Tag: fraud

FraudSecurities

Nikola: The Next Tesla, Or A Fraud?

Nikola founder, Trevor Milton, recently resigned from his position as Executive Chairman of the Board after facing accusations of fraud. Before delving into the fraud allegations, it is important to understand the genesis of the company, which adds to the gravity of the situation. You may recall, last week we delved into the upcoming fraud trial for former Theranos CEO Elizabeth Holmes. We wanted to continue covering this topic of high profile fraud.

Milton built Nikola in 2014 hoping to reform the transportation sector. His plan in accomplishing this goal was to create mainstream battery-electric and hydrogen-powered vehicles from state-of-the-art zero-emissions technology. Establishing a company based on the same inventor and mission as another company, Tesla to be specific, is not the only suspicious act Milton has committed.

According to Business Insider, on September 10th, 2020, a report published by the Hindenburg Research investment firm contains evidence of Milton providing false statements about his products. More specifically, the report accuses Milton of exaggerating the viability of his products and thus misinforming investors, partners, and consumers. An example of these fraudulent statements is based on a video demo advertising Nikola’s debut semi-truck, the allegedly hydrogen-powered “Nikola One.” The report revealed an exchange of text messages from a Nikola employee developing a plan to roll the vehicle down a hill to manipulate the “high-speed” aspect of the truck. Nikola diverted from the issue by stating the prototype was discarded and therefore irrelevant. To add, they thought the Hindenburg report was released as sabotage considering Nikola’s partnership with General Motors was finalized two days prior. It should be noted, Hindenburg is a short-seller, so they were interested in seeing Nikola’s stock price decline. (Photo Source: Twitter @HindenburgRes).

The company started trading on June 4th, after a reverse merger with VectoIQ. VectoIQ is a publicly-traded special purpose acquisition organization led by Stephen Girsky, the former Vice Chairman of General Motors. Before the Hindenburg report, Nikola was performing well in the stock market. A CNBC article stated that shares of Nikola Corporation increased by 20% at the end of the month. According to the closing price, Nikola was valued at almost $28.8 billion, making the corporation more valuable than Ford. However, Nikola’s stock market surge stemmed from Milton’s announcement of the company’s new battery-electric fuel-cell truck, the Badger. He followed his announcement confirming the company’s partnership with General Motors, a necessary move to get the new truck to market. Nikola did not anticipate to generate income until 2021, but investors were willing to provide a hefty sum for promising vehicles.

Despite the incident that led to his resignation, analysts think Milton’s exodus is a positive and necessary step for the progression of both Nikola and General Motors. Whether the motive for resigning was personal or strictly business, with Milton absent there will be less negative publicity.

What does this mean for Trevor Milton? Along with his resignation, he agreed to relinquish $166 million of equity and a two-year $20 million consulting contract. However, Milton gets to possess $3.1 billion in stock due to a recently finalized separation agreement. He agreed to assist the corporation as an unpaid consultant, but his role in company operations and decision-making are paused for at least three years. In the aftermath of Milton’s resignation, Nikola’s shares decreased significantly in premarket trading, opening Monday, September 21st, at $24.97, the lowest opening price since the company went public in June. It ended the day, closing down 19% at $27.58. As he continues to defend himself against the Hindenburg Research report, Milton’s legal expenses are paid for by Nikola as long as they receive copies of evidence.

With Milton out of the picture, Stephen Girsky has been appointed chairman of the board. General Motors’ main priority is to plan production of the battery-powered Badger truck starting late 2021 or early 2022, ultimately continuing the partnership with Nikola. Although General Motors bears the responsibility for its creation, Nikola will remain in charge of marketing and selling the product upon its release. Because Nikola lacks the cushion of intellectual property and revenue, they heavily rely on the investor’s contribution through the stock market. Nikola’s tarnished reputation requires damage control in order to maintain enough revenue until the Badger is released.

UPDATE: Now that time has passed from Nikola’s public fraud incident, the aftermath has unraveled. As of Monday, November 30th, 2020, General Motors decided to remove themselves from their deal with Nikola, thus relinquishing their $11 million equity stake. Because Nikola failed to live up to their “fast-paced” evolution of electric and hybrid vehicles, General Motors believed it was in their best interest to maintain distance for their future business ventures. Since the manufacture of Nikola’s hydrogen-powered Badger pickup truck relied on a partnership with an automaker, the vehicle’s production has been paused. According to The Verge, the two companies will cooperate to bring, “GM’s Hydrotec fuel-cell technology into Nikola’s Class 7 and Class 8 zero-emission semi-trucks for the medium- and long-haul trucking sectors.” With Nikola partly out of the picture, General Motors can focus on their multi-billion-dollar pursuit for a future involving all-electric vehicles. This requires the automaker to invest $2.2 billion to reconfigure their vehicle assembly plant and create the development process for its modular battery-electric platform, Ultium. They announced last week their $2.2 billion electrification investment will become $27 billion through 2025.  

Criminal LawExpert WitnessForensic PsychiatryFraudUncategorized

Elizabeth Holmes Fraud Trial: Mental Disease & Defect Defense

Before Nikola and the Trevor Milton scandal, there was a prominent blood-testing startup called Theranos. Its founder, Elizabeth Holmes, currently faces a criminal fraud trial.

If you’ve been tuning into business news recently, the latest scandal with Nikola, a electric-powered truck manufacturer, and its founder, Trevor Milton, is no surprise to you.

For those who have not been following along, a quick summary is as follows: Nikola (NKLA) recently became a publicly traded company alleging they had hydrogen fuel cell (battery) technology that would revolutionize the trucking business. The stock did well after IPO. Nikola then did a multi-billion dollar deal with General Motors. The stock went higher. A few days after the GM deal, a short-seller released a report that accused them of a being an intricately constructed fraud. The founder, Trevor Milton, contested the accusations on social media and asked for time so he could rebut all of the allegations. Within a couple of days he went silent, was removed as executive chairman, and deactivated his social media accounts. It has been widely reported that both the SEC and DOJ are conducting investigations related to his actions and claims as founder and executive chairman.

I share that story because some news agencies have suggested Trevor Milton’s story is similar to that of Theranos founder and CEO, Elizabeth Holmes. Ms. Holmes is now facing a criminal fraud trial and she is the focus of our our post today. Stay tuned next week for some further discussion on the issues surrounding Nikola.

Background:

Elizabeth Holmes founded a privately held biotechnology company called Theranos. The company intended to revolutionize blood tests, with just a drop of blood. No more needles and vials, just a small drop of blood, and the tests results would be available rapidly. Ultimately, they failed to deliver tangible results and led consumers to believe false promises. After receiving more than $700 million in private investment, the company began falling apart.

In Spring 2018, Holmes was charged with fraud by the SEC, as reported by Bloomberg. This being a civil action, Holmes settled it without admitting any of the allegations. The settlement required her to relinquish her shares to the company and abstain from being an officer or director of a public company for a period of 10 years. There was also a fine, according to Barron’s. To the best of my recollection, Ms. Holme’s settled with the SEC on the same day she was charged.

In the Summer of 2018, the US Attorney’s office filed charges against Holmes’ for conspiracy and wire fraud, as reported by CNN. This criminal indictment is the inspiration for this blog post.

For more than 2 years, we’ve followed the developments in the criminal prosecution of Elizabeth Holmes, wondering if it would lead us to an interesting analysis from an expert witness perspective. In September of 2020, I found this article from the New York Daily News. It seems Ms. Holmes is preparing for the use of a “mental disease or defect” defense.

More specifically, the article from the New York Daily News, indicated the judge had assigned a neuropsychologist and psychiatrist to conduct a two-day, 14 hour evaluation of Ms. Holmes. Additionally, this evaluation is to be recorded. Now, I had never heard of psychological evaluation being this long and I worked in the mental health field for years before joining Experts.com.

To the best of my knowledge, I had not heard about the “mental disease or defect” defense since law school. I remembered it as a mitigating factor to a crime. Something we learned about when we learned about defenses and factors related to defenses.

So, I did what I usually do with these blog posts, and reached out to the experts. This time, I thought it would be good to get insights from a federal public defender and a psychiatrist.

First, let’s see get a view of the legal opinion…

Analysis from Federal Defense Attorney, Diego Alcalá-Laboy:

Diego Alcalá-Laboy is a criminal defense attorney with his own practice Defensoria Legal, LLC, in Puerto Rico, where he represents federal criminal defendants and advises startups. He is also an adjunct professor at the Inter-American University, School of Law and teaches the Federal Evidence and Federal Criminal Procedure courses at the University of Puerto Rico Law School’s Federal Bar Review.

Nick Rishwain: Why would one use a defense of “mental disease” and what impact might it have on the case?

Diego Alcala: A prosecutor must prove that a defendant intended to commit an act (mens rea), and that he committed the act (actus rea). And most crimes require that the defendant acted intelligently, knowingly, or willfully, and on some occasions recklessly or negligently. The type of “mens rea” a crime requires is defined by Congress and the interpretations given by the courts. On some occasions, an offense may not even require a mens rea, such as with strict liability offenses.

Crimes may have different elements, and a prosecutor may have to prove that the defendant had the required mens rea to commit each element of the offense. If the prosecutor cannot prove this, the defendant may be found not guilty.

Congress also recognized that a defendant may show that because of a medical defect he was unable to appreciate the nature and quality of his or her acts because of a severe mental disease or defect. After the John Hinkley trial, Congress amended its statutes and eliminated the affirmative defense of diminished capacity but allowed a defendant the possibility to attack an element of an offense because of a mental condition.

This is a lot harder than it sounds. The Courts are the gatekeepers of the any scientific testimony intended to be presented at trial. Therefore, whenever a defense of mental defect is offered by a defendant, the Court must ensure that the evidence offered is grounded in sufficient scientific support. This scientific evidence then must be scientifically sound and must also show that the medical condition negates mens rea of an element of the offense. So, a defense of mental defect, if grounded on scientific basis, and shows that it negates an element of the charged crime, will clear the defendant from a particular case.

NR: Have you ever seen a “mental disease” defense used in a criminal fraud matter?

DA: I have never seen a mental disease defense presented before. But I did find some cases where the defense tried to introduce this type of evidence but was ruled inadmissible because it did not satisfy the Court that the proffered evidence: a) was based on sound scientific principles, or b) even if it was based on sound principles, it failed to negate mens rea for the element(s) of the offense. In fraud cases, a defendant is accused of committing some type of false representation. It follows that the evidence of mental disease must show that if his/her medical condition can be logically connected to a subjective belief that his/her assertions were not false, baseless, or reckless vis-a-vis the truth.[1] I have not found a fraud case in which the defense has been able to overcome this burden.

NR: If it is established that Elizabeth Holmes is suffering from “mental disease,” can she still be held criminally liable for her actions?

DA: If a defendant presents a successful mental disease defense, the federal law states that she will be found not guilty. But a finding of not guilty does not necessarily mean that she is free to leave. A determination of not guilty by reason of mental defect will then place a defendant in a “suitable facility” and may be release only after showing that she is no longer a threat.

NR: Does a “mental disease” defense have much success in federal criminal trials?

DA: As mentioned, I have not found a successful case, and primarily the difficulty lies in the very narrow type of cases that may meet the discussed admissibility standard. Even if she can get this evidence into trial, it is still up to the jury to accept this defense.


Now that we have some idea of the application of the law for fraud in federal criminal cases, we need to review the science as outlined by Mr. Alcalá.

Analysis from Forensic Psychiatrist and Expert Witness Dr. Sanjay Adhia:

Dr. Sanjay Adhia is triple-Board-Certified in Forensic Psychiatry, Brain Injury Medicine, and Psychiatry. Dr. Adhia serves as a Psychiatrist and Brain Injury Medicine specialist at TIRR Hermann Memorial, a Rehabilitation and Research hospital treating those with brain and spinal cord injuries and psychiatric elements of their injury and recovery. In private forensic practice he conducts Independent Medical Examinations (IMEs), and renders his opinions by report and testimony. Dr. Adhia serves on the faculty of McGovern Medical School at UTHealth. You can visit his website at: forensicpsychiatrynow.com.

Nick Rishwain: According to the psychiatric community, what constitutes “mental disease” and “mental defect?”

Sanjay Adhia, MD: These are more legal terms rather than actual formal psychiatric definitions.

According to Merriam-Webster, the legal definition of “mental disease” is “an abnormal mental condition that interferes with mental or emotional processes and internal behavioral control and that is not manifest only in repeated criminal or antisocial conduct”.

Examples would include Schizophrenia, Schizoaffective Disorder and Bipolar Disorder which are considered Severe Mental Illness (SMI). These conditions may lead to psychiatric hospitalization. The conditions maybe associated with and loss of touch with reality and a lack of volitional control.

“Mental defect,” on the other hand, is defined by Merriam-Webster as a “an abnormal mental condition (as mental retardation) that may be of a more fixed nature than a mental disease”.   “Fixed” disorders would include Intellectual Developmental Disorder (IDD; formerly known as mental retardation), Autism and Brain Injury. According to this definition, Antisocial Personality Disorder (ASPD) would be excluded. ASPD is marked by a tendency to lie, break laws, and act impulsively. It shares some features with psychopathy or sociopathy. A number of states do not permit the use of ASPD in the insanity defense.[2] Allowing ASPD would have unintended repercussions. For example, it could potentially permit a defendant like Ted Bundy or Jeffrey Dahmer to avoid prison.

NR: In the court order, it limits the evaluation of Ms. Holmes to a 14 hour, 2-day, psychiatric examination. Is this out of the ordinary in a criminal matter?

SA: There is a wide range of exam times in criminal cases. It would depend on a variety of factors including the type of case, the jurisdiction, the funding available and the severity of the charge. Assessment time in a misdemeanor will not be identical to a capital case. Ms. Holmes’ case is not a capital case, but it helps to understand differences in how long the examination might take. The exam time in a Competency to Stand Trial for a misdemeanor trespassing case would likely be under two hours. I have seen some examiners spend 30 minutes for the interview in such cases. The other extreme would be Capital cases which could go over 8 hours or several days; this is especially true if neurocognitive testing is required, which can take an entire day.

Again, in a capital case the threshold and the stakes are very high—especially in death penalty cases that often go to the appeals court.

In misdemeanor cases, you may have a single mental health expert and the findings may be accepted without the need for an opposing expert. In Capital cases, the defense itself may retain several mental health and other medical experts (i.e. Fetal Alcohol Syndrome experts). In the Holmes case, the 14 hours is to be shared between a forensic neuropsychologist and a forensic psychiatrist.

As it is a high-profile case, it is possible that the court may allow additional funds or there maybe a willingness of the expert to work within a budget.

It is my experience that the examination in insanity cases take more time than other types of cases as you have to elicit a detailed account of the crime from the defendant and then determine the mental state at a time in the past and consider malingering (lying for secondary gain—like a lesser sentence). I suspect in the Holmes case, it is likely the charges are not limited to one circumscribed incident so it could take additional time. It is worth noting that time spent reviewing records and preparing a report could exceed twenty hours or more.

NR: What information might you need to establish or rebut an insanity defense?

SA: In addition to interviewing the defendant, it would be helpful to review medical records, legal records along with police records and videos. I often will interview collateral informants as well. In Ms. Holmes’s case there maybe, media accounts, if admissible, as well as financial records and corporate documents. Of course, an expert would review the other expert witness reports. Records in a violent crime could include an autopsy, or blood splatter expert reports, for example. In the Holmes case, there may be a forensic accounting or fraud expert report.  Other sources of data could include polygraph testing, school records and employment records.

NR: In the Holmes case, the defense has retained a trauma expert. Is it common to successfully assert an insanity defense in cases of PTSD?

SA: Insanity defenses are more commonly associated with other diagnoses that are considered to be more severe forms of mental illness such as schizophrenia, bipolar disorder and IDD because they have a different impact on decision-making and regulating behavior. Although many individuals with PTSD do suffer with severe symptoms, they are generally able to maintain awareness of the nature of their acts and appreciate the wrongfulness of such acts. In jurisdictions that allow for the volitional prong, individuals with PTSD are generally considered to be able to behave lawfully. Of course, there are cases where PTSD is successfully asserted as an insanity defense.[3] In cases where the defense attorney realizes the PTSD does not lend itself for an insanity defense, they may successfully utilize it for sentence mitigation.


[1] United States v. Bennett, 29 F. Supp. 2d 236 (E.D.Pa. 1997), aff’d 161 F.3d 171, 183 (3d Cir.1998), cert. denied, 528 U.S. 819, 120 S. Ct. 61, 145 L. Ed. 2d 53 (1999)

[2]Does A Psychopath Who Kills Get to Use the Insanity Defense? NPR, 8/3/16, by NATALIE JACEWICZ

[3]PTSD as a Criminal Defense: A Review of Case Law by Omri Berger, Dale E. McNiel and Renée L. Binder; Journal of the American Academy of Psychiatry and the Law Online December 2012, 40 (4) 509-521;

Criminal LawEducationExpert Witness

Celebrity, Ivy League, College Cheating Scandal: Education Expert Witness Insights

When the news hands you a juicy story about wealthy celebrities, elite universities, college admissions, cheating, corruption, federal crimes, racketeering and conspiracy, it is really difficult to choose a title for the article.

If you are at all like me, when the news broke yesterday about wealthy celebrities bribing college officials to help get their children into elite schools, you were probably immediately angry with your parents for not doing the same! I kid. Sometimes, you just have to make light of these situations.

If you’re not up-to-date on “Operation Varsity Blues,” there is some good coverage here.

More likely, you were angry to read that one of the alleged criminals paid to have someone take an SAT for their daughter, scoring approximately 400 points higher than the child could score on their own merit.

Then you probably scrolled through the indictment to see another wealthy family is accused of bribing a crew coach (spending approximately $500,000 in bribes), to help their child be admitted as an athlete, when the child had no history of rowing competitively.

Those of us who have had to work hard to achieve our educational credentials, as a result of learning disabilities, were further angered by parents helping their children to fake disabilities to get more time on a test. This author struggled with school his whole life because of undiagnosed learning disabilities that were discovered only as an adult. I survived. I worked harder to excel. Needless to say, trying to cheat the system and fake a disability really bothered me because accommodations are meant to level the playing field, not give someone unnecessary an edge.

Most of us are aware students receive special benefits if parents or family members have previously gone to the university. We also know that the donating of a building or program often provides family members with special influence. We know this and we sort of accept it as part of society. Successful people work to help their families achieve success. Most of us have accepted this idea. However, when those efforts break the law, corrupt the education system, and displace truly qualified students, we cannot accept it and we should not accept it.

As a result of yesterday’s news, I reached out to one of our members’ to get some early insights on this matter. It is important to remember this story is still developing and what we learned yesterday, may change tomorrow or the next day.

Education Management Expert Witness Dr. Edward Dragan:

Dr. Edward Dragan, has over 40 years experience in education. He has been a special-education teacher, served as a public school principal and a superintendent, founded an alternative school with a group of disenchanted parents and students, and much more. After consulting with an attorney and testifying in court as an expert witness, Dr. Dragan decided he would best be able to help schools, children, and families by developing a practice where he could use his experience to review cases involving schools, education, and the supervision of children and provide expert opinions. Further, he has obtained a law degree with a specialty in education law and has consultation to plaintiff and defendant attorneys around the country and Canada more than 800 times on cases involving wrongful death, sexual harassment, negligent supervision, Title IX, and Section 1983 matters. Dr. Dragan has testified around the country over 125 times. You can learn more about his practice here: http://education-expert.com.

Below, you’ll find my questions and Dr. Dragan’s responses, related to the college cheating scandal.

Nick: It seems some of the allegations in the college racketeering conspiracy involve bribing entrance exam administrators. Are there procedures for qualifying entrance exam administrators?

Dr. Dragan: There are no procedures for qualifying entrance exam administrators that would guard against the bribery charges. Unfortunately, even if there were procedures or license for such administrators this type of scam can still occur. When parents, especially privileged parents, want something for their child they usually find a way – and it can involve paying a gatekeeper to a college. It takes two dishonest individuals to engage in this conspiracy and, unfortunately, the honest parents and kids lose out.

Nick: Many of us have long heard the stories of someone posing as a student for the entrance exams. I always took it as “lore.” What policies and procedures are in place to prevent test-taking fraud?

Dr. Dragan: Test-taking fraud is controlled on site by monitoring identification including pictures on license, school identification, passports, etc. Even this method can be circumvented. But careful screening can help deter fraud. Off-site or computer initiated test taking presents unique problems.

Nick: Admittedly, it is early in the publicly available information, but what policy and procedure changes would you suggest to limit test-taking fraud in the future?

Dr. Dragan: I am not an expert in electronic fraud but I imagine that for those off-site test-taking experiences software design might be helpful.

Nick: Do you expect universities to take action against coaches and other school officials who allegedly accepted bribes?

Dr. Dragan: Yes, I do expect universities to take action against coaches and other school officials who are convicted of taking bribes. They should immediately be placed on leave – no work at the university – pending investigation. If there are criminal charges made and they are convicted they should be fired. Of course, employment contracts and other elements will need to be taken into account.

Nick: Is there anything else you wish to add. Comments, concerns, or otherwise…

Dr. Dragan: The education system, and the honest pursuit of education, is a privilege enjoyed by those who are eligible to “get into” the club. When parents circumvent honest endeavors of their children they are teaching their children, by example, how to be cheaters and how to lie to get what they want. This is shameful – and especially for those who fit high-profile status.


 

It should be noted that USC has already taken action against at least one coach and one school administrator for their alleged wrongful conduct. They fired two employees yesterday, according to the LA Times, while Dr. Dragan and I were communicating about this article. As the story develops, Dr. Dragan and I may return with a Part 2 on this topic!

 

Business ValuationExpert WitnessLitigationSecurities

SEC Charges Theranos CEO with Massive Fraud – Securities Expert Witnesses

Once considered “The Next Steve Jobs” or the “female Steve Jobs,” Elizabeth Holmes has fallen from grace and landed directly in the cross-hairs of the Securities and Exchange Commission (SEC). Today, the SEC filed a civil complaint against Elizabeth Holmes and her company Theranos, Inc. There was a separate action filed against the Chief Operating Officer, Ramesh “Sunny” Balwani.

The complaint alleges, in part:

“Holmes, Balwani, and Theranos raised more than $700 million from late 2013 to 2015 while deceiving investors by making it appear as if Theranos had successfully developed a commercially-ready portable blood analyzer that could perform a full range of laboratory tests from a small sample of blood. They deceived investors by, among other things, making false and misleading statements to the media, hosting misleading technology demonstrations, and overstating the extent of Theranos’ relationships with commercial partners and government entities, to whom they had also made misrepresentations.”

Oh the good old torts of negligent and intentional fraud and misrepresentation. Takes me right back to the first year of law school, when Nickelback was a hot new band, rather than the sad punchline of Internet memes. I digress.

The complaint goes on to allege that based on representations, investors believed Theranos had developed a proprietary medical device able to conduct comprehensive diagnostic tests from a small amount of blood taken from the patients’ finger. They also made representations that they would collect and transport these samples in order to complete the tests on their proprietary analyzer. All of this would be done more efficiently and economically than traditional blood testing labs.

According to the complaint, Theranos was only able to perform about 12 of the 200 tests they claimed they were capable of performing.

Let’s stop here and give a simple warning: If you are soliciting money from investors, make it very clear what you are able to achieve. Differentiate this from what you hope to achieve in the future. Do not mix the two. Otherwise you get into a bad area called misrepresentation, or in this case, securities fraud.

A wide variety of expert witnesses:

In complex civil litigation such as this, there is room for a wide variety of different experts. I can only imagine the SEC and Theranos are both using consulting experts at this time in preparation for a long drawn out litigation. The complaint has only been filed today, so expert disclosures are a way off. Here are a few types of expert witnesses or consulting experts I expect to see in this matter.

Corporate Governance:

Expert witnesses on corporate governance are highly likely to play a role in this case. Officers of a corporation are fiduciaries of the corporation. Holmes owed a duty of care to the company and to her investors. She is accused of misrepresentation which, if proven, would certainly violate the standard of care owed to shareholders and the company. I expect there will be significant dispute by the parties to prove she either did or did not violate her fiduciary duties.

Securities & Finance:

Several different types of experts who practice in the area of securities fraud may come into play. We are likely to see experienced Wall Street experts with a history in equity trading, proprietary trading, investment research, securities valuation, financial forecasting, venture capital and investment banking.

Some experts will probably have backgrounds in IPO’s, private equity financing, securities financing, and stock options financing.

In this area, I feel as though I can go on ad infinitum. That’s not true and it is probable one or two candidates will have the requisite expertise, described in this section, to address the finance and fraud related matters.

Economics:

Although the SEC is primarily suing for injunctive relief, they do mention the potential for civil monetary penalties. I would expect there will be some need for an economist (by both parties) to establish the value of Theranos and shares owned by Holmes and Balwani.

As I do not practice securities litigation and this is not a law review article, it is possible the civil penalties are predetermined by the Securities Act and there is no need to value the penalties other than by the trier of fact.

UPDATE:

Within hours of writing this blog post, I discovered that Elizabeth Holmes has settled with the SEC. According to Reuters, she will be stripped of her majority control of the company and will have to return millions of shares to Theranos. She will also pay a $500,000 fine and be barred from being an officer or director of a public company for 10 years. As of this update, Mr. Balwani has not settled with the SEC.

 

 

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CREDIT DAMAGE EXPERT WITNESSES – COMPENSABLE DAMAGES

It used to be that credit damage was not a compensable injury.  The victims of identity theft or fraud could not recover financially for any damage that was not a tangible good or service.  Thanks to the relatively new procedure of Credit Damage Measurement (CDM) and the expertise of many Credit Damage Experts, getting compensated for intangible losses is now possible.

In an article titled, “Credit Damage: Getting Compensated for Your Loss,” Credit Damage Expert, Georg Finder writes that, “ The impact of a bad credit rating is much more significant than most people think. Consider what poorly rated consumers face when they want to lease or buy vehicles, obtain credit cards, buy or lease or refinance their residence. In most cases, it’s an easy decision for the creditor: the credit application is simply turned down or the borrower is charged a much higher down payment – maybe thousands of dollars more with monthly payments that are typically several hundred dollars more.”

Tom Key, a civil litigator practicing in Tustin, CA is also mentioned in Finder’s article.  He explains that the CDM can help by measuring the actual out-of-pocket dollars reasonably expected from loss of creditworthiness, which includes higher down payments, higher points and costs on loans, higher interest rates, higher monthly payments, or outright denial of credit.  In addition, Keys says that the CDM method also calculates the rates, costs and other terms applicable to the resulting credit rating by lenders and projects the results over the relevant number of years for the types of loans the client is likely to seek.

For those who have suffered from identity theft or fraud that has left them with little or no credit, all is not lost.  With the help of a good Credit Damage Expert, civil litigator and the CDM procedure, recovery is not only possible, but likely.

Read Experts.com Member, Georg Finder’s, complete article.

AccountingBusiness ValuationExpert WitnessForensic AccountingFraud

FORENSIC ACCOUNTING EXPERT WITNESSES & CONSULTANTS

In the fall-out from the past few years’ financial debacle, there has been no shortage of work for Forensic Accountants.  From the Bernie Madoff scheme to Lehman Brothers and all the financial scams in between, Forensic Accountants have been called upon to apply the concept of accounting to help lawyers adjudicate and resolve the resulting legal problems.

Image Courtesy of Trade & Global Market

The Accountant’s Handbook of Fraud & Commercial Crime offers a definition which has been informally accepted by many Forensic Accounting Experts.  The definition is as follows:

“Forensic and investigative accounting is the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence. As a discipline, it encompasses financial expertise, fraud knowledge, and a strong knowledge and understanding of business reality and the working of the legal system. Its development has been primarily achieved through on-the-job training, as well as experience with investigating officers and legal counsel.”

Forensic Accountants apply their knowledge to many different financial transactions such as

  • Bank Fraud & Embezzlement
  • Bank Operations & Practices
  • Check Kiting
  • Electronic Transactions
  • Embezzlement
  • Money Laundering
  • Payment Processing & Fraud Detection/Prevention
  • Royalty Audits
  • Claims Analysis
  • Determination of Compliance

A Forensic Accountant’s area of expertise is not limited to financial crimes and fraud. They apply their knowledge to civil matters as well. Their services are useful for breach of contract, business valuations and marital / family law.

Considering the amount of financial litigation out there today, whether it be civil or criminal, the Forensic Accountant’s docket is most likely as full as the courts in which they testify.