Fraud and tracing analysis applied to partnership and shareholder dispute litigation: methodology, deliverables, and case-specific considerations.
When a partner or shareholder suspects that distributions, related-party payments, or unrecorded revenue have moved value out of the business, the tracing analysis reconstructs the flow of funds through the ledger and bank records and quantifies the amounts by year and recipient. The economist identifies transactions that fall outside authorized activity, follows them to the entities and accounts they reached, and documents each step so the finding supports an accounting claim, a valuation adjustment, or a damages claim. The results feed the normalizing adjustments a valuation of the interest requires.
Forensic accounting for embezzlement, misappropriation, and financial statement irregularities. The work reconstructs the flow of funds through bank, ledger, and payment records, traces diverted assets to where they came to rest, quantifies the loss for each scheme identified, and documents the evidence trail so it can support a civil claim, an insurance recovery, or a referral to authorities.
Depending on the claim, the analysis consists of the fair value or fair market value of the ownership interest as of the relevant date, the difference between what the departing owner received and what the interest was worth, distributions or profits diverted through excess compensation, related-party transactions, or unrecorded revenue, and lost profits to the business or to the owner when the conduct at issue reduced earnings. The drivers are the operating agreement or shareholder agreement and its buyout terms, historical financial statements and tax returns, the general ledger, compensation and distribution records, and documentation of transactions with related entities.
We issue the final report and provide deposition and trial testimony, support for insurance or restitution claims, and rebuttal of opposing accounting analyses.
The financial records are reconstructed to trace distributions, related-party payments, and unusual transactions, and the amounts are summarized by year and recipient. Where records are incomplete, the report states what could and could not be determined.
Diverted amounts become normalizing adjustments to the earnings the business would show under arm's-length management, and the tracing schedules document them. The two analyses are coordinated so the diversion is counted once, as a damages item or as a valuation adjustment.
Request a consultation on Fraud & Tracing or call (201) 343-0700. Plaintiff and defense counsel.