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A former producer for 60 Minutes. Two long-time Certified Public Accountants who worked for Big Four firms. An ex-FBI special agent. A nationwide network of licensed private investigators and former journalists.
As individuals, they are skilled interviewers, sleuths, analysts and numbers-crunchers. Pool them together and you have a powerful team that helps Berman DeValerio's attorneys successfully prosecute securities fraud cases.
The firm's attorneys turn to the Investigative and Forensic Accounting Team in all phases of a case – from the first whiff of a Wall Street earnings restatement right through trial. Although the investigators and CPAs approach investigative puzzles from different professional perspectives, team members frequently collaborate to uncover the truth behind a securities fraud.
In 2001, the firm hired its first in-house forensic accountant. Two years later, it brought on its first full-time investigator: Chris Szechenyi, an award-winning investigative journalist who had worked with Mike Wallace on 60 Minutes. In the years since, the department has amassed a unique combination of team members with complementary talents for shedding light on a suspected corporate crime.
"We build our teams according to the demands of the particular case," Szechenyi said. "I view our model as an accordion: we expand and contract as needed."
Szechenyi and his investigators can be pivotal when deciding whether to file a case, said Leslie Stern, the Berman DeValerio partner who heads the firm's case evaluation and monitoring team.
When news reports surface of a possible accounting fraud, the attorneys ask Szechenyi to probe for details. The best sources are often former company employees. (Interviewing a defendant corporation’s current employees is often prohibited by ethical rules.) Aided by proprietary databases and the Internet, Szechenyi seeks out individuals who were in positions of knowledge. The specifics of each case may be different. But over the last five years, the in-house team has developed and refined its investigative techniques, finding ways to build upon its members' individual strengths.
In the majority of securities fraud cases, the alleged fraud involves an accounting irregularity. Enter Van Khang and Bob Francis, the firm's forensic specialists who boast an encyclopedic knowledge of accounting-related rules and regulations.
"My expertise is in interviewing people, but certainly not in the accounting area," said Szechenyi, who quickly learned after joining the firm that GAAP stood for Generally Accepted Accounting Principles, not a popular clothing store. "So when I encounter a case that has accounting complexities, I run down the hall to see Bob and Van. They are my interpreters."
Khang, who spent a number of years at Ernst & Young before joining Berman DeValerio, will jump to her whiteboard, mapping out the accounting concern and translating it into layman’s terms. If Szechenyi needs to interview a former Certified Public Accountant or a high-level finance officer, Khang or Francis might sit in on the telephone call to lend their expertise and add a degree of sophistication important to the person on the other end of the line.
While Szechenyi leads most of the interviews, Khang and Francis occasionally interject with questions of their own. Sometimes, they'll pass notes to Szechenyi to ask him to focus the interview in a particular direction.
"Having Van or Bob on a call gives me an extra measure of comfort that I’m on the right track,” said Szechenyi. “And having a CPA in the room can open up doors for a former corporate accountant to talk – and talk and talk and talk. We’ve had accountants detail shenanigans of all types, like siphoning off corporate funds to pay for strip shows and European villas."
In one successful investigation, Szechenyi and Francis together interviewed a reticent former finance officer who clearly knew about the fraud at the company. After sufficient coaxing, that witness single-handedly made the case against the computer networking firm, which ultimately settled investors' claims.
"Bob's presence helped me guide the witness through the illegal activities and create a comfortable environment," Szechenyi said. "This was probably the best witness we had on any case in the last five years. Most witnesses just give you a piece of the puzzle. This one told us exactly how the fraud occurred."
Stern, the Boston partner who helped oversee the case, added: "The interview with that particular witness turned out to be the smoking gun. If the team had not found that individual, who described the earnings manipulations down to precise dollar amounts, the case might have been dismissed."
When the options backdating scandal surfaced two years ago, the investigative team sat down to analyze the accounting issues and pinpoint which corporate roles might have been involved. In many of these cases, it turned out the people with knowledge were often those in human resources or the executive suite – not those in accounting.
Several interviews with former HR employees helped the firm in its path toward a settlement in the options backdating case against KLA-Tencor. (See article on page 2.)
Szechenyi's witness investigations can also fill in the gaps for the forensic accountants, whose research and analysis would otherwise be limited to SEC filings and other public documents.
"An interview with a former accounting executive can really help me understand the day-to-day operations at the company – beyond what the quarterly and annual reports can offer," Khang said. "I remember one case where I was looking at the public disclosures and making as many deductions as I could. But I couldn't draw specific conclusions until we got someone on the phone to answer our specific questions."
Armed with the answers, Khang was able to provide a much stronger case analysis for Berman DeValerio.
Ronald Keating brings yet another dimension to the Berman DeValerio team. Keating spent nearly three decades investigating white-collar crime cases for the FBI and the Board of Governors of the Federal Reserve System. A licensed CPA, he examined all types of complex financial fraud, working at various points with the Securities and Exchange Commission, the National Association of Securities Dealers, the U.S. Attorney's Office and the Department of Justice.
The FBI, Keating said, was an ideal training ground for his investigative work at Berman DeValerio. "I learned how to assess an interview subject's credibility and truthfulness. I developed instincts to know if someone was lying to me or avoiding me or just putting me off."
Recently, Keating went to New York to meet with a witness in a case tied to the subprime mortgage meltdown. In an earlier phone call, the witness clearly had information to share, but Keating sensed a degree of reluctance. A face-to-face interview seemed like the only way to win the individual's trust.
When Keating met him in New York, the man told him he only had 10 minutes to talk, so they found a park bench outside the individual's office building. Keating managed to keep the man talking for three hours on that bench – in 40 degree weather – obtaining enough information to help move the case forward.
"I could barely feel my hands after that interview in the freezing cold. But you recognize in this work that you might not get a second chance," he said.
Keating said the job at Berman DeValerio is harder than at the FBI, where witnesses had to speak with him or face a subpoena. "Here, you can't force anybody to speak. My hands are tied behind my back."
Szechenyi and Khang, for example, drove to the Massachusetts countryside to interview a former corporate controller, only to have the door slammed in their faces. Szechenyi had much better luck in Canada, where he interviewed a former employee who found he couldn't shut the door on the investigator.
"His pet poodle kept running in and out, so he couldn't slam the door on me," Szechenyi said.
Most Berman DeValerio investigations, however, are worked by phone.
Szechenyi recently teamed up with an independent group of investigators to assist the attorneys in their lead plaintiff submission in the case against semiconductor company International Rectifier, Inc. The team called dozens and dozens of potential witnesses, looking for examples of "scienter" – a legal demonstration that the defendants knowingly committed fraud.
As the deadline loomed for filing a complaint, the investigators located a witness who could tie an accounting scandal up to the highest levels of the company.
"Our investigative team is critical at the outset when we are deciding whether to recommend a case to our clients," Stern said. "And they're critical as the case progresses, since we have no subpoena powers. They help us maintain our reputation for case selectivity by finding non-public information that either strengthens the case or hints it may not be worth pursuing."
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