Case Study # 1: Fraud Investigation
The Client: A publicly traded U.S. corporation headquartered in Italy involved in the food processing industry. A recent sudden drop in the company’s share price had caused concerns to a private investment group that resulted in their halting further investment in the company.
The Task: Identify the cause of the share price drop, recommend a course of action, and implement the solution.
Issues: Inconsistent answers from the Corporate Secretary who oversaw the U.S. office of the company.
Coral Capital Partners was asked to investigate the circumstances surrounding an unexpected drop in a public company’s stock price and inconsistent reports from an individual who was serving as Corporate Secretary and a member of the Board of Directors. A private equity group that was a major shareholder suspected improper activities and requested an investigation. Coral Capital Partners was contacted and asked to lead the investigation.
The initial phase of the investigation uncovered that the individual serving as Corporate Secretary had issued himself, without Board of Directors approval and in violation of State and Federal regulations unrestricted, free trading shares of the company’s common stock. He had then deposited these shares into a brokerage account, and in further violation of various State and Federal Securities regulations, began selling these shares into the public market, depressing the price of the company’s stock in the process.
The Plan of Action:
The individual was removed from the company, and a representative from Coral Capital Partners was appointed as Corporate Secretary and a Member of the Board of Directors. Over the course of the next several months new policies and procedures were implemented that restructured corporate activities. Legal action was initiated was initiated in Federal Court against the former Corporate Secretary and member of the Board of Directors.
A successful judgment was obtained along with garnishment of the former Corporate Secretary’s assets resulting a 100% recover of the judgment amount. Approximately one (1) year later the former Corporate Secretary appealed the verdict in the court case; whereby the company successfully defended the results in the Ninth Circuit Court of Appeals.
Additionally, investor confidence was restored and the company successfully raised an additional $10 million in equity capital in the year following the successful court action. The additional funds allowed the company to expand its operations into South America establishing a large plantation and processing operation.
Additionally over this course of time there was a 700% increase in the price of the company’s common stock in the public market.