Category Archives: Acting as an Expert Witness

Expert Witness or Consultant

One of our newer Chapter members submitted a comment on-line two weeks ago requesting information about the pitfalls involved in the CFE choosing to act as a consultant to a client attorney rather than as an expert witness. This is an important topic for CFEs in individual practice as well as for those serving as examiners on the staffs of private or public entities. The ACFE tells us that CFEs typically act as experts in the legal process by assisting attorneys with the financial details of a suit and testifying about these practices at trial. They analyze documents and transactions, showing how the fraud was accomplished and, when possible, who the most likely perpetrators were. The CFE is a guide and adviser for the attorney in assembling the case, and a major participant in explaining the details of a fraud scenario to a judge and jury.

In general, expert witnesses are typically brought in when required by law, as in malpractice suits where a member of a given profession must explain the infraction against professional by-laws or principles; when key points are deemed sufficiently technical or complex, such as in cooking-the-books schemes involving intricate accounting manipulations, or to assist a jury in making its decision. Federal Rule of Evidence 702 says that an expert witness with appropriate knowledge and credentials may testify in any proceeding where scientific, technical, or specialized knowledge will shed light on the dispute. Even in cases that don’t go to trial, experts may still be involved in mediation, arbitration, settlement conferences, or summary judgment motions.

Experts contribute to the trial process in numerous ways. They provide background information to guide and frame a case; during the discovery process they investigate, run tests, advise on depositions, prepare other witnesses, make exhibits, and respond to the opposition’s discovery requests; they file written opinions, which are entered as evidence into the court record; and they testify in actual proceedings should the case make it to a courtroom.

Once they accept a case, many experts immediately start assembling a narrative version of the events. This detailed summary of the facts of the case serves as the raw material for rendering an official opinion. As we’ve pointed out many times, it’s important that the text be written with care and professionalism because the text may (and probably will) have to be produced during discovery. Additionally, a well-written narrative helps the client attorney in preparing and executing the case at trial.

According to our most experienced members, perhaps the thorniest challenge for CFEs, once they’re engaged to work on a case, is setting a value on the specific business losses due to a fraud. Depending on the facts, there may be several methods for evaluating net worth/net loss, each rendering a different number at the end. And regardless of the numbers, there’s always the human element. Calculating business loss is a challenging task in a complex case because the examiner has to consider the amount of business being done, try to reconstruct the market conditions, think about competitors, and then calculate the amount of direct personal benefit; all of these factors being intertwined. In such cases, the examiner must consider a variety of points, prepare an estimate of loss, and then, most often, try to work out a compromise.

Article V. of the Association of Certified Fraud Examiners Code of Professional Ethics states:

A fraud examiner, in conducting examinations, will obtain evidence or other documentation to establish a reasonable basis for any opinion rendered. No opinion shall be expressed regarding the guilt or innocence of any person or party.

The rule that prohibits opinions regarding the guilt or innocence of any person or party is a rule of prudence. Clearly, it’s prudent for a Certified Fraud Examiner to refrain from usurping the role of jury. In a courtroom, no good attorney would ask a CFE for such a conclusion, and no alert judge would allow such testimony.  The fraud examiner’s job is to present the evidence in his or her report. Such evidence might constitute a convincing case pointing to the guilt or innocence of a person. But a clear line should be drawn between a report that essentially says, “Here is the evidence” and one that steps over the line and says “S/he is the guilty (innocent) person.” Nevertheless, there is a fine line between recommending action, forwarding the evidence to a law enforcement agency or filing a complaint or lawsuit, and giving an opinion on guilt or innocence. CFEs may make such recommendations because they think the evidence is strong enough to support a case. They might even have a conclusion about whether the suspect committed a crime. The rule does not prohibit the CFE, under the proper circumstances, from accusing the person under investigation. However, the ultimate decision of whether a person is “guilty” or “innocent” is for a jury to determine. The CFE is free to report the facts and the conclusions that can be drawn from those facts, but the decision as to whether a person is guilty of a crime is a decision for the judge or jury.

Caution is the by-word for every expert witnesses at every step of the legal process. According to discovery rules governing expert testimony, everything the expert says or writes about the case after being hired is subject to discovery by opposing counsel. That means everything: narrative versions of the case, comments to the press or law enforcement, hypothetical reconstructions, even notes can be demanded and used by the opposing party. A shrewd attorney can use an expert’s preliminary notes containing drafts of an opinion and other purely deliberative information to call the witness’s testimony into question. The only exception is when the expert is hired by the attorney purely on a consulting basis. An expert witness has no privilege. The principle of privilege exists to protect certain core societal relationships (attorney-client, husband-wife), but the expert witness’s relationship with clients is not among those protected. If the expert’s opinions will be presented in court, everything related to the expert’s opinion is discoverable by the defense.

There is an exception. The CFE expert may consult on the client attorney’s work product, i.e., materials the attorney prepares as background for a case. While performing background work, the expert is said to be working as an associate of the attorney, so the exchange is protected; they are two professionals conferring. However, once the expert is hired as a witness, and begins entering opinions as part of the attorney’s case, there is no privilege for any contribution the expert makes. The distinction is something like this: when acting as “witnesses,” experts are bringing official information to the court, and so must disclose any contact with the case; when experts act as “consultants” or “associates” for attorneys or law enforcement, they are only assisting the attorney, and do not have to disclose their involvement in the case. However, if a testifying expert reviews the work of the consultant expert, then the work of the consultant expert will be discoverable. Remember this; if a CFE is hired to testify at trial, anything he or s/he used to form his or her opinion will be subject to review by the opposing party. This includes notes from other experts, documents received from the plaintiff or defendant, and any documents or notes from the attorney. CFEs should be sure to consult with the client attorney before reviewing anything. If the attorney has not given the document to you, then ask before you read. Otherwise, you may inadvertently destroy the confidentiality or privilege of the material.

In summary, the best way to protect the confidentiality of information is to keep good files. Any materials which serve as the basis for an expert’s opinion must be in the file. Notes, documents, or tests that serve as background, or that represent unfruitful lines of investigation, don’t have to be included, and probably shouldn’t be. The attorney trying the case doesn’t want an expert having to answer about investigative dead ends or exploratory side lines; a shrewd cross-examiner can turn a hastily scribbled hypothetical into reasonable doubt, just enough to avert a conviction. So, in the best-case scenario, an expert presents to the court an opinion and its basis, nothing more nothing less.

Zack is Back on Internal Investigations!

Our Chapter is looking forward with anticipation to our next two-day training event (May 17th and 18th) when we will again have Gerry Zack, one of the ACFE’s best speakers, presenting on the topic ‘Conducting Internal Investigations’.  Gerry was last with us several years ago, when he taught ‘Introduction to Fraud Examination’ to an overflow crowd; judging from the number of early registrations, it looks like this year’s event will be an attendance repeat!

One of the training event segments Gerry presented in detail last time dealt with related party transactions internal to the organization and some of the unique challenges they can pose for fraud examiners.  Such ethical lapses take the form of schemes where individuals who approve one or more transactions for their organizations also benefit personally from them.  Per the ACFE, the business processes most affected by such scenarios are the loan function, the sales function and corporate purchases.

Regarding loan schemes, the key risks fraud examiners should look for are:

— The provision of loans to senior management, other employees, or board members at below-market interest rates or under terms not available in the marketplace;
— Failure to disclose the related party nature of the loan;
— The client organization providing guarantees for private loans made by employees or board members.

In these scenarios, the favorable terms benefit the employee at the expense of the employing organization.  To identify undisclosed loans to senior management, board members, and employees, the CFE could search for related-party loans using data analysis to compare the names on all notes receivables and accounts receivables with employee names from payroll records and board member names from board minutes. If a match occurs, the CFE should assess whether the related-party transaction was appropriately authorized and disclosed in the accounting records and financial statements.  Examiners can also search for undisclosed related-party loans by examining the interest rate, due dates, and collateral terms for notes receivables.  Notes receivable containing zero or unusually low interest rates, or requiring no due dates or insufficient collateral, may indicate related-party transactions.  The CFE can also examine advances made to customers or others who owe money to her client organization. Organizations generally do not advance money to others who owe them money unless a related-party relationship exists.

Gerry’s presentation for related party sales pin-pointed red flags like employees:

— Selling products or services significantly below market price or providing beneficial sales terms that ordinarily would not be granted to arms-length customers.
— Inflating sales for bonuses or stock options using related parties to perpetrate the scheme. Either a sale really has not taken place because the goods were not shipped or there was an obligation to repurchase the goods sold so the sale was incomplete.
— Approving excessive sales allowances or returns as well as accounts receivable adjustments or write-offs for related parties.

To cover up the related-party transaction, employees may deny reviewers access to customers to impede them from acquiring evidence concerning the related-party relationship.  Where the CFE suspects related party sales, s/he should perform analytical procedures to compare price variations among customers to identify those who pay significantly below the average sales price. Examiners can also attempt to identify any customer who pays prices that differ from the approved price sheet. Customer contracts can be directly analyzed for unusual rights of return, obligations to repurchase goods sold, and unusual extended repayment terms. Analytical procedures to identify customers with excessive returns, sales allowances, account receivable adjustments, or write-off’s may also be performed. Any variances in these areas might indicate undisclosed related-party transactions. Gerry also point out that data analysis can be used to efficiently compare employee addresses, telephone numbers, tax identification numbers, and birthdays with customer addresses, telephone numbers, tax identification numbers, and company organization dates. When creating a shell company, many individuals use their own contact information for convenience and their own birth date as the organization date because it is easy to remember. Any matches could indicate a related-party association and should be investigated minutely.

For third party purchases schemes, some of the key red flags are:

— the company paying prices significantly above market for goods or services;
— the company receiving significantly below average quality goods or services that are purchased at market prices for high quality goods or services;
— the company never actually receiving the purchased goods or services.

CFE’s should consider comparing cost variations among vendors to identify those whose costs significantly exceed the average cost. For identified variances, examiners should discover why the cost variations occurred to assess whether a related-party relationship exists. Like the examination steps for customers, it’s important to compare the employee’s address, telephone number, tax identification number, and birth date to vendors’ information to see if a relationship exists. CFE’s can also assess the use of sales intermediaries for products they can purchase directly from the manufacturer at lower costs.

For the comprehensive review of all this information, Gerry stressed that the level and quality of client company documentation is critical.  In reviewing their client organization’s documentation, the CFE may find that the organization does not have in place any policies or procedures prohibiting related-party relationships or transactions without prior approval. The organization also may not provide training to employees around related-party relationships and transactions, or require employees even to certify whether they are involved in any conflicts of interest with the organization. CFE’s should recommend, as a component of the fraud prevention program, that their client organization maintain written policies and procedures defining the process for obtaining approval for related-party relationships and transactions.

Key risks exist if:

— Written related-party policy and procedures are nonexistent or insufficient;
— Employees are not required to certify regularly whether they have a conflict of interest;
— Related-party transactions are not approved in accordance with established organizational policies and procedures;
— Related-party transactions are approved with exceptions to organizational policies and procedures.

The CFE should review approved related-party policies and procedures documentation. If related-party policies or procedures don’t exist or if they don’t sufficiently mitigate the risk of unauthorized or inappropriate related-party relationships or transactions, the examiner should consult with senior management and the board, if necessary, to offer guidance on a pro-active basis toward the development of such policies and procedures as a key fraud prevention measure.  The CFE should also review conflict of interest statements. If an employee documents a conflict of interest in his or her statement, the examiner should assess whether the conflict of interest was appropriately authorized and whether the process recognizes and discloses conflicts of interest.

Third party transactions are but a single topic of many to be covered by Gerry in our May event.  If you are called upon by your employer to investigate instances of fraud, waste and abuse both within your parent company and within related business affiliates, this is a seminar for you.  A well run internal investigation can enhance an enterprise’s well-being and can help detect the source of lost funds, identify responsible parties and recover losses. It can also provide a defense to legal charges by terminated or disgruntled employees. But perhaps most importantly, an internal investigation will signal to other employees that the company will not tolerate fraud. This seminar will prepare you for every step of an internal investigation into potential fraud, from receiving the initial allegation to testifying as a witness. Learn to lead an internal investigation with accuracy and confidence by gaining knowledge about key topics, such as relevant legal aspects of internal investigations, using computers in an investigation, collecting and analyzing internal information, interviewing witnesses and writing reports.

There are only 70 training slots available and our seminars fill up fast!  If you are interested in this vital investigative topic, you can find the seminar agenda, venue information, speaker bio and registration information at http://rvacfes.com/events/conducting-internal-investigations/.

Not for Sale

expert-witness_2by Rumbi Petrozzello
2016 Vice President – Central Virginia ACFE Chapter

As soon as John Turturro flashed onto the screen, in an ad for the HBO limited series “The Night Of”, I knew that we would be watching the show, even if it turned out to be an eight hour ad for dish detergent. My husband is a huge John Turturro fan, and misses nothing in which the actor appears. Fortunately, “The Night Of” turned out to be a very engaging crime procedural that had us hooked from the first episode.  The show was great in that it got us thinking about the criminal justice system. They even had a CPA who was not a stereotype – where you start feeling sleepy just at the sight of him – and he even came with a few surprises too. What really caught my attention on “The Night Of”, however, was not the portrayal of the CPA but of the expert witnesses.

During the investigation, the prosecutor deals with two forensic experts she expects to put on the stand during the trial. In both cases, she speaks with them to find out if the evidence that they have analyzed will help her convict the accused, Nazir Khan, of murder. In one case, she speaks with the medical examiner about how the suspect injured his hand. She then not only suggests a scenario (that works in her favor) which is different from his analysis but also coaches him until he sounds convincing. She also consults an expert about the possible effects of certain drugs and, again, pushes for an opinion that will help her case. In both instances, the experts seem to have no problem changing their narratives to suit the prosecutor, their client.

I was both horrified and disappointed by the ease with which this happened. When I scoured various recaps of the episodes, the critics either skipped over those moments on the show or wrote about them as though they were just par for the course when dealing with expert witnesses. Even when I read articles about the show that consulted and interviewed legal experts, the conversation was centered mainly around the lawyers’ behavior in the court room and on life in prison. Not a single legal expert (all lawyers in the pieces that I read) discussed what actually happens in their reality with expert witnesses.

It’s sad that the defense didn’t appear to make any great attempt at challenging the prosecution experts. They did put forth their own witness who, when testifying, did spend time putting forth information that seemed based on science, and not feelings. I was actually surprised that the defense, with its very limited budget, was able to hire their own expert, who came with a very impressive resume that was highlighted when he took the stand. The casual attitude that critics and reviewers have taken, when writing about these experts, hints at how many view the expert witness as a hired gun or shill, out to say whatever their client wants, not as an objective professional, advocating for the truth and, as such, a potentially critical component of the trail process.

When attending continuing education session on being an expert witness, the question invariably comes up – how do I make sure that I am taken seriously as a neutral witness and not simply as someone giving an opinion for pay? There are several steps that you, and the lawyer that you are working with, can take to clarify your position as a credible expert.

  • Money, money, money! It’ss very important to make it clear that you are being paid for your time and not your testimony. Your fee should be based on the time that you spend on the case and should never be a fee contingent on the outcome of the case. Let the judge and jury know that you will be paid, regardless on how the case turns out.
  • In order to maintain credibility and also avoid a possible Daubert motion (raised before or during trial, to exclude the presentation of unqualified evidence to the jury), your work should be based solely on the “reliable application” of “reliable principles and methods”.
  • Of course, you should be able to take the judge and jury through the steps of your investigation, from start to finish. They should be able to see and understand clearly how you came to the conclusions that you have reached.
  • Are you qualified to give the opinions you are giving? Share your qualifications and experience, so that people know that you have received all the relevant training required to support your investigation as well as the conclusions and the facts on which you are opining. Professional credentials, such as the CFE, CFF and CPA, are all viewed with respect, the possession of any of which goes a long way to support your being viewed as a qualified expert.
  • Know your work. When you’re on the stand, be sure that you know the relevant subject matter and all the issues you are testifying about backwards and forwards so that you won’t ever be caught slack-jawed, unable to answer some important question about your work.

It’s a lamentable fact that the current general view of the expert witness, as portrayed on television and in the movies, is that of someone who will say whatever the client pays them to say and that the experts who base their work on facts are viewed as the rare heroes. Taking the steps to establish ourselves as credible and objective will go a long way to building a positive view of all expert witnesses. That and, perhaps, getting a few friends in the film business!

The Expert & the Internet

expert-witnessesPart of the wrap up process our Chapter performs following each of our two day seminars is a review of attendee question topics.  As nearly all of them do, our recent ‘Investigating on the Internet: Research Tools for Fraud Examiners’ seminar elicited a number of thoughtful questions, several from attendees whose practices include testimony as an expert witness and employment as legal consultants.   From the tenor and content of the questions it appears that these CFEs were acting as experts and consultants in the legal process by assisting attorneys with the financial details of a suit, and testifying about these practices at trial. In such cases CFE’s analyze documents and transactions, both internet based and hard copy, showing how the fraud was accomplished and, when possible, who the most likely perpetrators were. The CFE acts as a guide and adviser for the attorney in assembling the case, and, sometimes, as a major participant as an expert witness in explaining the ways of fraud to a judge and jury.

Experts, in general, are brought in when required by law, as in malpractice suits where a member of a profession, say a physician, has to explain the infraction against professional by-laws or principles; where key points are deemed sufficiently technical or complex, like “cooking-the-books” schemes involving intricate accounting manipulations; or for assisting (some would say, for swaying) the jury in making its final decision.  Federal Rule of Evidence 702 tells us that an expert witness with appropriate knowledge and credentials may testify in any proceeding where scientific, technical, or specialized knowledge will shed light on the dispute.  Even in cases that don’t go to trial, experts may still be involved in mediation, arbitration, settlement conferences, or summary judgment motions. Experts contribute value to the trial process in a myriad of ways. They provide background information to guide and frame a case; during discovery they investigate, run tests, advise on depositions, prepare other witnesses, make exhibits, and respond to the opposition’s discovery requests; they file written opinions, which are entered as evidence into the court record; and they testify in actual proceedings should the case actually make it to a courtroom.

Once they accept a case, many experts immediately begin utilizing on and off-line tools to start the process of assembling a narrative version of the events. This detailed summary of the facts of the case serves as the raw material for rendering an official opinion. It’s important that the narrative text be written with care and professionalism. The text may (and probably will) have to be produced during discovery. Additionally, a well-written narrative helps the client attorney in preparing and executing the case at trial.  As our speaker, Liseli Pennings, pointed out, perhaps the thorniest challenge for CFEs, once they’re engaged to work on a case, is setting a value on business losses due to fraud. Even though financially related information available on the internet and elsewhere can be of great value in estimating the loss, there may be several methods appropriate for evaluating net worth/net loss appropriate to a given case, each rendering a different number at the end. And regardless of the numbers, there’s always the human element.

Article V. of the Association of Certified Fraud Examiners Code of Professional Ethics states:

A fraud examiner, in conducting examinations, will obtain evidence or other documentation to establish a reasonable basis for any opinion rendered.  No opinion shall be expressed regarding the guilt or innocence of any person or party.

The rule that prohibits opinions regarding the guilt or innocence of any person or party is a rule of prudence. Clearly, it’s prudent for a Certified Fraud Examiner to refrain from usurping the role of the jury. In a courtroom, no good attorney would ask a Certified Fraud Examiner for such a conclusion, and no alert judge would allow such testimony. The fraud examiner’s job is to present the evidence in his report. Such evidence might constitute a convincing case pointing to the guilt or innocence of a person. But a clear line should be drawn between a report that essentially says “Here is the evidence” and one that steps over the line and says “He is the guilty (innocent) person.”  Nevertheless, there is a fine line between recommending action – forwarding the evidence to a law enforcement agency or filing a complaint or lawsuit – and giving an opinion on guilt or innocence. Certified Fraud Examiners may make such recommendations because they think the evidence is strong enough to support a case. They might even have a conclusion about whether the suspect committed a crime. The rule does not prohibit the Certified Fraud Examiner, under the proper circumstances, from accusing the person under investigation. However, the ultimate decision of whether a person is “guilty” or “innocent” is for a jury to determine. The CFE is free to report the facts and the conclusions that can be drawn from those facts, but the decision as to whether or not a person is guilty of a crime is a decision for the judge or jury.

As Liseli pointed out caution as to information reliability is the by-word for every use of internet based information in general and use by expert witnesses is no exception. According to discovery rules governing expert testimony, everything the expert says or writes about the case after being hired is subject to discovery by opposing counsel. That means everything: internet downloads, narrative versions of the case, comments to the press or law enforcement, hypothetical reconstructions, even notes can be demanded and used by the opposing party.  However, CFE’s acting as expert witnesses need to be aware of the consulting expert exception.

Experts may consult on the attorney’s work product, i.e., materials the attorney prepares as background for a case. While performing background work, the expert is said to be working as an associate of the attorney, so the exchange is protected…they are two professionals conferring. However, once the expert is hired as a witness, and begins entering opinions as part of the attorney’s case, there is no privilege for any contribution the expert makes. The distinction is something like this: when acting as “witnesses,” experts are bringing official information to the court, and so must disclose any contact with the case; when experts act as “consultants” or “associates” for attorneys or law enforcement, they are only assisting the attorney, and do not have to disclose their involvement in the case.

There is one trap for the unwary. The rule is that if an expert will testify at trial, everything s/he does regarding the case must be turned over to the other side. If an expert works only as a consultant to the attorney, then her work product is not discoverable. However, if a testifying expert reviews the work of the consultant expert, then the work of the consultant expert will be discoverable. Just remember this, if you are hired to testify at trial, anything you used to form your opinion will be subject to review by the opposing party. This includes information downloaded from the internet, notes from other experts, documents received from the plaintiff or defendant, and any documents or notes from the attorney. Be sure to consult with the attorney before you review anything. If the attorney has not given the document to you, then ask before you read. Otherwise, you may inadvertently destroy the confidentiality or privilege of the material.

The utilization of internet based information resources introduces yet another layer of complexity to the employment of CFE’s as expert witnesses and/or attorney consultants.  The information available is often vast, almost instantly available and constantly changing.  Practitioners and their client attorneys must decide on a case by case basis whether it’s best utilized in the role of a consultant or in that of an expert witness.

Make it Clear

drowning_paper“We are again honored to have another guest post from our friend and Richmond Chapter 2015 Vice-President, Rumbi Bwerinofa, CFE/CPA/CFF. Rumbi is a Director of the Queens/Brooklyn Chapter of the New York State Society of CPAs and a member of the NYSSCPA Litigation Services Committee. She is the editor of TheFStudent.com, where she discusses financial forensic issues.

Our Chapter members and other professional readers of this blog are encouraged to submit blog posts for publication here … in addition to publication credit, you establish yourself as an expert in the field of fraud examination and help other practitioners by sharing your valuable expertise!” – Charles Lawver-2015 RVACFES Chapter

Fourteen months after being indicted for criminal fraud in the 2012 collapse of the New York law firm Dewey & LeBoeuf, former firm chair Steven Davis, former executive director Stephen DiCarmine and former chief financial officer Joel Sanders all went on trial before Acting Manhattan Supreme Court Justice Robert Stolz.  The trio allegedly falsified audits and records to make the firm appear financially healthy from 2008 to 2011.  In the process, they lied to lenders and investors, stealing nearly $200 million from insurers and banks.   According to prosecutors, rather than tell the truth about the financial realities that faced the firm, the evidence demonstrated that the three defendants used fraud and deceit to intentionally falsify the true nature of Dewey & LeBoeuf’s financial position.  The trio met at Del Frisco’s steakhouse where they hatched a plan to cook their books and make it look like the firm was profitable when it was actually teetering on insolvency.  Despite the dire situation, the executives continued to richly compensate themselves with packages of more than $2 million a year until the firm’s 2012 bankruptcy.  But Davis’ defense lawyer insisted from the start that his client did nothing wrong. He blamed the woes of the firm, which once employed 3,000 lawyers, on the financial meltdown, and greedy partners who bailed after learning they wouldn’t get the extravagant bonuses they had in the past.

Dewey & LeBoeuf was formed in 2007 through the merger of the prestigious firm of Dewey Ballantine — founded by one-time New York Gov. Thomas E. Dewey — and LeBoeuf, Lamb, Greene & MacRae.

White-collar criminal experts at the ACFE say this case may be among the first to accuse law firm executives of accounting-related misconduct targeted primarily at lenders, misconduct, which in this case, directly contributed to the firm’s own demise.  While much of the testimony in the trial was less than riveting, the proceedings were closely watched in the legal community because it’s one of the rare times the top executives of a major law firm have been charged criminally with grand larceny and with a scheme to defraud. Over the course of the trial, several former Dewey partners, many of them well known within the legal profession, were called by the prosecution as witnesses.  In all, seven lower-level employees at Dewey pleaded guilty to lesser charges in hopes of receiving little or no jail time.

In reading about this complex, criminal fraud trial, I’ve been struck by what a long and complex ordeal it was for all those involved, but especially for the jurors who were expected to render judgment. Dewey LeBoeuf filed for bankruptcy in 2012, accused of creating falsified financial records in order to obtain financing from lenders and investors. There were more than 151 charges levelled against the three former executives of the law firm; after a trial that lasted four months, the jury deliberated for almost another month before finally acquitting the three defendants on dozens of the original charges.  A mistrial was declared on 93 of the remaining counts. Several of the defense attorneys said Manhattan District Attorney Cyrus Vance would likely retry the three Dewey & LeBoeuf executives; they and some jurors strongly suggested that Vance pare down the indictment, present fewer witnesses and, most importantly, call in some accounting experts to decrease the level of juror confusion regarding the multitude of complex accounting issues.

The extensive trail publicity brought to mind the overwhelming importance to the prosecution of the type of effective communication, outlined in a recent InnerAuditor post.  During the months-long trial, many witnesses were called to testify and the jury did received a lot of data. Several members of the firm’s finance department testified for the prosecution and detailed ways in which they manipulated financial records in order to make Dewey & LeBoeuf appear more profitable than it actually was. Jurors were asked to sit patiently through a long trial during which reams of complex financial information were presented to them non-stop. Opening statements were long affairs where lawyers for both sides spent hours trying to explain complex concepts like disbursement write-offs. At the end of it all, jurors reported that they wished they had received less data and more useful information on the accounting and financial issues themselves; information that  they could have used to more confidently come to a conclusion on the facts. For all its crowd of witnesses, the prosecution did not choose to include even one accounting expert. No one was on the stand to specifically frame all the allegations and accusations in a way that the jury could clearly understand. One juror stated that, as he had minored in accounting, he had tried to explain some basic accounting concepts to his fellow jurors, so they could, at least,  try to get a better handle of what exactly had happened at Dewey LeBoeuf and why it might be criminal.

The inconclusive outcome of this trial underscores the importance of having forensic accountants and fraud examiners prepare our reports and courtroom presentations in a way really useful to their intended users, whether those user be corporate managers or juries. I’m sure the witnesses were competent and sounded knowledgeable on the stand but, how effective were they if their testimony served only to fry the brains of the jury?  We don’t want any jury to be so bogged down by numbers and complicated, unfamiliar accounting terms that it misses what the real story is all about.

So, next time, if there is a next time, the prosecutor assigned this case should seriously consider engaging the services of a financial accounting/forensic accounting expert. Why?  Because I think the mistrial sufficiently illustrates the importance to the prosecution, and to the defense, of at least one witness who can explain complicated concepts and financial reporting requirements in a sufficiently straightforward manner to be understood by the layman citizens who make up our juries. Clearly it’s not just the quantity of the proof, it’s the quality.