As reported in the WSJ article Four Executives Arrested in Bank Fraud Scheme on July 23, 2010, lenders can be duped by business fraudsters to the tune of millions of dollars; in this case, $21 million. Mergers & Acquisitions also reported on this fraud, "One company apparently found a solution to the credit crisis and its impact on M&A. A criminal complaint from the United States Attorney's Office charged the executives of GDC Acquisitions, LLC with bank fraud, claiming the defendants issued false financial statements to obtain $21 million in loans from Amalgamated Bank." |
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The Sniff Test
 We actually conducted financial due diligence on GDC Acquisitions for a lender who declined the "opportunity" to finance the company. While there was not a single issue that raised the red flag to deem GDC a bad deal, management's failure to provide reasonable answers to reasonable questions and their overall evasiveness caused concern. The GDC fraud exemplifies why a perfunctory financial analysis conducted by professionals lacking the experience to read beyond the numbers is insufficient to determine whether a company is worthy of investment. Due diligence must be conducted by professionals with sufficient maturity and experience to discern whether management is comprised of smooth talkers covering their tracks -- or honest operators.
Whether in advance of an investment, or when a portfolio company's performance becomes strained, you will be well-served to spend time with management to see if they pass the sniff test. If the smell is bad, it's time to pull together the right team to evaluate alternatives. |
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Recent Engagements
- Money center bank suspicious of fraud at a portfolio company retained us to investigate company's activities. We uncovered borrowing base fraud whereby the company was borrowing against ineligible receivables and inventory.
- Plaintiff's counsel retained us as their expert witness in accounting malpractice case resulting from $600,000 employee embezzlement. Employee was convicted and is in prison; case of accountant gross negligence settled in favor of plaintiff.
- Private equity firm retained us to conduct pre-investment financial due diligence on a multi-channel retailer of furniture products and accessories. Evaluated internal controls, management, accounting policies and procedures and created a financial forecast.
- Creditors' committee retained us for forensic investigation of a debtor company. Assisted creditors committee and its counsel with modifications to the proposed plan, resulting in higher distributions to creditors.
- Private equity firm retained us to evaluate their internal controls.
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About Brandlin & Associates 
Brandlin & Associates is an exclusive provider of accounting due diligence, financial consulting and strategic consulting services. We pride ourselves on offering superior technical expertise, years of practical experience and unparalleled service to decipher financial and operational performance metrics. As a result, our clients are able to make informed decisions in a timely manner.
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Despite economists' reports that the recession ended in June 2009, we continue to see weakness in many sectors. As confirmed at last week's ACG Los Angeles conference, M&A in the middle market has yet to recover.
Meanwhile, demand for our fraud investigation and workout services continues to be strong, as exemplified by the recent engagements summarized below.
As always, it would be my pleasure to be your sounding board, or to make introductions on your behalf.
Best regards,
Jeff Brandlin
310.789.1777
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