CORPORATE FRAUD INVESTIGATIONS AND LITIGATION
CD: To what extent have you seen an increase in litigation arising from corporate fraud in recent years? What are some of the common causes of disputes in this area?
Milner-Moore: There seem to have been more fraud cases in recent years, both conventional litigation arising out fraud and investigations prompted by regulators and others. The increase is probably a product of both a tightening regulatory environment and the pressures brought about by tougher economic conditions. This probably does not mean that there are more frauds, but this combination of circumstances tends to mean that there is a greater chance of exposure. Fraud claims typically involve attempts to trace and recover assets or to claim compensation from those who might be implicated in some way. Unlike contractual disputes, there is rarely any ongoing relationship between the parties. By definition, these cases are usually all about dishonesty. There is often a race to freeze or otherwise secure assets so that there is something worth fighting about. The underlying fraud can take many forms. One of the most common arises where an employee or agent conspires with a provider of goods or services such that the employee obtains a benefit in return for steering business to the particular provider or, perhaps, failing to negotiate as effectively as they might have done. It goes without saying that those bribes or benefits will be heavily concealed and a key challenge will be trying to build up sufficient information to prove what was happening. There are other types of fraud, such as the manipulation of financial information to present positive financial results to shareholders, lenders and other creditors.
Stott: The term ‘corporate fraud’ describes a multitude of different situations. It can describe the conduct of individuals or, in some circumstances, that of an organisation more generally. Generally it is not possible to necessarily discern an increase in levels of litigation linked specifically to corporate fraud. What is apparent from recent widely reported cases though is that litigants are becoming increasingly alive to, and creative in their use of, findings made against individuals and organisations in parallel or previous proceedings. To date, ancillary litigation of this type has largely arisen in cases involving regulatory infringements rather than corporate fraud. However, there are a number of substantial investigations involving allegations of corporate fraud currently in progress. These investigations are at an early stage, and no prosecutions have yet been commenced but they do have the potential to yield significant follow on litigations from aggrieved third parties in due course.
Jan-Mar 2015 issue
Clifford Chance LLP
Herbert Smith Freehills LLP
Gibson, Dunn & Crutcher LLP