the economic situation that resulted in the misappropriation of client trust funds. During several prior years, the defendant enjoyed a respected professional reputation, hobnobbed with the rich and famous in South Florida and lived the lifestyle of a person with a high liquid net worth. It was the result of spending entrusted money that belonged to other people. The immense potential projected size of personal injury awards proved an irresistible pot of gold.

Family law is an area in which the transfiguration of love into hate and disdain seems to cause the search for the pot of gold at the end of the rainbow to be an obsession. Litigants behave more irrationally than in other venues, and emotions appear to be more intense than in other litigations.
In case after case, one party or the other presents financial affidavits to the court that they know or should know are inaccurate. It seems that the financial ruin of the other party is the actual objective of the litigation rather than simply ending the marriage, equitably distributing marital assets and providing for the economic support of minor children and a spouse who may not currently have employable skills.

We were recently retained to assist a family law attorney during the dissolution of a 25-year marriage. The marital estate was originally valued at over $2 million. Both parties were so fixated on the monetary ruination of the other that the legal fees caused the marital estate to deplete by more than 50 percent. When the litigation ended in the family court, the largest single objectively valued asset was the family home valued at under $1 million. Virtually all of the liquid assets in the estate were spent by the parties on litigation costs. The pot of liquid gold in this case was in excess of $500,000, almost all of which went to pay litigation related fees and costs.

Foodman CPAs & Advisors
1201 Brickell Ave., Suite 610
Miami, FL  33131

South Florida Legal Guide 2014 Edition

Tags: forensic accounting money litigation

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