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November 1, 2014

What’s this guy worth? This is a question we hear often, in several different contexts and with varying degrees of intensity. It gets asked by litigators at various stages of a lawsuit, by corporate counsel in the course of an internal investigation and by executives contemplating a financial or investment relationship with a new partner. Often the usual methods of obtaining information, either through discovery or an individual’s cooperation, will be sufficient.

But at other times, the answers have to come from the outside, which requires a careful approach by experienced practitioners who can combine targeted searches of public records, discreet interviews of knowledgeable sources and additional investigative techniques, while avoiding the most common legal pitfalls along the way.

Who Looks at Assets?

Litigators
Lawsuits by far generate the largest demand for asset searches. These investigations are useful at most stages of a typical civil suit, for example:

Before filing – An asset search can determine whether potential defendants have sufficient resources to pay the damages alleged, and the answers may determine whether a potential plaintiff decides to undergo the inconvenience and expense of taking them to court.

During a case – Particularly in divorce matters, but in others as well, defendants may try to transfer property or other assets to hide them from opponents. Property records, particularly, can expose such fraudulent transfers.

During settlement – Information about an opponent’s assets can be key to obtaining the largest amount possible during settlement negotiations, or in bringing negotiations to a quick close if it appears that a bankruptcy may be looming.

After judgments – Once a plaintiff obtains a judgment or lien the task then becomes collecting it. Asset searches are a way to test whether a defendant’s claims of limited resources are genuine.

Corporate Counsel
Internal investigations often follow suspicions of embezzlement, theft or bribery by employees. In these situations, indications that one or more suspects may be living above their means can help focus the investigation, both in terms of the timing of bad acts and the amounts at issue.

Hiring decisions, particularly of “C-Suite” executives, can also be aided by a careful asset review. Past bankruptcies are obvious red flags, but so too is ownership of highly mortgaged properties, which can puncture an otherwise solid facade of wealth.

The Approach

Ask the Client
Good investigators always start by thoroughly interviewing their clients to learn as much as possible about the party on the other side. A client involved in a breakup, whether of a business or marriage, is likely to know what may seem like insignificant details, such as privately-held side businesses, vacation homes owned under other names, or past travel – such as to offshore banking havens in the Caribbean.

Review Public Records
After analyzing this information, a good asset evaluation customarily includes a wide and deep search of public records, not only in the U.S. but also in other countries that may have surfaced in the initial overview. This work involves accessing open sources as well as sending researchers to obtain physical documents in courthouses and other record repositories. The objective is not only to discover leads to current assets, but also to identify targets for further investigation and people to interview.

A public record sweep begins with searches of databases that aggregate a wide range of public information from U.S. and overseas sources, some of them specialized databases that are available to private investigation firms. These sources may include government filings with securities, trade and environmental regulators; lawsuits, administrative and other filings; divorce and probate cases; incorporation and other business records; news articles; prospectuses, indentures and other relevant legal and financial documents; real estate records; car, boat and aircraft registrations; patent and trademark filings; records of imports and exports; and tax returns for some foundations, charitable trusts and political organizations.

When analyzed together, such disparate records can often create a pointed and informative narrative. In a high-profile bankruptcy, when working on behalf of counsel for the creditors’ committee, investigators completed asset evaluations of numerous subjects to help the trustee determine which parties to pursue. They further discovered that the founder of the bankrupt company and his brothers, using many different corporate entities, owned more than 50 properties worth nearly $3 million in total, and that two of the brothers had recently deeded their houses to their wives, setting off suspicions of fraudulent transfers. In addition, one of the founder’s companies owned an island in the Caribbean that was for sale with an asking price of $40 million.

Uncovered records and documents may also identify regulatory officials, former employees, competitors, industry sources, past litigants and others who may be suitable to interview at a later stage.

Interview Sources
The accessibility of public information varies widely from country to country. While much of it is readily available in the U.S., privacy laws, archaic reporting systems and outright corruption may limit open-source research in other jurisdictions.

For example, in Russia, Poland, Germany and many other countries, litigation databanks like those in the U.S. are not available, so the best public record information on lawsuits may be from local newspapers. Corporate registries are conveniently accessible in the U.K. and many other countries, but not in Uzbekistan and Kazakhstan. In Ukraine, there are additional difficulties resulting from the current political unrest.

The best and most reliable information in all of these countries is likely to come from sources on the ground. Experienced investigators approach confidential sources of their own, using existing relationships with local banking, finance, industry, law enforcement and government officials, as well as people whose names have surfaced through the public record research. These sources can provide key intelligence to help determine where viable assets are located and where to focus additional investigative or collections efforts.

This approach proved to be important for a party that had won an international arbitration judgment against a wealthy executive who lived in a Mediterranean country that lacked publicly available property records. Discreet interviews resulted in the identification of properties he was believed to own that had a potential value of $10 million. Another source pointed to his multimillion-dollar yacht — moored at a nearby marina.

Stay Out of Trouble

Bank Accounts and Other Financial Assets

A number of laws exist that constrain what attorneys, investigators or other individuals can do to uncover information about a third party’s assets. These laws vary by state and country, and it is prudent to be cautious about engaging any service that offers to obtain information without the authorization of the subject of the investigation.

For example, bank account records cannot be obtained legally in the U.S. and many overseas jurisdictions unless strict criteria are met. For the U.S., these are outlined in the Right to Financial Privacy Act.[1] The act prohibits financial institutions from disclosing financial information about individual customers to governmental agencies without the customer’s consent or a court order, subpoena, search warrant or other formal demand.[2] Although the statute applies only to demands by government agencies,[3] most banks and other financial institutions will not release such information to private parties without legal justification.

Despite this prohibition, even a cursory Google search will show that the Internet is replete with offers by private investigators and information brokers who say they can find bank accounts and similar information. Their main technique is “pretexting,” that is, impersonating someone else or making false or misleading statements to obtain information about a person or organization.

In this context pretexting is prohibited by the Gramm-Leach-Bliley Act.[4] This act makes it a violation to make false statements or use fraudulent documents to get customer information from a financial institution’s employees or its customers, or to ask another person to use a pretext to get a customer’s information.[5]

A Number of Legal Ways

There are a number of legal ways to learn about someone’s banking relationships or accounts, which include:

Litigation files – Records in bankruptcy filings, divorce cases and other disputes may often illuminate a party’s banking relationships. Checks written by a subject may be included with legal filings, potentially providing the identification of banking institutions and accounts and sufficient information for subpoenas.

Property records – If a mortgage is in the subject’s name, the lender could be a bank where he has other accounts. And if the borrower is a company, the subject may be listed as a principal, and that company may provide further leads to find hidden assets.

UCC filings – These Uniform Commercial Code financial statements document what were previously known as “chattel mortgages,” or loans provided with collateral other than real estate. Many companies file these and so do individuals. In the latter case, as with mortgages, the lender may be the bank where the subject has other accounts.

Interviews – People who know the subject may know where he or she banks. Good sources include former business partners, employees and ex-spouses. However, while there are no legal prohibitions to these interviews, there is nothing to stop a source from alerting the subject about the inquiry.

Conclusion
The legal restrictions on an asset search may make it seem on the surface like a project with questionable probability of succeeding. But when properly conducted, an asset evaluation can answer questions about whether it is worthwhile to bring a lawsuit to collect a debt, or whether a potential business partner is as affluent as he or she seems. And for judgment creditors with the ability to subpoena financial institutions, finding information about a subject’s banking history could make the difference between success and failure in recovery.

Author:
Edward Frost
Senior Director
+1 212 763 9798

For More Information:
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[1] Title 12 U.S. Code, Chapter 35 Right to Financial Privacy (1978), 12 U.S.C. §§ 3401–3422, accessed Sept. 12, 2014.

[2] Ibid.

[3] 12 U.S.C. §§ 3402–3403.

[4] Gramm-Leach-Bliley Act (1999) is also known as the Financial Services Moderation Act of 1999. Pretexting provision of the Gramm-Leach-Bliley Act (Subtitle B – Fraudulent Access to Financial Information): 15 U.S. Code § 6821(a)–(b) Privacy protection for customer information of financial institutions, accessed Sept. 12, 2014.

[5] Ibid. Federal regulations limiting disclosures are found at 17 C.F.R. Part 160, Subpart B – Limits on Disclosure, Sept. 12, 2014.