Caseloads Growing in Financial Regulations, Fraud, Real Estate, IP and Commercial Matters
Government enforcement of financial regulations, a rise in fraud cases and legal battles over construction projects and intellectual property rights are among key trends in litigation support, according to several South Florida professionals.
“Our firm is involved in global asset tracing, Ponzi scheme investigations and other forensic matters,” says Rudy Pittaluga, principal, Deloitte Advisory Services LLP in Miami. “We’ve also seen an increase in merger and acquisition activity, which has led to engagements involving the purchase price provisions of the agreements.”
Fraud remains high on everyone’s list, says Alan Fiske, managing director, Fiske and Company, Plantation. “With new automated accounting software and tax preparation programs, and financial information that is easily accessed from email and the web, fraudsters are more empowered and tech savvy than ever,” says Fiske.
Since Florida is a top location for various governmental agencies investigating financial violations such as identity theft, health care fraud, insurance fraud, Ponzi schemes and securities fraud, its no wonder there has been an increase in these types of cases here, adds José I. Marrero, partner, MRW Consulting Group LLP, in Fort Lauderdale.
Here is a closer look at some of the growth sectors in litigation support as of mid 2014.
Banking and Financial Cases
U.S. regulatory authorities are using U.S. tax code and banking regulations to prosecute international criminals. “Based on the cases I’ve been involved as an expert witness, a U.S. person who commits a criminal act in another country could be prosecuted if the funds for the activity pass through the U.S. banking system,” says Stanley I. Foodman, CEO of Foodman CPAs & Advisors in Miami. Foodman was recently engaged in a tax case that involved a violation of the Foreign Corrupt Practices Act (FCPA) and the UK Anti-Bribery Act. “We see law enforcement agencies from different countries cooperating to a greater extent than ever before,” he says.
Foodman adds that individuals concerned about the seizure of assets, criminal prosecution or potential tax liabilities should seek legal advice from an experienced attorney. “It is important to understand both the criminal and civil aspects of international tax matters,” he says.
Foodman says his office has seen a rise in its embezzlement investigations practice, including cases in which employees of financial institutions were complicit in the embezzlement. “While internal fraud is a complex issue that involves human failings, it’s essential to have a strong system of checks and balances,” he says. “Even though that can slow down the flow of a transaction, it’s important to have an effective compliance structure in place.”
At Deloitte, Pittaluga’s litigation support team has been involved with a number of anti-money laundering (AML) and Bank Secrecy Act (BSA) matters. “In some cases, we are brought in to help prevent problems, while in others we are reacting to situations where clients have been subject to investigation,” he says.
Attorneys representing the victims of Ponzi schemes or other types of financial fraud should call in a forensic accounting team as early in the case as possible in order to identify, track and locate concealed assets, according to several South Florida litigation support professionals. “The sooner a team gets involved, the hotter the trail of assets,” says Pittaluga. “The longer the delay, the colder the trail and the process becomes more expensive for the parties.”
Marrero has seen an increase in federal and state task force activity in regards to Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs). In turn, those investigations often lead to the seizures of assets.
“Our practice has included assessing the propriety of the government’s procedures relative to the seizures as well as supply chain analyses to show that the seized proceeds were not derived from illegal sources,” says Marrero. He adds that litigation support needs to go beyond just doing a forensic analyses of the “numbers” to include forensic accounting, investigative financial analysis, assessments of the government’s policies and procedures, and investigative field work.
Today, law enforcement authorities are seeking to identify “trade-based” money laundering, which is the movement of alleged illegal proceeds through commercial transactions in an attempt to hide the true nature and source of the funds. “These types of investigations appear to be a growing trend,” says Marrero. “Task force agents continue to seize funds for alleged structuring violations even when there is no illegal activity being charged – just the belief that there may be an illegal activity.
In heavily regulated industries a well-documented AML program and regular AML audits can help prevent unwarranted seizures and forfeitures, adds Marrero. MRW Consulting Group provided litigation support and forensic analysis of selected transactions involving the purchase and refining of precious metals, following a federal warrant that authorized the seizure of millions of dollars in assets.
“We were able to demonstrate that the company had implemented an AML program and documented that that the company’s precious metals were actually mined and exported to the United States,” he says. As a result, the company’s attorneys were able obtain a return of all monies seized.
Other Types of Cases
Matthew E. Druckman, director, Cherry Bekaert LLP in Coral Gables, reports a significant increase in real estate cases in the past year, including construction and property management disputes related to changes in ownership. “We have been involved in litigation in a lost profits case where the plaintiff had a favorable lease that the new owner didn’t like,” he says. “When the property suffered physical damage, including roof leaks and mold, the landlord delayed the remediation, and the business ultimately had to close its doors.”
Cherry Bekaert is also handling latent defect cases in new construction, Druckman adds. “A thorough due diligence process is necessary when turning rentals into condos,” he says. “Those undiscovered defects could become a big issue for condo associations resulting in expensive assessments for remediation or for capital improvements.”
Other types of litigation involving condominium associations include insurance claims for property damage or the misuse of insurance funds that were provided to cover repairs after a hurricane, fire or other damage.
In addition to real estate matters, Druckman’s litigation support team is handling a rising number of business valuation disputes, as well as cases involving usurpation of business opportunities, intellectual property (IP) and other commercial matters.
Fiske’s team has also been engaged in IP cases, as well as legal malpractice matters. “We feel IP cases will increase in the future because of the growth of the bio-medical/tech industry in South Florida,” he says. “Clients are also realizing the value in hiring an industry expert to work alongside the financial/damages expert, especially in areas such as “big pharma,” biofuel technology and other intellectual property cases.”
Divorce litigation has rebounded from its 2008-2011 lows in direct relation to the rebound in the real estate and stock markets, says Marty K. Williams, litigation support services principal, Fiske and Company. As couples now have assets they can liquidate and divide, they feel more comfortable in dissolving their marriages and living separately, he says.
South Florida’s litigation support professionals have also been engaged in international commercial disputes. “We have also been asked to serve as expert witnesses in international arbitration matters,” says Pittaluga, noting that Miami hosted the International Council for Commercial Arbitration (ICCA) Congress in April, bringing arbitration professionals here from around the world.
In keeping with that international trend, Deloitte’s professionals have been involved in litigation originating in Brazil, the Dominican Republic and Mexico in matters relating to valuations, lost profits and damages. “We were also involved in a case involving gold mining in South America, and were able to draw upon the expertise of our colleagues in Canada and South Africa,” says Pittaluga.
Working with Support Professionals
When it comes to working with litigation support professionals as consultants, get them involved early in the case - before or after filing a complaint, says Fiske. That way the litigation support team can provide input into drafting the complaint or in shaping discovery, adds Fiske. “In a recent case involving a shareholder dispute in the aircraft industry, we did an analysis of damages early on and the case settled favorably for the plaintiff before the complaint was even filed.”
Foodman suggests that attorneys take a careful look at the differences between consulting professionals who would not testify in court, and expert witnesses who would appear before a judge or jury. In his experience, a consulting expert’s work product is shielded by attorney-client privilege., “That’s not the case with a testifying expert,” he adds. “So in some matters it may be more effective to engage both types of litigation support professionals.”
Druckman says one trend that is gaining momentum across the country – although not yet in South Florida – is for law firms to hire in-house forensic accountants. That allows the in-house specialist to become part of the case team, communicating with outside consultants and experts, and advising attorneys without having to disclose all the discovery.
As part of the pre-trial preparation, Williams says attorneys should have a strategy in place to validate the assumptions of professionals who calculate lost profits and related financial assumptions, such as discount rates. “Whether plaintiff or defendant, bringing in an industry expert to work in tandem with the financial expert can make the difference between success or failure,” he says.
For example, a professional in new product development can assist the financial expert as to whether forecasted market penetration figures for a pharmaceutical are realistic or not. “In another recent case, an experienced construction professional quickly provided the groundwork for evaluating the construction-related expenses,” says Fiske.
When expert witnesses present competing theories of valuation, Druckman says attorneys should work with their support professionals to understand the other side’s assumptions. “That’s the best way to reconcile two sets of numbers based on the same information,” he adds. “Then you can describe and explain why your assumptions are better than the other experts.”
Finally, Druckman suggests that attorneys should be sure to engage expert witnesses who can explain complex issues in the courtroom. “That means bringing in a professional who can teach the court about the key points of the case and walk the trier of facts through each step to reach the conclusion.”