Legal malpractice lawsuits may include allegations of fraudulent activity while representing a business in a merger transaction. In one such case, a multi-billion dollar conglomerate acquired a target company and then sued the law firm that represented it.
As reported by Insurance Journal magazine, the law firm allegedly aided the target company by fraudulently concealing its financial problems. To make the target company appear as a favorable acquisition, lawyers allegedly created falsified documents that valued it at nearly one-billion dollars. The valuation misled investors into purchasing the company even though it was in “dire financial straits” and sought insolvency advice.
Compiling evidence of fraud that may prove a claim
Several factors may require analysis if a company finds that an acquisition did not turn out as lucrative as represented. The legal discovery process may allow a plaintiff to obtain a company’s prior audited accounting statements and tax returns.
Due diligence records provided to an acquirer that differ from documents submitted to taxation authorities may raise a red flag for misrepresentation. Financial statements intentionally modified to misrepresent a material fact may serve as evidence of fraud.
Seeking damages through a legal malpractice action
An external party may engage in financial statement fraud instead of a company’s employees or management, as noted by The CPA Journal. When an accountant or an attorney knowingly creates documents on behalf of a company with falsified financial information, legal action may hold the individual liable for damages.
During the course of seeking damages, an investigation may uncover possible collusion between a company’s insiders and the legal team hired to facilitate a transaction. In certain cases, both parties may incur liability for the harm caused.