Where did all the Money go?

Finding assets postmortem

By By James I. Marasco, CFE, CPA, CIA, and Paul R. Warren, Esq.

The Securities and Exchange Commission (SEC) was closing in on Sam fast. Two weeks prior to his required appearance to answer an SEC subpoena, the girlfriend he lived with discovered the suicide note in their house when she went home on her lunch break. She directed the police to his lake house where she guessed he would be. The police discovered a black Chevy Tahoe that was parked in his garage with the engine running. As the police attempted to break down the garage door, Sam calmly walked out of the Tahoe in which he had been reclining and waved to them through the garage window. He signaled for them to go around to the front of the house as he walked into the house through the garage. Seconds later, he ended his life with a 40 caliber handgun. As the authorities secured the scene, the SEC was already calling the lake house, trying to confirm the rumor they had just heard 500 miles away.

At the request of the SEC, The U.S. District Court placed Sam's nine closely held companies under receivership. The receiver, Paul Warren (co-author of this article and clerk of the court for a U.S. bankruptcy court), promptly filed a Chapter 7 bankruptcy case for each of the companies. Most of the entities operated in the financial services industry, solicited investor funds for subsequent reinvestment, and offered guaranteed returns. The lone manufacturing operation was placed as an operating Chapter 7 entity and remained fully operational until the trustee found a suitable purchaser.

Warren immediately retained the services of a forensic accountant and fraud examiner, James Marasco (also co-author of this article). Together, we spent the next four months following the trail of money and tracking down the assets of these entities. What the SEC initially believed to be a $3 million to $4 million investor fraud scheme quickly mushroomed to a $15 million Ponzi scheme with more than 400 investors looking for return of their money. Here we describe the approaches and techniques we used to recover potential assets plus the lessons we learned.

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