Risks In Recovery Actions
This item could also be called – when due diligence meets asset recovery.
In every case, large or small, there are certain foundational events, constraints, and inputs that shape the case environment from their initial appearance and impact the case, for better or worse, from moving forward.
A useful example would be a corporation. The items setting the corporate environment will include the law under which it was incorporated, the corporate documents, the by-laws, and subsequent corporate actions and market forces.
In asset recovery we must first look at the cause for recovery. The L3 matters of ‘Lies, Losses and Law’ are initial foundational events that allow a case for recovery to exist.
Questions have to be asked of all foundations. How obvious was the lie, was it something small? Was it across cultural and legal boundaries would consider a lie? Was it more of an omission or a commission? Was it not so much a lie but puffery and are we dealing not with victims of fraud but generally disgruntled investors? What were the losses? Where the losses hard and quantifiable such as cash, or were the losses soft losses such as opportunity or loss on what the assets could have made? Does the loss need an expert to explant the losses or can it be done by an eight year old? Lastly the law – is paramount. The drafted law and case should clearly support the objectives and the facts of the case. Anytime a detailed justification is required as to why a law or case should apply, one risks an opportunity for the fraud feasor to cause a muddle of your action.
So much will depend upon the initial case design and approach as these choices, such as a choice of venue becomes the DNA of the case from those dates forward. So many cases we have been called to lately have had very bad case DNA. Sometimes it was the result of choosing earnest but inexperienced team members, sometimes it was the result of filing a case to soon, filing before more facts had been gathered and sometimes – one gets a bad judge and some prejudicial initial rulings.
Other risks to consider:
- What is the judge like? Is the judge a seasoned veteran of commercial disputes or someone who just got transferred from the domestic relations bench? How have they ruled on similar cases in the past, do you have any known likes or dislikes, can you interview other lawyers or experts that have come before them to make the assessment?
- How is the fraud feasor behaving? In many cases the fraud feasor will actively attack all of your assumptions, case points, how you obtained the evidence, the credentials of the experts. They are also likely to do their best to stall rulings through refusals to provide discovery items.
- What technology is available to be used, such as access to lap tops, cell phones, social media and what is prohibited by law, or initial rulings?
- How many others were on the inside of the fraud? Which people can be considered part of a conspiracy to defraud and pressure applied to provide evidence, or at least better clues. The presence of insiders that can be turned reduces the amount of risk.
- Has your team of recovery experts be very careful not to disclose facts, case plans, and intentions? Can this be said of the client or clients? It is very common for the fraud feasor to send in confederates to gather information on what you might be doing. Many confederates are often victims of the fraud themselves trying desperately to play both sides of the recovery
- What is the political risk? When one goes after assets of significant size, the politics that get involved can be very difficult to deal with. In small jurisdiction we have seen the government trying to seize all of the money that could be recovered for the victims as the funds are proceeds of a crime. We have seen hearing moved and rescheduled and court calendar messed with to frustrate and impede collection efforts and we even had to deal with a judge that had been compromised.
- Resources are also important such as time, talent and treasury. Insufficiency can impact how you approach the case and these budgets of time, talent and treasury are always finite. Budgets for these should be established and assessed and reassessed again and again.
In the end one looks to recover as much money as possible for the resources expended. It is a rare shining diamond when one can recover 100% of the money plus costs. The reality of most battles is the requirement to assess what each dollar spent in recovery can yield in a dollar of assets recovered. A realist approach is required to avoid the fraud after the fraud and that is where the recovery efforts eat up all of the money recovered in professional fees and expenses.
Due diligence in asset recovery is as much about the case facts as it is managing the case toward a satisfactory outcome and having the understanding of the risks.
