Fraud Examination with Surprising Results

Type of Matter:
Business partners in multiple real estate transactions stretching over many years had a falling out that eventually resulted in a claim of fraud against one of the partners.

Background:
Over 20 commercial buildings were acquired over several years. Some had been sold and some were still owned jointly. Neither of the partners, jointly or individually, maintained any formal accounting for the purchases, sales, or management of the properties. One of the partners took the lead role in buying, selling, and managing the properties. The non-active partner made claims of substantial amounts of cash that were unaccounted for and presumed stolen.

Arxis was retained by defense counsel to direct discovery and prepare a forensic accounting needed to establish whether the money had indeed been stolen.

Arxis Work:
Documentation was needed to establish purchase date, purchase price, identity of property, and source of funds for each of the purchased properties. For properties that were subsequently sold, documentation was needed to establish the sale date, sale price, identity of the sold property, and the distribution of proceeds from the sale. For property that was retained, documentation was needed to establish the source (rent) and use (expenses) of funds for each individual property.

The traditional sources of such information were not available as formal accounting records were not maintained and most relevant records were not even preserved. Third-party sources were used to accumulate deeds, escrow statements, bank statements, and other data to allow us to piece together what actually happened.

Result:
Contrary to all expectations, the evidence showed that the Plaintiff had already received substantially more proceeds than were originally invested in the projects. When adding together proceeds plus the fair market value of the property that was still owned, not only had his partner not stolen from him, but he had turned a very healthy profit. Even the defendant was impressed with his own success. Due to the lack of contemporaneous accounting neither party understood that their real estate partnership was actually quite successful.