Surviving a Bankrupt Contractor

Petrobras, the national oil company of Brazil, filed a claim under its surety bond with two U.S. insurance carriers, US Fidelity and Guaranty Company and American Home Assurance Company who had provided coverage to Brazilian contractors for the construction of two naval oil rigs known as P-19 and P-31 at a coverage amount of $110 million and $168 million respectively. P-19 was the conversion of a platform formerly used for oil and gas exploration into a semisubmersible oil and gas production platform. P-31 was the conversion of an oil tanker into a floating production, storage and offloading vessel.

Counsel required assistance from a forensic accountant to assess the financial condition of the contractors at the time of the underwriting; the credit evaluation process undertaken by the sureties of the contractors; the bid process; the system’s process for the purchase and payment of goods for the projects; the costing of the projects by Petrobras and a delay claim schedule of all construction activity.

Ultimately, the Court awarded Petrobras $245 million in damages, about $108 million in pre-judgment interest and attorney fees. Counsel kindly described Lindquist as the “secret weapon”.

Read “U.S. Fidelity and GUAR. V. Braspetro Oil Services” dated July 25, 2002

Read Petrobras May 24, 2004 Press Release.

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Stop it while you can

This case involved a privately held company owned by a family who had been part of the country’s political history. The police had started an investigation aided by an outside accounting firm. Initially, the subjects believed that the matter would resolve itself. However, it continued with the prospect of becoming very serious.

Some people believe that the more time an investigative body invests in a case, the more difficult it is for them to withdraw without making a criminal charge. The case was proceeding down this road.

Retained by counsel Michael Penman, we determined in the end that the problem was identified with an accountant retained by the police for the case who was giving biased interpretations to the questionable transactions, without consideration of other possible explanations.

Maybe, it was just inexperience, but the concepts of the ‘benefit of doubt’ and ‘mens rea’ are issues the forensic accountant must understand, and specifically, must know the standards for measurement. The quality of professional care is of utmost importance, especially when it involves respected public officials. A forensic accountant’s work is alive and for today, with the potential of significantly affecting a person’s life and place in history, if done in error.

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Oil Producing Bribes

When a company’s management retains a forensic accountant to meet vendors regarding rumors of kickbacks, it obviously starts a lot of behind the scene movement between the payor and the payee when there is substance to the allegation. The phrase that describes such activity is simply actions not in the normal course of business, which can be reflected in both the personal and business relationships. For the forensic accountant, the question is whether or not a bad apple exists and the first challenge is to maintain the purity of both organizations.

I consider this challenge to be an ultimate test of professionalism because in the end there may not be a bad apple and everyone you touch during the investigation will work together after you depart. Ideally you could be Jasper the ghost, but then that might be too scary, so play the role of accountant, very conservative and most non-offensive. In fact, being a ‘green-eye shade’ accountant is a distinct advantage in the investigative role. Now, it is time to meet the vendor and request access to his books and records, a true test of the right to audit access clause. I am neutral, if he says no he could loose his client’s business and if he says yes he could loose his client’s business. He provides the records and I find the payments. Now, he alleges extortion. Point is the process is not unique; it is part of the knowledge of fraud, with each case different yet, in many ways, the same. It is human nature at its worst.

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