Post by Kenney on Jun 12, 2009 11:07:59 GMT 4
‘Investigations’
Presented To:
2nd Meeting of Fraudnet, Hammonds, Madrid, 25 February, 2005.
Materials By: Martin S. Kenney and
Elizabeth O’Brien, B.L., Dublin, Ireland. 1
1
Martin S. Kenney, B.A., LL.B., LL.M. (International Business Law) is the Managing partner of Martin
Kenney & Co. Ltd., Solicitors, Preferred Area of Practice: International Fraud. Mr. Kenney is a Practising
Solicitor of the Supreme Court of England & Wales, a Barrister & Solicitor of the Supreme Court of British
Columbia, a Licensed New York Foreign Legal Consultant, and a Registered Lawyer in Ireland. His email
address is <mkenney@mksolicitors.com>. Elizabeth O’Brien, B.L., is an Irish and English Barrister-at-
Law and a New York Attorney at Law. Her email address is <eob@elizabethobrien.com>.
ALL RIGHTS ARE RESERVED IN THE COPYRIGHT IN THESE MATERIALS. ©
Table of Contents
Page No.
1.0 Investigative Methods – Extra-Judicial. 2-35
1.1 The Need for Utmost Secrecy. 2
1.2 Organization of Team. 2
1.3 Former Law Enforcement and Intelligence Officers. 7
1.4 Professional Care in the Conduct of a Major Investigation. 9
1.5 Execution. 11
1.6 The Right to Privacy. 12
1.7 Payment for Testimony. 14
1.8 Personal Knowledge – A Fraud Investigator’s Quandary. 15
1.9 Forensic Document Examiners and Forensic Accountants. 19
1.10 Electronic Database Searches. 20
1.11 Consumer Credit Histories. 20
1.12 Interviewing of Witnesses. 21
1.13 Recording of Conversations. 23
1.14 Trash Collection. 26
1.15 Surveillance of Primary Subjects. 30
1.16 Pretext Approaches. 30
1.17 Sting Operations. 31
1.18 Offshore Immigration and Hotel Record Searches. 31
1.19 Identification of Communication or Travel Patterns to 32
Asset Protection Havens.
Judicial Discretion to Exclude Certain Evidence. 33
1.20
2.0 Investigation – Judicial Process. 36-74
2.1 The Need for Utmost Secrecy. 36
2.2 Availability of Pre-emptive Relief. 36
2.3 Inter Partes and Ex-parte Discovery. 38
2.4 The Anton Piller Order. 46
2.5 The Mini-Anton [or Stand and Deliver] Order. 47
2.6 Requests for Judicial Assistance/Letters Rogatory. 48
2.7 28 U.S.C. § 1782 [Discovery in Aid of Foreign Litigation]. 58
2.8 Use of Evidence Obtained Pursuant to MLAT and Other 61
Letters of Request in Civil Proceedings.
2.9 Conclusion. 65
3.0 Link Analysis. 75-77
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1.0 INVESTIGATIVE METHODS – EXTRA-JUDICIAL.
1.1 The Need for Utmost Secrecy.
1.1.1 Investigations to discover the whereabouts and manner of holding of concealed
assets must be conducted under the protection of utmost secrecy. If a dishonest obligor
learns of such an inquiry before his assets have been preserved by judicial decree, the
assets that are sought may be further fragmented and blown all over the world.
1.2 Organization of Team.
1.2.1 The use of private investigators has increased dramatically in recent years, partly
due to the increased publicity afforded corporate fraud, and partly due to the recognition
that in many cases, the use of a private investigator is the most efficient method of
gathering necessary evidence in a time-sensitive fashion. Lawyers in many different
areas of practice, particularly in the United States, are relying on private investigators
with increased frequency. The effective use of investigators raises complex issues. A
dynamic tension lies between the need to investigate fraud aggressively and energetically
– and the law of privacy, trespass, bank secrecy and civil rights. This paper aims to
address a number of issues in the context of extra-judicial investigative methods.
1.2.2 Parties to a federal suit may have limited time and opportunity to conduct formal
discovery for two essential reasons. The scope of discovery is limited to information
relevant to the claim or defense of any party [under Fed R Civ Pro 26(b)(1)], and the
courts are empowered to condense the time frame allowed for discovery [under Fed R
Civ Pro 26(f)]. Under these circumstances, private investigators can be used, initially, to
develop information upon which decisions can be based concerning the plaintiff’s
formation of a sound and cost effective litigation strategy. The services of a private
investigator may be employed to examine commercial databases, public records and
media sources to form a preliminary view as to whether a putative defendant has
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sufficient assets to justify commencement of an action. Private investigators can be used
to assist counsel in finding potential witnesses who may be aligned with an adverse party,
and who may have information regarding the matters in dispute. By having investigators
interview such parties before commencement of suit, counsel may possibly obtain
statements from potential witnesses who would not otherwise divulge the same or any
information after the commencement of litigation. More importantly, these statements
can be used to impeach witnesses should their testimony at trial change course.
1.2.3 In the face of serious fraud, it is imperative that an investigative team be
assembled as soon as practically possible. The establishment of a team approach to the
investigation is of equal importance. When lawyers and their investigators work together
from the beginning of a matter, the case progressed more smoothly.
1.2.4 It is important to remember that the selection of investigators should be done in
the same manner that counsel would hire any other professional to assist them in their
duties. Investigators should be carefully scrutinized, with counsel paying close attention
to an investigative firm’s ethics, background, experience, fee structures and, perhaps most
importantly, prior relationships and obligations. Any potential conflict of interests should
be checked before the firm is even considered for employment.
1.2.5 It is the lawyer’s responsibility to coordinate with the investigative firm and (a)
ascertain the names of the persons responsible for the performance or supervision of the
anticipated tasks, and (b) the identity of the person(s) with whom the lawyer is to conduct
liaison throughout the course of the investigations. A good way to determine this is to
request a written proposal from the firm and examine the skills, duties and references of
the parties who will participate in the investigation. This is important because there must
be a mutual understanding between counsel and the investigative firm concerning the
lead investigator’s capability and expressed intention to coordinate all investigative
activities, whether performed locally or on an international scale.
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1.2.6 It is essential that a written retainer agreement be executed between counsel and
the investigative firm. This agreement should contain the scope of services to be provided
and a description of the methodology that the investigators anticipate using throughout
the case. Most states in America require that investigators maintain a license. 2 However,
requirements for obtaining and maintaining these licenses vary by state. Regardless,
counsel should not retain an investigator unless it has been confirmed that he is both
properly qualified and licensed, to the extent mandated by law. Otherwise, in those
jurisdictions that impose a licensing regime, the performance of any investigative
activities by an unlicensed person in exchange for a fee may constitute a crime, and will
damage the credibility of the investigation.
1.2.7 Another important area that counsel needs to address are the ethical obligations
of both firms. Counsel must remember that the investigator is most probably acting as
their agent, and should therefore carefully check references as well as ‘test’ investigators
on their comprehension of legal and ethical obligations. This will provide the plaintiff’s
team with a high degree of confidence that the investigative firm retained will conduct
itself in a lawful manner throughout the duration of the professional relationship.
1.2.8 To assist in determining whether an investigator is ethical, counsel should
consider conducting an employment background check to the extent that the information
is legally available. In many states, private investigators’ licensing bureaus maintain
comprehensive disciplinary records of investigators, which should also be checked.
1.2.9 In the United States, there is no single governing body that assumes control over
private investigator ethics. In the investigation profession, there is no leading equivalent
to, for example, the American Bar Association’s Canon of Ethics or a strong State Bar
Association disciplinary system, to regulate its profession’s members. In some states,
such as California, legislation exists that describes, at least in general terms, what is
appropriate conduct for investigators, and sets down, by negative prescription, what is
2
Many countries have no licensing or regulatory system governing the conduct of private investigators –
such as Ireland.
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not. Yet, many states have no licensing requirements at all.
1.2.10 There are a number of ad hoc organisations for investigators. These include
CALI (California Association of Licensed Investigators), NALI (National Association of
Legal Investigators), the National Council of Investigation and Security Services
(NCISS), World Association of Detectives (WAD), and World Investigators’ Network
(WIN). Membership in these associations, however, is not mandatory.
1.2.11 Owing to the lack of a meaningful and comprehensive regulatory system
governing the conduct of private investigators, it is paramount that counsel takes the steps
necessary to ensure confidence that the investigative firm retained is cognitive of, and
operates in compliance with, all legal and ethical restraints imposed by law. While the
implications may not appear serious at first glance, latent difficulties have the troubling
potential of developing into serious, and sometimes irreparable, problems. Given the
mutability of circumstances surrounding all investigations, it is essential that issues
involving the legality of anticipated investigative methods be examined at the outset,
rather that faced later when, for example, the admissibility of certain evidence is
challenged.3 The risks inherent in any particular investigative method can be identified
and managed by posing three signal questions before each proposed investigative
measure is employed:
(a) Is the proposed investigative measure lawful in the place where it is to be
conducted?
3
Most asset freeze orders in the English-speaking world are equitable injunctions. If a creditor or victim
comes to equity with unclean hands – in respect of the methods used to procure evidence – equity will say
that it cannot grant such a person the relief sought. Also, counsel may be made the subject of a
disqualification motion as in the case of GFL Advantage Fund, Ltd. v. Douglas R. Colkitt in State Court in
the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County, Florida, civil action case No.
2001 CA 4668 NC, consolidated with Case No. 2001-7302-CA. In this case, the Court at first instance
rejected the judgment debtor’s motion to disqualify the judgment creditor’s counsel on the ground that
counsel had examined or made use of certain documents that had been tossed away in the debtor’s trash,
and collected by a private investigator acting for the creditor. The documents that the debtor pointed to in
support of his disqualification motion consisted of formerly confidential and ostensibly attorney/client
privileged communications from, in part, his asset protection lawyer. The creditor successfully argued that
the privilege was waived by the debtor through his abandonment occasioned by his tossing his documents
in the trash, and in setting such trash out for collection by the local refuse company. However, the debtor
has appealed the order of the Court of first impression.
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(b) Will the evidence obtained through the use of the investigative measure
under consideration be admissible in the Court where it is to be adduced?
(c) Is the suggested investigative measure legal and professionally ethical?
Restated, would it be professionally ethical for a lawyer to instruct or
permit an investigator who he has retained to use such a measure?
1.2.12 An investigative method may involve consensual, electronic monitoring. That
is, the taping of a conversation between one or more unsuspecting parties, and a party
aware of the fact that their conversation is being taped. Another method may involve the
use of an agent provocateur, or a pretext operator, to collect information about the
target’s modus operandi, business, and lifestyle by infiltrating the target’s environment.
Another method may involve the inducement of witnesses to speak by the payment of
money. Some of the risks involved in the use of these measures are set out separately
below and discussed to provide an understanding of when these particular investigative
methods may (or may not) be appropriately used.
1.2.13 When beginning an investigation, all necessary steps must be taken to ensure
that adversaries and third parties do not learn of inquiries that are being made regarding a
serious fraud. An example: access to sensitive sources, such as the contents of law
enforcement or intelligence services files on a subject – although this has become much
more difficult to achieve in Canada of late. Electronic tracking systems are
contemporaneously recording all inquiries. Thus, the name of a victim’s investigator and
the fact of his inquiry will most probably be lodged into a police intelligence file.
Periodic audits have resulted in personnel losing their jobs. This does not mean the end
of private investigations in Canada. However, it does create a bigger challenge and the
need for caution.
1.2.14 Accordingly, during most of the run of a concealed asset inquiry, investigators
must take extreme caution when contacting persons due to the fact that the parties being
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contacted might disclose the fact of the investigation. Because of the need for the inquiry
to be protected by utmost secrecy, most investigators ordinarily employ techniques such
as database searches, media articles, criminal and civil record checks, surveillance,
witness interviews under cover of a pretext, sting operations, and the review of other
documents and materials. Elaborate ‘sting’ operations may be used as well to get into the
‘lair of the bear.’
1.3 Former Law Enforcement and Intelligence Officers.
1.3.1 Typically, the most excellent professional private investigators have many years
of training and experience from being in the ‘coal-face’ of the state or federal
government’s prosecution of criminal, regulatory and tax cases. Former employees of
government and military intelligence services are also available, and may be particularly
well suited for analytical tasks and technical intelligence collection assignments.
1.3.2 To the extent possible, before employing an individual who holds himself out as
having a long track record of excellence in conducting investigations or gathering
intelligence, their government service records and references should be verified. 4 Most
former law enforcement and intelligence officers, particularly those who have gone on to
function successfully in the private sector, have integrity, sound judgment and competent
tradecraft. It is equally important, however, to determine if they possess organizational
and management skills sufficient to handle a complex investigation involving many
jurisdictions. The end product of a concealed asset recovery involves the assembling of
adequate evidence to establish each of the necessary elements of proof required to (a)
have an offshore asset protection trust declared a sham, (b) lift multiple corporate veils,
(c) find that a defendant has committed fraud on the plaintiff, and (d) establish that the
wealth cocooned into a web of asset protection vehicles represents the proceeds of the
4
This may be easier said than done. Some government intelligence agencies will neither confirm nor deny
whether an individual is a former intelligence officer. However, even former employees of the intelligence
community are able to provide references that can corroborate, at least in general terms, the relevant
professional history and experience being examined. By interviewing the named, or listed, references
provided by a former intelligence officer, other references can be developed and interviewed. By this
method, charlatans are almost always caught out.
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wrong complained of. Given the heavy legal content in this ‘end product,’ a senior legal
analyst or attorney must define the objectives of the investigation and have some
involvement in the management process.
1.3.3 One of the arguable weaknesses of former government criminal investigators or
intelligence service officers (who might be used in a private inquiry soon after their
retirement from government service) is that many of them have little or no experience in
working with the idiosyncrasies and complex methods of analysis used by civil courts to
unravel intricate, multi-jurisdictional wealth protection constructs. On the other hand,
lawyers experienced in bankruptcy, fraud recovery and litigation may be well capable of
identifying the menu of facts that must be established to penetrate an offshore trust, or
‘blow-up’ an asset holding structure. However, lawyers do not typically have the manner
and means at their disposal to scout for disparate facts in the remote regions of the world
that may be critical to the outcome of an investigation.
1.3.4 Equally, a major fraud inquiry involves the management of massive quantities of
documents and financial information. Accountants experienced in forensic fraud
analyses, document examiners, or other analysts round-out what is truly a multi-
disciplinary team of people required to deliver a meaningful remedy to a victim of a
serious economic crime.
1.3.5 Most professional practices that concentrate in the building and implementation
of models used to recover concealed assets in the face of serious fraud use a core multi-
disciplinary team of planners, managers and analysts. This team would typically have:
Comparative pre-emptive remedy lawyers.
Multi-jurisdictional economic crime investigators.
Intelligence analysts.
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Forensic accountants.
Document and other analysts.
1.3.6 Most firms who practice in the area have a surge-capacity to marshal the
investigative and legal resources required in virtually any part of the world within a brief
period of time, by retaining such resources under ad hoc sub-contracts. Thus, a core team
of five professionals might become one hundred in a month’s time – if it comes time to
pre-emptively freeze assets, search for and seize documents, take examinations of key
witnesses ‘at once,’ and to otherwise complete a worldwide, simultaneously constructed,
day of execution of extraordinary relief.
1.4 Professional Care in the Conduct of a Major Investigation.
1.4.1 In order for a complex investigation involving concealed assets and fraud to
succeed, the multi-disciplinary team that is brought together must commit to achieve and
maintain quality professional performance throughout. The professionals involved should
always use due professional care in the provision of the required services. The following
menu of topics involving professional care might be included in a retainer letter to record
this commitment:
(a) Thoroughness – All activity to be conducted in connection with an
investigation must be performed in a diligent and complete manner,
and reasonable steps taken to ensure pertinent issues are sufficiently
resolved and all appropriate criminal, civil and contractual remedies
are considered.
(b) Legal Requirements - All activity conducted in connection with an
investigation must be performed and reported in accordance with the
applicable laws, rules and regulations that apply to the circumstances
of the inquiry, whether extra or intra-judicial in nature. Counsel must
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provide advice to the client and the investigators in respect of the law
of investigations and any associated litigation.
(c) Appropriate Techniques – The specific methods and techniques used
in an investigation, analysis, and pre-emptive litigation must be
appropriate for the circumstances and objectives.
(d) Impartiality - All activity conducted in connection with an
investigation must be performed in a fair and equitable manner, with
the perseverance necessary to determine the facts.
(e) Objectivity – Evidence must be gathered, critically analyzed, and
reported in an unbiased and independent manner in an effort to
determine the validity of allegations or to resolve other issues.
(f) Ethics – At all times the investigative and analytical activities
conducted in connection with an inquiry must conform with all
applicable standards of professional conduct of lawyers and
investigators.
(g) Timeliness - All activities conducted in connection with an
investigation must be performed and reported with diligence and, to
the extent possible, in a timely manner. However, by its nature, an
investigation of great complexity will likely require sustained work
over a protracted period. Accordingly, the process involves patience
and time.
(h) Accurate and Complete Documentation – The findings and
conclusions resulting from an inquiry must be supported by adequate
documentation in the case file.
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1.5 Execution.
1.5.1 A complex investigation involving serious fraud must be conducted in a
thorough and legal manner, free from conjecture, unsubstantiated opinion, or bias.
The professionals responsible for the conduct of such an investigation must be
receptive to evidence that is exculpatory, as well as incriminating. Evidence will
normally be gathered and analyzed through a number of techniques, and those may
involve the following:
(a) Covert Activities – Ordinarily, all complex inquiries involving the
recovery of concealed assets place heavy reliance on covert
investigative measures. In particular, before assets have been located
and arrested (or frozen), the investigation will almost exclusively rely
on the making of discreet inquiries. These activities will involve the
review of records, collection of forensic evidence, surveillance,
consensual monitoring, and the use of computer technology (e.g., to
produce link analysis diagrams, databases and spreadsheets).
Judicially assisted investigative activities may also be pursued, as
appropriate, to include applications for secret, ex parte, discovery
orders to courts of competent jurisdiction.
(b) Quasi- and Fully Overt Activities – After an almost exclusively
covert phase of the inquiry has been completed (with the view to
collecting as much information and evidence as possible without
disclosure of the fact of an inquiry), certain overt investigative
measures will need to be undertaken. These will likely include
interviews of complainants, known sources, victims, witnesses and, if
appropriate, the subject of the investigation. The target of the inquiry
may need to be approached under cover of a pretext to seek to procure
information or d**ning admissions against interest - possibly as a part
of a sting operation operating within the structure of the inquiry. Also,
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court ordered subpoenas for the production of records might be
requested, as appropriate.
(c) Evidence Collection – The gathering of evidence will be undertaken
in such a way as to ensure, to the extent possible, that all relevant
material is obtained, the chain of custody is preserved, and the
evidence is admissible in a subsequent proceeding.
1.6 The Right to Privacy.
1.6.1 In some circumstances, the use of private investigators may be considered an
unreasonable intrusion on a person’s right to privacy. Privacy is the expectation that
confidential or personal information reposed in a private place will not be disclosed to
third parties, when that disclosure would cause embarrassment, humiliation or emotional
distress to a person of reasonable sensitivities. Information is interpreted broadly to
include facts, images (e.g., photographs, videotapes), and disparaging opinions.
1.6.2 In the United States, the right to privacy is restricted to individuals who are in a
place that a person would reasonably expect to be private (e.g., a private home, hotel
room, or telephone booth). There is no protection for information that either is a matter of
public record or where the complainant voluntarily discloses the same in a public place.
People may be protected by privacy when they "believe that the conversation is private
and cannot be heard by others who are acting in a lawful manner." Am.Jur.2d
Telecommunications § 209 (1974).
1.6.3 Unreasonable intrusion upon seclusion only applies to secret or surreptitious
invasions of privacy. An open and notorious invasion of privacy would be public, not
private, and the complainant could then choose not to reveal private or confidential
information. For example, the recording of telephone conversations is not wrong if both
participants are notified before speaking that the conversation is, or may be, recorded.
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Offensive conduct may occur in public. But these are properly classified as assaults, and
not invasions of privacy.
1.6.4 What follows is a list of statutory provisions drawn from American state or
federal law that represent examples of how the law in the United States is used to
‘protect’ privacy:
(a) The surreptitious interception of conversations in a house or hotel room is
eavesdropping. See, N.Y. Penal §§ 250.00, 250.05.
(b) One has a right of privacy in the contents of envelopes sent via first-class
U.S. Mail. 18 USC § 1702; 39 USC § 3623.
(c) One has a right of privacy in the contents of telephone conversations,
telegraph messages, or electronic data transmitted by wire. 18 USC § 2510
et seq.
One has a right of privacy in the contents of radio messages. 47 USC
(d)
§605.
(e) A federal statute denies federal funds to educational institutions that do not
maintain confidentiality of student records. This enforces privacy rights of
students indirectly. 20 USC § 1232g. This provision is commonly called
the Buckley-Pell Amendment to the Family Educational Rights and
Privacy Act. See also, Krebs v. Rutgers, 797 F.Supp. 1246 (D.N.J. 1991);
Tombrello v. USX Corp., 763 F.Supp. 541 (N.D.Ala.1991).
(f) Records of sales or rentals of videotapes are confidential. 18 USC §2710.
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The contents of e-mail in public systems are confidential. 18 USC §
(g)
2702(a). In contrast, there is no clear statutory exclusion governing the
interception of emails in Canada.
(h) Bank records are confidential. 12 USC §3401 et seq.
(i) Library records are confidential in some states, e.g., N.Y. CPLR § 4509;
Quad/Graphics, Inc. v. Southern Adirondack Library Sys., 664 N.Y.S.2d
225 (N.Y.Sup.Ct. 30 Sep 1997).
1.7 Payment for Testimony.
1.7.1 The use of informers is an established and acceptable investigative tool of police
investigators. The news media have highlighted the cases of Anna Sage (who turned in
John Dillinger), Joseph Valachi (who exposed the Cosa Nostra), Reino Hayhanen (who
informed on the Russian spy Rudolph Abel), and Floyd Wells (who informed on the
murderers described in Truman Capoti’s novel In Cold Blood), to name but a few. The
objective of the investigator is to ferret out the truth. It is fundamental that the search
includes the most logical source of information—those persons with immediate access to
necessary facts who are willing to cooperate in the interest of the common good. Their
services contribute greatly to the ultimate goal of justice—convicting the guilty and
clearing the innocent.
While there can be no doubt that the use of informants in law enforcement is
1.7.2
justified, the issue with which we are here concerned is whether such information may
lawfully be obtained in support of a private investigation. While there are no legal
standards barring the payment of witnesses for interviews or testimony, it is important for
counsel to ensure that witnesses do not receive compensation that is in excess of a
reasonable amount, especially when they are a non-expert witness. A non-expert witness
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should receive payment for their out-of-pocket expenses and economic loss but no more.5
An expert witness can receive reasonable payment for his services, so long as it is not
contingent on the outcome of the case. They may also receive reasonable travel and
lodging expenses. In the United States, it is ordinarily unethical for a lawyer to be
6
These
participant in the payment of a contingent or ‘success’ fee to an expert witness.
guidelines are in place because it is almost certain that adversaries will attempt to
discredit any witness who was over compensated and try to prove to the court or jury that
the witness has been bought.
1.8 Personal Knowledge – A Fraud Investigator’s Quandary.
1.8.1 In many cases, the only people who have direct, personal knowledge of a fraud,
is the fraudsman himself and his confederates. This is particularly true of secondary
fraudulent conduct (meaning transfers of assets to delay, hinder or defraud creditors – or
other activity designed to unlawfully conceal or ‘protect’ the proceeds of a wrong). Thus,
there may be no ‘witness’ to the wrongdoing – other than the very target of the fraud
recovery investigation and litigation.
1.8.2 In the common law world, this poses a vexing problem. Most rules of evidence
require the testimony of a witness who has personal knowledge of an alleged event or fact
in order for the evidence available to support such allegation to be admitted at a trial or
7
A defendant will aggressively seek to keep the
hearing on the merits, inter partes.
plaintiff’s evidence of the fraud out of the court’s record by use of every technical
evidentiary objection possible.
5
The American Bar Association’s Model Rules of Professional Conduct, rule 3.4 cmt.4 (1994), permits
non-expert witnesses to be paid for their reasonable travel and lodging expenses, but not for their
testimony. However, under U.S. federal law, 18 U.S.C.A. §201(d) (West 1969 & Supp. 1997), lawyers may
compensate non-expert witnesses for lost income or the opportunity cost of testifying.
6
See, the American Bar Association’s Model Rules of Professional Conduct Rule 3.4 cmt.3 (1994).
7
The rules of evidence are often relaxed at an emergency, ex parte hearing to obtain an order freezing
assets pending trial. Thus, the hearsay statements of an investigator may be admissible on affidavit in an
interlocutory hearing for provisional relief. But at the trial of a matter, ordinarily, someone needs to be fit
and competent to take the stand on behalf of the creditor/victim to prove what happened on the critical
points of fact in issue.
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1.8.3 An example: In GFL Advantage Fund, Ltd. v. Douglas R. Colkitt, an investment
fund, GFL, sought to investigate the financial affairs of a businessman, Dr. Colkitt, who
was adjudged by the U.S. District Court for the Middle District of Pennsylvania liable to
pay approximately US$21 million to GFL. GFL conducted an approximate 18-month,
secret investigation into Dr. Colkitt’s affairs. Documents of investigative interest that had
been discarded in the trash by Dr. Colkitt and his sister and attorney, Marcy Colkitt, were
collected by GFL’s investigators every week, for many months. Ex parte document
disclosure orders compelling the discovery of thousands of bank, insurance company,
securities dealer and other records were obtained by GFL from state courts in New York,
Florida and Pennsylvania. These orders were protected by the sealing of the courts’
records and by anti ‘tip-off’ (or ‘gag’) injunctions.
1.8.4 GFL concluded that it had discovered over $25 million of Dr. Colkitt’s assets,
and that such assets had been allegedly fraudulently concealed or transferred.
1.8.5 Following the conclusion of the secret phase of the investigation, Dr. Colkitt and
his spouse filed a series of motions involving many different issues. One of his principal
points of attack on the fabric of the inquiry, and on GFL’s case, was that GFL was relying
on Affidavit testimony of a fraud investigator, James McGunn, who did not, Colkitt
claimed, have any personal knowledge of the facts and documents that he deposed to:
“Numerous cases have held that an affidavit must be based upon
personal knowledge upon which the affiant is competent to
testify. Joseph E.G. Jr. v. East Irondequoit Central School
District, 273 A.D.2d 835, 708 N.Y.S.2d 537 (4th Dep’t 2000);
Factory Point National Bank v. Wooden Indian, Inc. 198 A.D.2d
563, 603 N.Y.S.2d 216 (3d Dep’t 1993); Cazer Homes, Inc. v.
Relyea 169 A.D.2d 862, 564 N.Y.S.2d 592 (3d Dep’t 1991);
Lambs, Inc. v. Diven 2001 WL 185 1677 (N.Y. City Civ. Ct.
2001); In re Estate of Cagney 186 Misc.2d 760, 720 N.Y.S.2d
759 (N.Y. Sur. Ct. Dutchess Cty. 2001); Kretschmann v. Board
of Education 184 Misc.2d 535, 708 N.Y.S.2d 812 (N.Y. Sup. Ct.
Steuben Cty. 2000). The GFL affidavits are not based on
personal knowledge and perhaps as a consequence, nearly
everything contained in the affidavits is inaccurate, incomplete,
16
or misleading. There can be no serious question but that on the
witness stand [Mr. McGunn] would not be permitted to testify
with respect to the alleged “facts” in the affidavits.
What [Mr. McGunn’s] affidavits provide is nothing more that a
collection of piecemeal references to various third-party
documents, usually collected by others, coupled with conjecture,
rhetorical comments and arguments. A careful reading of the
affidavits, particularly when read in conjunction with the
deposition testimony of [Mr. McGunn], mandates the conclusion
that there was no legitimate, factual record upon which to
predicate the orders granted by this Court.” 8
1.8.6 On July 24, 2003, Judge McClure of the U.S. District Court for the Middle
District of Pennsylvania in GFL v. Douglas R. Colkitt (No. 4: CV-97-526) said the
following:
“In that motion, GFL contends that Colkitt has been dishonest
in the discovery responses that accompanied collection of the
judgment. To support its contentions, GFL offers an affidavit
prepared by fraud investigator James R. McGunn. Through the
affidavit, McGunn summarizes a vast amount of material
relating to Colkitt’s financial affairs and separate litigation
against him. McGunn concludes that Colkitt has been dishonest
in responding to post-judgment discovery regarding the
existence of his assets. Now before the Court is Colkitt’s motion
to strike this affidavit.” 9
1.8.7 Judge McClure noted that, “According to Colkitt, the affidavit is inadmissible
because the information it contains is not based on McGunn’s personal knowledge.” In
response, the Court held as follows:
“The affidavit conforms with the personal-knowledge
requirement. As stated above, the affidavit consists of (1) a
summary of litigation against Colkitt; (2) a summary of Colkitt’s
discovery responses; and (3) a summary of documents that
8
Reply Memorandum of Law of Joanne Russell [Colkitt] In Support of Motion to Vacate Orders, In re.
GFL Advantage Fund, Ltd., Supreme Ct. of New York, Index No. 10487/01, November 22, 2002, at pp. 11-
13.
9
Order No. 5, July 24, 2003, McClure, J, GFL v. Colkitt, U.S.D.C. (Middle Dist. of PA), pp. 1-2.
17
feature information on Colkitt’s assets. In essence, McGunn’s
personal knowledge comes from examination of documents. This
is permissible. “Personal knowledge [with respect to
declarations in an affidavit] is not strictly limited to activities in
which the declarant has personally participated ...
ersonal
knowledge can come from review of the contents of files and
records.” Washington Cent R. Co., Inc. v. National Mediation
Bd., 830 F. Supp. 1343, 1353 (E.D. Wash. 1993) (citations
omitted). McGunn’s “personal knowledge” comes from his
review of the documents he provides.” 10
1.8.8 As alluded to earlier, because multifaceted frauds are rarely witnessed by anyone
but their perpetrators, the plaintiff’s team must not only collect the “paper evidence,” but
it must find ways to make it speak to the judge or jury. Merely authenticating and
admitting the evidence is not sufficient. Certainly, no triers of fact can be expected to
sort, collate, interpret and analyse perhaps thousands of pages of documentary evidence,
much of which may involve perplex, technical principles of financial accounting. So how
can the plaintiff’s attorneys explain the meaning behind the numbers, the dates, the
sequences, and perhaps the forgeries and false statements? That is, how can they get the
documents to speak, without becoming entangled in a controversy involving personal
knowledge? One approach is to place reliance on the rule of evidence, enunciated above
by Judge McClure, that defines personal knowledge as the awareness and understanding
gained by the declarant from not only those activities in which he personally participated,
and also from activities involving his (personal) examination of files and records. This
principle is important to fraud investigators, who very rarely “witness” a fraud. This
notwithstanding, they can provide competent testimony. Some New York courts have
also commented on this important issue. They have said that, even if a creditor did not
witness a fraudulent transfer (as, by definition, nearly all fraudulent transfers occur in
secrecy), it can competently lead objective evidence – such as authenticated documents –
to establish the requisite elements of fact necessary to avoid the impugned transaction.
1.8.9 Another effective way around the “personal knowledge / hearsay” problem is for
the victim’s team to (a) authenticate the documentary evidence of the fraud (or of the
10
Order No. 5, Id, at pp.5-6.
18
secondary asset concealment conduct), (b) have that evidence admitted into the record at
the evidentiary hearing on trial of the matter, and (c) adduce the opinion testimony of an
independent expert witness on fraud or forensic analysis – whose opinions shall be based
on the objective evidence, the hard documents. The expert would be engaged to merely
offer his expert opinion on the meaning and significance of the documentary evidence.
He would not provide testimony concerning the sources and means used in the collection
of the evidence, and would not be exposed to such questions under cross-examination.
However, it is best that such an expert not be used as a part of the investigative team – so
as to protect his independence and credibility. Defendants will seek to sully the testimony
of each member of the investigative team on numerous grounds – including the notion
that the investigator, by definition, is not independent, as he must be seen to be invested
in his allegedly pre-textual (or pre-inquiry) suspicions and allegations. This argument is
an expression of circular and weak rhetoric. It can, however, sound appealing to some.
1.9 Forensic Document Examiners and Forensic Accountants.
1.9.1 Forensic experts can perform a myriad of substantially valuable services to
counsel. These experts can provide detailed information regarding the authenticity of
handwriting and documents, assist in enhancement of audio and videotapes, recover
deleted computer files and Email, and trace hidden assets. These experts can determine
when documents were created and who created them; they can assist in enhancing the
sound of audio and the resolution of videotapes so that the quality is such that it is useful
to counsel. One of the most important things that forensic accountants can do is assist
counsel with understanding complex financial transactions, and trace diverted or hidden
assets. In addition, these experts can assess the strengths and weaknesses of an
adversary’s defense. However, for the examiner to be successful in these tasks, counsel
must seek production of as many of an adversary’s financial records as soon as possible.
19
1.10 Electronic Database Searches.
1.10.1 Any strong investigative firm has experienced computer researchers with the
ability to coordinate thorough investigations utilizing a myriad of sophisticated databases,
while doing so in an efficient and cost-effective manner. Some of the information that
today’s computer databases can provide are social security numbers, birth records,
address histories of the person in question as well as listings of relatives and neighbors,
criminal records, aliases, corporate affiliations, property ownership, bankruptcy and other
civil litigation matters, media exposure, vehicle ownership with driving records, and
professional affiliations and licenses. While these databases can assist counsel in locating
potential third parties and witnesses, they are also excellent sources of impeaching an
adversary’s witness.
While commercial databases are excellent sources of information, the Internet
1.10.2
has emerged as an important investigative tool as well. Internet users can often use both
government and non-government websites to determine if corporations or individuals
have committed any acts that violate disciplinary codes they were to follow. For
example, the federal government provides information to the public with regard to
doctors and businesses who have committed various types of health care fraud. These
and other databases are excellent sources that investigators can use to provide counsel
with otherwise unattainable information.
1.11 Consumer Credit Histories.
1.11.1 There is a multitude of information that can be obtained from a person’s
consumer credit report. Financial history, real property information, credit information,
bankruptcy filings and adverse judgments are just a few of the items that can be learned
about a person from these reports. An investigator may even be able to provide a report
that details a person’s general reputation and mode of living.
20
While this type of reporting is limited to individuals, these reports provide
1.11.2
important information about the assets and finances of individuals who may play key
roles in commercial disputes such as directors, owners and managers of companies.
Regardless of the value these reports can bring, many attorneys are not aware of the
serious trouble they and their investigators might face if they do not employ the limited
channels necessary to produce the reports in a legal manner. Under the Fair Credit and
Reporting Act of 1970, a private requestor may only obtain the reports pursuant to a court
order, by written consent of the consumer, or when the agency reasonably believes that
the recipient will use the information in relation to employment, underwriting insurance,
extending credit, assessing credit risks, or in connection with business transactions
initiated by the consumer. Additionally, attorneys and investigators may also obtain the
reports in connection with the collection of a judgment or debt.
1.12 Interviewing of Witnesses.
1.12.1 Because ethical rules might prohibit or restrict contact with certain potential
witnesses, counsel must be extremely cautious. To avoid problems, counsel should
familiarize themselves on the laws and rules of professional conduct in each jurisdiction
where these interviews are to take place. To successfully conduct witness interviews, it
should first be ensured that the jurisdictions in question permit the interview without
issue. Counsel and investigators must also know which parties they can (and cannot)
obtain information from, and of course investigators must not interview anyone whom
they know to be represented by counsel, absent the permission of such counsel.
Moreover, investigators must not seek privileged information from a witness. Beyond
this, it is counsel’s job to inform investigators of other limitations of that particular
jurisdiction.
1.12.2 To ensure that an investigator does not violate interview restrictions of a specific
jurisdiction, counsel should provide model guidelines that investigators can take into the
field. The instructions should contain potential questions to ask, and sometimes answers
to watch for. The use of such instructions will allow the investigator to terminate the
21
interview if necessary and also protects counsel against claims that the rules were
violated.
1.12.3 Once interviewing is commenced, if counsel participates, at least one
investigator should be present to take notes of the meeting. Thus, if a factual dispute
arises over what was said during the interview, the investigator and not counsel can be
called as a witness. It is ideal, however, to have two investigators conduct each
interview. This is important because if a witness later claims the investigator got it
wrong, the second investigator's recollection and notes of the meeting will confirm and
support the other investigator's testimony. Moreover, it is much easier for the questioner
to question, and the note-taker to take notes – as the two activities represent very different
mental functions.
1.12.4 Careful notes taken during the interview will help to ensure that written reports
are complete and accurate. A written report by the investigator should be created as soon
as possible after the interview is concluded. Once a written report is completed it is up to
counsel to determine whether or not to keep the notes. While sometimes notes will prove
more accurate than the resulting report, there are equally strong reasons for discarding
them. First, an investigator’s notes might be varied from one interview to the next, which
could result in an adversary raising issues that could complicate a case. Whatever choice
is made concerning the interview notes, it is important that the practice is consistent to
avoid claims that counsel is selective in their retention or destruction.
While there are many approaches for interviewing witnesses, choosing the best
1.12.5
approach depends on the circumstances of each interview. Whatever approach is used, if
done correctly, the interview should open the door for the investigator to develop an
ongoing relationship, which in time can result in additional information and other sources
of information.
22
1.13 Recording of Conversations.
1.13.1 The law in the area of computer technology and the Internet is developing at an
exponential rate. Currently, there is far more law on issues involving telephones as
opposed to those which are computer-related. However, as the Internet and E-mail grow
in importance in the daily lives of potential clients and their counsel, statutory and case
law in this area will expand. This is aptly demonstrated by the landmark U.S. Supreme
Court case, United States v. Kyllo (originating from Oregon), holding that certain “high-
tech” intrusions by the government into the private lives of its citizens can violate the
Fourth Amendment of the federal constitution.
1.13.2 In 1967, the United States Supreme Court decided that the federal Constitution
prohibits government agents from secretly monitoring and taping telephone
conversations. Finding that persons have a reasonable expectation of privacy in telephone
conversations they seek to keep confidential, the Court ruled that the taping or monitoring
of telephonic communications without any consent violates the constitutional prohibition
on unreasonable searches and seizures. However, this decision had limited effect because
restrictions imposed by the United States Constitution apply only to persons who are
agents of the state or the federal government. Private individuals were not forbidden by
federal law from taping telephone conversations.
1.13.3 Congress changed this in 1968 when it passed the Omnibus Crime Control and
Safe Streets Act of 1968. This Act prohibits any interception of electronic or wire
communications by either government agents or private individuals or entities. An
"interception" occurs whenever an electronic or mechanical device is used to acquire the
contents of an electronic communication.11 Any person who intentionally intercepts an
11
The federal wiretapping law is part of the Omnibus Crime Control and Safe Streets Act, 18 USC §2510-
2521 (the “Act”). The Act prohibits the interception and disclosure of oral communications. The Act
contains an exception when the interceptor is a party to the communication. § 2512(a)(ii)(d). This section
states:
“It shall not be unlawful under this chapter for a person not acting under
color of law to intercept a wire, oral or electronic communication where such
person is a party to the communication...unless such communication is
23
electronic or wire communication or discloses or uses the content of a wire
communication he or she knows was intercepted in violation of the Act is guilty of a
crime punishable by up to five years' imprisonment and a fine. The Act also allows a
person whose privacy has been invaded by an illegal interception to recover money
damages in a civil action against the offender, and it prohibits the content of any illegally
intercepted wire communication to be used in court proceedings.
1.13.4 There are several significant exceptions to the general federal prohibition on the
interception of wire communications.12 The most significant is the "one-party consent"
exception, which allows government agents to record telephone conversations when they
have obtained the consent of one party to the conversation, such as a cooperating police
informant. Private individuals may also record telephone conversations when one party
consents to the taping, even if the one party is the individual doing the taping, as long as
the taping is not for the purpose of committing a crime or committing a legal wrong
against another person. Interception and recording by law enforcement agents also are
allowed if they are pursuant to a court order.
1.13.5 Another exception allows the use of business extension lines to monitor and
intercept telephonic communications. This exception allows a business to record
telephone conversations over lines it controls if the interception is accomplished using
equipment supplied by the telephone company and is done in the ordinary course of
business. Thus, a business may record the telephone conversations of its employees if it is
done for a legitimate business reason. Courts have decided, however, that employers must
limit monitoring and taping to the business-related telephone conversations of the
employees and may violate the Act if they intercept personal calls, especially where
employees have been allowed to use business telephones to make and receive personal
calls. Some decisions recognize that even personal calls may be monitored under the one-
intercepted for the purpose of committing any criminal or tortious act in
violation of the Constitution or laws of the United States or of any State.”
12
In the United States, state statutes that may proscribe consensual monitoring will vary from venue to
venue, and must be researched.
24
party consent exception if employees are made aware that all calls may be subject to
monitoring and recording.
1.13.6 Some courts have ruled that taping by one family member of the telephone
conversations of another family member on a telephone within the home is not a violation
of the Act. This situation often arises where one spouse attempts to determine infidelity
on the part of the other spouse. However, this exception is not recognized by all courts
and has been rejected by some. An individual would be wise to obtain clear legal advice
before relying upon a supposed intrafamily exception.13
1.13.7 The Act prohibits not only interception of wire transmissions but also the
interception of "over-the-air" telephonic transmissions. Thus, the interception of cellular
telephone conversations is illegal unless within an exception to the Act. Monitoring and
recording of conversations on cordless telephones are similarly covered by the Act.
1.13.8 Intercepting and monitoring telephone conversations, even if done with the best
of intentions, can have serious legal consequences. State and federal law provide criminal
penalties for the unauthorized recording of telephone conversations, and the person
whose conversations have been intercepted may seek to recover money from the
responsible parties as well.14 Before embarking on any course that might violate state or