Cornerstone Research provides attorneys with practical, insightful solutions to accounting issues that arise in investigations, litigation, and regulatory matters.
Accounting Investigations, Forensic Accounting, and Ponzi Schemes
Cornerstone Research investigates complex fraud and concealment schemes on behalf of corporate clients and/or their counsel as well as provides consulting and expert testimony in resulting litigation.
Our consultants have experience with a range of auditor liability issues in the context of litigation and SEC and Public Company Accounting Oversight Board (PCAOB) matters. We have addressed auditor independence, the responsibilities of management and auditors, and the nature, scope, and purpose of an audit or quarterly review. We have determined whether audit and review procedures complied with Generally Accepted Auditing Standards and PCAOB standards and assessed the effectiveness of audits of internal controls over financial reporting.
In addition, we have addressed auditors’ responsibilities regarding fraud and required communications with management and the board. Our experience also includes audits of broker-dealers, now under the PCAOB’s authority for inspection as a result of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Breach of Contract and Post-Acquisition Disputes
Cornerstone Research has experience with litigation related to accounting allegations in breach of contract matters and disputes arising after a merger or acquisition. Cornerstone Research and our experts have provided consulting and expert witness testimony in matters involving post-closing working capital adjustments, material adverse change claims, accounting fraud-related claims, adequacy of due diligence claims, and earn-out disputes. In addition, Cornerstone Research and our experts have provided services related to valuation issues for public and private companies involved in merger-related disputes.
Causation and Damages
In cases with accounting allegations, we have evaluated class certification, market efficiency, loss causation, and damages issues. We also have used accounting data to estimate possible settlement outcomes.
We have addressed these issues in a wide range of securities cases, including those involving publicly traded equities, debt securities, derivatives, and other complex financial instruments. We have worked on breach of contract cases and cases arising from failures of privately held firms. In Rule 10b-5 and Section 11 and 12 cases, we have experience in analyzing restatements, developing “but-for” financial statements, analyzing the materiality of financial statement items, and evaluating information available to market participants to determine whether the accounting issues had a material effect on share prices.
Cost Accounting, Cost Estimation, and Profitability Analysis
Cornerstone Research has provided consulting and expert testimony in investigations, litigation, and regulatory matters involving complex cost estimation and profitability analyses. In connection with this work, we have addressed both liability and damages issues. We have determined appropriate measures of lost profits and disgorgement of unjust enrichment in intellectual property matters.
We have provided cost justifications in predatory pricing cases, contract disputes, cost-plus reimbursement matters, and litigation involving claims of excessive mutual fund fees. Our cost accounting skills are also used in non-litigation matters to assist clients in determining break-even prices as well as appropriate cost allocation methods in assessing fully allocated costs.
GAAP Compliance and Financial Reporting
Cornerstone Research has advised counsel and worked with testifying experts to address a wide variety of Generally Accepted Accounting Principles (GAAP) compliance and forensic accounting issues. In evaluating GAAP compliance, we have addressed a broad range of topics that include revenue recognition, fair value measurements, the timing and amount of asset write-offs, and contingent liabilities.
We have prepared “but-for” financial statements in the context of financial restatements and in light of accounting allegations, evaluated alleged weaknesses in internal controls, assessed materiality, and evaluated the adequacy of accounting disclosures contained in offering documents and other Securities and Exchange Commission (SEC) filings.
In evaluating allegedly fraudulent activity, we have reconciled payment and cash flow information, reconstructed client data, and determined liquidity positions. We have also addressed a range of issues in the context of Foreign Corrupt Practices Act allegations.
We have consulted with attorneys in disputes with the U.S. government and commercial litigation involving a variety of tax controversy issues. For example, we have evaluated the fundamental requirements for tax-advantaged transactions to be sustained if challenged by the IRS or by the courts. We have also analyzed complex company structures and derivative transactions to determine whether there was sufficient potential in these entities for economic benefit.
In addition, we have evaluated the responsibilities and duties of taxpayers and tax advisors, along with the importance of the representations and assumptions underlying tax-advantaged transactions. We have also calculated the expected value of tax-advantaged transactions given the contemplated tax benefits, up-front costs, risk of audit, chance of disallowance if audited, and potential penalties.
In commercial litigation, we have analyzed the tax accounting treatment of net operating loss carryforwards and other deferred-tax assets. In the precedent-setting Selectica case, we analyzed whether a shareholder rights agreement (poison pill) may have sustained the value of the net operating loss carryforwards. In mergers and acquisitions, Cornerstone Research has provided analysis and valuation of the tax implications for both buyers and sellers. We have analyzed corporate and individual tax treatments of employee stock options related to accounting allegations. In estate tax disputes, we have valued privately held companies and analyzed the appropriate tax treatment of partnerships.
Merger Litigation and Failing Firm Defenses
Regulators routinely challenge proposed mergers on grounds that they will reduce competition and risk harm to consumers. In a failing firm defense, merging parties claim that a transaction would not be anticompetitive, as the assets of the acquired firm would exit the market absent the merger, thereby harming consumers. Experts with financial statement analysis or accounting experience are uniquely qualified to analyze the financial position of the firm and assess the merits of failing firm defenses. Cornerstone Research has advised counsel and supported testifying experts in matters involving failing firm defenses, both on behalf of regulatory agencies and the merging parties.