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Thread: Fraud

  1. #1
    tehipite54 is offline Junior Member
    Join Date
    Nov 2011


    What is the name of your state (only U.S. law)? California

    I'll try to make this short but there are some details that may be relevant. A company i worked for two years ago suddenly they decided they didn't want to pay the $8 Million in debt to our vendors. Let's call it Company S. The company had been in existence for about 7 years and $80 Million had been invested in developing the technology. The technology was about 95% developed. Good enough to supply the final product to customers but not perfected yet as far as the efficiency of the process. So Company S did not have any long term contracts yet. So it was difficult to get the existing investors to keep putting more money in
    The Board brought in a new CEO and new CFO. Company S signed an investment deal for $12 Million to keep the company going while we concentrated our efforts to focus on a particular customers specs to secure a contract.
    The new CEO and CFO , with the Board's approval, then hired a third party negotiating firm to call vendors and tell them Company S is out of money and need to lower their payables by more than half or they could go into bankruptcy. Thus the vendors would get very little of what we owe them if anything at all. They negotiationg firm would offer vendors 18% of what we owe them. Trouble is we had the $12 Million at the time. This money was 'hidden' at the law firm we use(That is what my boss told me when I asked). They would transfer some money every week into Company S bank account to make payroll and order new parts for the technology. This way they said it would never appear we had a lot of money in the bank in case anyone brought us to court.
    Many vendors particularly small machine shops panicked and settled for 18-30% thinking if they don't they risk not getting anything.
    There never was a threat that we would go into bankruptcy . The CEO told us that they wouldn't do that as they technology was too valuable and we were close to really nailing it.
    So I think the whole thing about asking the vendors to settle for 18% because we had no money was Fraud. What does anyone thinkl?
    And if it is Fraud who do i report this to? The DA of the county we are in? The State Attorney General? My major concern is that all these vendors took a serious financial hit.

  2. #2
    Hot Topic is offline Senior Member
    Join Date
    Jun 2006
    Why has it taken you two years to seek justice for the vendors?

    I would assume that you have plenty of proof to back up your charges.

    Last edited by Hot Topic; 11-09-2011 at 11:15 PM.
  3. #3
    tehipite54 is offline Junior Member
    Join Date
    Nov 2011
    Because I didn't find out they actually had the money and hid it until recently. But even then I was only told that. I don't have a paper trail of the money or anything. I was in purchasing.
    While all this was going on we were told what was going on was perfectly legal. I had my doubts. I asked people . No one seemed to know if it was legal or not.
    I have e-mails that show the 'negotiations' by the third party firm. That i was copied on. In fact i was quite often asked to talk to vendors that wouldn't take the 18% because i worked closely with them by being in Purchasing. I talked to them all right. I told them all it was likely we had the money and they would get at least 80% if not more if they held out long enough.
    Another reason I never reported anything is I really don't know where to go to do that which is why i asked on this forum. Would i go to the District Attorney's office?

  4. #4
    latigo is offline Senior Member
    Join Date
    Apr 2009
    I think it is a close call as to whether it amounts to actionable fraud. Civil only that is, because no way would a prosecutor, unless he relished the indignity of egg on his face, press criminal fraud charges.

    But as to a civil case, if one of the vendors came to me I certainly would not discourage the filing of a civil lawsuit.

    Briefly, in order sustain a civil cause of action for fraud the plaintiff must establish, (1) that the defendant represented to the plaintiff a material condition of a given state of affairs knowing that the representation was false - OR intentionally withheld from the plaintiff material information concerning a given state of affairs; (2) that it was done for the purpose of inducing the plaintiff to assume as true the status of a given state of affairs as represented by the defendant and to act thereon; (3) that the plaintiff had the right to rely on the representation, (4) did rely on it; (5) that it was false; and (6) the plaintiff suffered damages as a direct result.

    We don’t have enough detail here to conjecture precisely on what representations the Company made as to its financial condition. But it is certainly reasonable to assume that it did not reveal the $12M cash reserve. And it is reasonable to assume that the creditors would have made some inquiry as to the availability of cash to pay their outstanding accounts receivable. They didn’t take 18 cents on the dollar just to maintain good relations with the debtor.

    On top of it such a lawsuit would have good jury appeal. It would be up to the jury to decide whether or not the failure to disclose the cash reserve constituted actionable fraud. Secreting the cash in a lawyer's office account in order to avoid one's legitimate creditors would not appeal to most folks as playing above the board.

    Then of course, the vendors may never learn about that hoard of money unless some insider blows a whistle……. Are you going to pucker?

  5. #5
    joythomas is offline Junior Member
    Join Date
    Jun 2012

    property settlement

    You have to must be some evidence or proof either some agreement. then you can be successful.

  6. #6
    Proserpina is offline Senior Member
    Join Date
    Mar 2009
    Shady Oak
    And the reason you're all responding to a dead thread is...?

  7. #7
    eerelations is online now Senior Member
    Join Date
    Mar 2005
    Merida, Mexico
    A triple-header of necroposters! This must be some kind of record! Woo-hoo! Does Proserpina get a prize for being number three and the first one to mention the necroposting? (Would that be some kind of double-header on the tripleheader? Gotta be worth something...)

    Last edited by eerelations; 06-11-2012 at 02:40 PM.
  8. #8
    Adam G is offline Member
    Join Date
    Mar 2012
    Companies in litigation or facing stiff collection efforts always cry poor and threaten to file bankruptcy. They were hiding money? So what, the creditors should have asked for bank statements. It wouldn't have taken much work to figure out where the money they were using for payroll was coming from. It's the creditors' fault for not doing their homework.

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