Marschdorf Forensics


The Quick Confession

A Private Equity Investment Fund had acquired a seemingly successful Marketing Agency from its sole proprietor. Successful they were, but how did they reach this success? One of the Big 4 accounting firms had conducted a due diligence review prior to the acquisition and noticed a € 850,000 receivable from shareholder. This receivable had been subject of the purchase negotiations and it had been agreed that the receivable was supposed to be forgiven as part of the purchase price equation. The Big 4 accounting firm duly noted that such write-down would trigger tax consequences as deemed dividends.

Two and a half years later, a whistleblower called the private equity fund alleging corrupt practices in relation to the Marketing Agency’s by far biggest customer, a retail chain.

The investigation started right where the due diligence had left off, analyzing what the receivable from shareholder, which was forgiven in the course of the acquisition, had been all about. It turned out that it had resulted from cash withdrawals of fairly large amounts per transaction, which coincided with travel patterns of the former proprietor as documented in credit card documents. Bank documentation showed that not the proprietor himself, but his accountant had withdrawn the cash from the company’s account. As it turned out, there was a new build-up of “Miscellaneous Receivables” subsequent to the acquisition by the Private Equity Investor from a creditor account in a debit position. That creditor account was in the name of a female individual, who, as a few investigative steps revealed, lived at the same address as the senior purchasing manager for the retail chain, which was the Marketing agency’s biggest customer and the accounting entries showed that they, too had resulted from cash withdrawals by the accountant. Was the accountant stealing from the company? Research also revealed that this female individual was sole proprietor of a consulting company, which incidentally had billed three-quarter million Euros to the Marketing agency and the agency was unable to show work products received for this.

The time had come for interviews. The accountant stated that he had indeed withdrawn the cash based on requests by the former proprietor, by then Managing Director of the marketing agency, had handed the cash to him and had “parked” the withdrawals as debit entries in the creditor account. When asked, why he chose this particular credit account, he hinted that this female individual, to his knowledge, was the recipient of the cash. Did the Managing Director have an affair? Was he blackmailed? The answer was much simpler.

When interviewed and confronted with the evidence, the Managing Director confessed unusually quick that the funds were used for bribing the senior purchasing manager at the retail chain and that there even was a calculation formula for the determination of the extent of payments. The consulting invoices, too, were part of the bribe scheme and he revealed even more payments for forged software purchases and other consulting agreements. All payments considered, close to € 3,5 million had been paid to the purchasing manager of the retail chain and third party recipients, who had forwarded the funds to him.

Investigators are always proud, when they can obtain a confession, but his one had been too easy. Invoices and bank statements corroborated the information provided by the managing director. The confession was true. It turned out that what drove him was the desire to buy back his old company by scaring the Private Equity Investor with the risk of reputational damage.

He is currently serving a 4 year jail term.