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Financial Wrongdoing Usually Leaves a Trail

Clients often come in fully believing their business partner is cheating them somehow. But they have been denied access to the company financial information for so long they don’t really know for sure. The quandary becomes, what if I spend all that money to file suit and I’m wrong? Or – worse – what if my partner hid his wrongdoing so well that although I am being cheated, I file suit and still can’t prove what is really happening? These are legitimate concerns, but they are not unsolvable.

The first concern can be dealt with by having an attorney write a letter seeking detailed financial information from the company. While, under New Jersey law, an owner of a corporation or an LLC does not have unlimited access to all financial records, a detailed request under threat of litigation must be taken seriously by any majority owner who receives such a letter. Many times, I have clients who conclude that if their partner is threatened with a lawsuit for failing to provide records to disprove the client’s suspicions wrong, and fails to provide them, that in-and-of-itself is all the proof needed to confirm their suspicions. 

An oppressed minority shareholder also has the option of commencing a limited action designed solely to get the documents that they are entitled to as a matter of law. Such a limited suit is (obviously) far less expensive than shareholder divorce litigation. Some clients, though, conclude that if they have to fight so hard just to get records, those records must be hiding things that will warrant a full-blown lawsuit. 

As for the concern that your partner could have hidden things so well you will never find out what really happened, while possible, it is unlikely. There is usually either a paper trail, or in these days, an electronic trail. Salaries and bonuses can rarely be hidden. Funneling monies to other business ventures or family members leaves a trail. Sometimes the books alone don’t tell the entire story. For example, why does the company keep transferring money to ABC Corp.? But the money transferred can’t be hidden, and it will be easy to find out in discovery if ABC Corp. is a company your business partner started and cut you out of.

While general ledgers can be tampered with, the tampering can often be uncovered and revealed by an experienced forensic accountant. The task may be harder if the business has a significant cash component. Cash being hidden or unaccounted for is always trickier. But again, there are methods a good forensic accountant can employ.

If you are suspicious about how your business partner is treating you, but the path to victory and recovery seems daunting, don’t make that decision by yourself. You would be surprised how amenable to a resolution a business owner becomes once they receive your attorney’s information request and realize you are no longer going to sit there and take it.

©2023 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume XII, Number 301
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About this Author

David C. Roberts Member  New Jersey fraud, fraudulent transfers, trade secret, restrictive covenant litigation, employment litigation, environmental matters, and insurance coverage litigation.
Member

David C. Roberts, Co-Chair of the firm’s Litigation Practice Group, devotes his practice to handling complex commercial litigation matters, such as fraud, fraudulent transfers, trade secret, restrictive covenant litigation, employment litigation, environmental matters, and insurance coverage litigation.

His practice has a particular emphasis on partnership and shareholder disputes, including oppression and dissenter’s rights cases, with a focus on attempting to resolve matters through mediation, if such an approach fits within client’s goals and objectives.  In 2007, Dave launched...

908-252-4205
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