Briefing on Criminal Fraud Economic Loss Calculations One of the more exciting and challenging parts of our profession is learning about our judicial system. Professionals whose practice involves economic loss calculations should consider educating themselves on the similarities and differences between “actual” and “intended” losses prior to providing expert testimony or offering an opinion. In my research, I came across a publication titled PRIMER Loss Calculations Under §2B1.1.(b)(1) (United States Sentencing Commission, February 2019). I recommend anyone interested in this topic to take the time to read the publication in detail. The purpose of this QuickRead is to educate interested…
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How to Increase Settlement Rates Long before the COVID-19 pandemic, distance mediation was used; however, not extensively and historically, settlement rates were significantly lower than traditional “face-to-face” mediations. With social distancing now in place, mediating by phone and/or video conferencing is getting a closer look. Although the mediation process essentially remains the same for distance mediations, it needs review to determine what is effective and what needs to be reconsidered. There are three key areas that require investigation: technology and equipment, preparation by the mediator as well as the participants, and confidentiality. By tailoring the process for distance mediation, it…
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A Q&A with Joel Steckel The immediate economic impacts of the COVID-19 pandemic extend beyond their most visible manifestations in the shutting of businesses and the dramatic rise in unemployment. A more subtle consequence that has arisen in the marketplace pertains to companies’ reputations. Brands and the public’s perception of them are impacted not only by a firm’s own actions but also by the actions of other market players. To explore the issues around negative effects on consumers’ brand perception in more depth, Vice President Rene Befurt and Associate Anne Cai spoke with Analysis Group’s academic affiliate Joel Steckel about…
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Charitable Contribution Deductions (Part II of II) The Tax Cuts and Jobs Act of 2017 and subsequent tax acts, such as the CARES Act, have complicated charitable giving and estate planning. This second part of this two-part article provides an overview of the limits placed on conservation easements. (Read Part I here.) In this second of a two-part article, the limits on the value and legality of conservation easements, charitable remainder, and lead trusts are discussed. Conservation Easements. Taxpayers who donate to a conservation group or a state or local government an easement to restrict development of their property, are…
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Relating to a Business Interruption Claim (Part II of II) It remains unclear whether business interruptions caused by the current novel Coronavirus pandemic will be covered under business interruption insurance policies because insureds and insurance companies are still arguing whether the pandemic and/or related state and/or local government shutdown orders qualify as “physical damage.” While litigation on the issue has begun, at the time of authoring this article, no courts have made a final decision on that question. The purpose of this two-part article is to consider the nature, timing, and extent of the information and/or documentation that logically should…
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Relating to a Business Interruption Claim (Part I of II) It remains unclear whether business interruptions caused by the current novel Coronavirus pandemic will be covered under business interruption insurance policies because insureds and insurance companies are still arguing whether the pandemic and/or related state and/or local government shutdown orders qualify as “physical damage.” While litigation on the issue has begun, at the time of authoring this article, no courts have made a final decision on that question. The purpose of this two-part article is to consider the nature, timing, and extent of the information and/or documentation that logically should…
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Charitable Contribution Deductions (Part I of II) The Tax Cuts and Jobs Act of 2017 and subsequent tax acts, such as the CARES Act, have complicated charitable giving and estate planning. This two-part article provides an overview of the current state of the law as it concerns both. In this first part, the author focuses on charitable deductions. A charitable contribution deduction is allowable for a contribution actually paid in cash or other property before the close of the tax year (regardless of whether the taxpayer is on the cash or accrual method of accounting) and made for the use…
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Related to Property Contaminated by COVID-19 Not only has the COVID-19 pandemic impacted the health of hundreds of thousands of people globally, but the government response to this health crisis has also created a significant financial burden on businesses across the country. State and local officials issued “stay at home” orders which required the majority of residents to stay at home in states and counties nationwide. Although several states have started lifting these restrictions allowing some businesses to operate to some extent, these businesses are faced with the danger of permanently closing their doors. This article examines whether business interruption…
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Quantifying the Lost Opportunity of Being First (Generic Entrant) to Market The authors in this article explore the scale of first mover advantage in generic pharmaceuticals and the methods behind quantifying the value of being first generic to market, or the loss when being prevented from doing so. They discuss, how much is it worth to be the first generic entrant to the market? Introduction The recent European Court of Justice (ECJ) ruling that the GSK-Generics UK-Alpharma pay-for-delay arrangement was potentially “by object”-restrictive, confirms the continued regulatory spotlight on treatment of intellectual property and entry in generic pharmaceutical markets.[1] Of…
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Connecticut Appellate Court Affirms Trial Court’s Decision Not to Tax-Affect Earnings In a dispute over the buyout of the minority shares in a family business, the Connecticut appellate court addressed several important valuation issues. Notably, the appellate court upheld the trial court’s decision not to tax-affect the company’s earnings in determining the fair value of the shares, even though both the plaintiffs’ and defendants’ experts had done so. The appellate court also upheld the trial court’s findings that (1) the company engaged in shareholder oppression and, therefore, the value of the minority shareholder’s interest would not be subject to a…
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Expert Assignments and the Impact of COVID-19 COVID-19 has had a dramatic impact on the global economy. As the economic crisis deepened, the Wall Street Journal reported, “The nation’s bankruptcy industry is bracing for a wave of business collapses triggered by the coronavirus pandemic as its ranks have been thinned by a decade of economic growth.” Working on business bankruptcy assignments in 2020 will present a special set of challenges for experts based upon the COVID-19 pandemic. For many industries, and for many individual debtors, there may be a dearth of post-COVID operating information and widely varying views as to…
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and its Impact on Lost Profits Calculations These are challenging times. Financial experts are faced with economic uncertainty and differing projections from various sources as to what the “new normal” will look like. Regardless of the economic circumstances, financial experts are hired to estimate lost profits. These calculations must be made with reasonable certainty. But to be reasonably certain, proximate cause must be considered. To properly consider causation during these current times, an expert must consider the impact of the COVID-19 pandemic and the economic shutdown. Without such consideration, an expert’s report will not reflect reality and could be construed…
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Personal Damages Calculations and Exposure to COVID-19 Financial experts who, in the past, have been reluctant to take on personal injury economic damages as part of their practice should reconsider that decision today. Not only is the field growing and on the verge of a potentially huge boom driven by the COVID-19 crisis, there are plenty of resources to help you quickly get up to speed performing these types of damages analysis. This article presents three reasons for valuation practitioners to consider adding personal injury, wrongful death, and wrongful termination damages calculations to their practice, and an introduction to resources…
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Their Potential Impact on Valuing a Construction Contractor Construction claims may impact the value of a construction company. In this article, the author discusses the issues that arise and the methodologies that may impact the valuation. A construction claim is a demand made by the contractor to the owner for additional revenue for construction work performed on a construction project which is beyond the terms of the contract. Simply stated, a construction claim is a change order that has not been settled or negotiated between the owner and contractor. If the construction claim cannot be settled or negotiated, then most…
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Skillsets Needed to Excel as an Expert During Cross-Examination For those financial experts awaiting their first opportunity to testify, as well as for those not certain of their skillsets, the author shares his tips on how to be impressive on the witness stand. As an attorney-CPA credentialed in business valuation, I have had the opportunity both to be the “expert” sitting in the witness chair and to be the lawyer doing the cross-examination. I have also had the advantage of being buyer or seller counsel on many “real world” transactions. It is certainly more enjoyable to be the person asking…
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Valuing Liabilities Differs from Valuing Assets Valuing contingent/unliquidated liabilities raises some interesting questions. Do contingent/unliquidated liabilities have liability-specific risk? If yes, does liability-specific risk result in lower or higher obligations? Why do contingent/unliquidated liabilities related to lawsuits tend to settle as opposed to go through verdict and appeals? This article addresses these questions. Valuing contingent/unliquidated liabilities raises some interesting questions. Do contingent/unliquidated liabilities have liability-specific risk? If yes, does liability-specific risk result in lower or higher obligations? Why do contingent/unliquidated liabilities related to lawsuits tend to settle as opposed to go through verdict and appeals? This article addresses these questions.…
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Lost Profits and Loss of Business Value—Differences and Correlation in Terms of the Harmful Impact to Plaintiff’s Claims When a plaintiff suffers, or believes to have suffered, economic damages as a result of a defendant’s actions in a civil matter he/she and their attorney are faced with determining the amount of economic damage suffered. A damages remedy is provided to restore the plaintiff to the same economic position they were in prior to the act. The selection of the appropriate economic damage is a factual one based on various elements including causation and timing. While this may appear relatively straightforward,…
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What Do the Courts Want? Finding the methodology for determining the appropriate discount rate in a lost profits case can be a convoluted journey. The numerator (the lost profits) may be adjusted through modeling. The denominator (the discount rate) may be a risk-free rate, a rate of return on investments, or the rate of return commensurate with generating the lost profits had no wrongful act occurred. And, whether modeling is used to adjust the lost profits will impact the risk premia that affects the discount rate. Experts must review the facts of each assignment and apply an approach which they…
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Without An Elephant One question: Would you like to learn a technique that might make the problem-solving process work more efficiently and perhaps, just perhaps, produce better results? In this article, Nancy Yeend presents the W-I-N method. Of course, you know how to solve problems—that is what you do for a living. One question: Would you like to learn a technique that might make the problem-solving process work more efficiently and perhaps, just perhaps, produce better results? Define the ProblemThe John Godfrey Saxe’s poem, The Blind Men and the Elephant, is an example of how people can view the same…
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Theory into Practice In our literature and at professional conferences, we often discuss the theoretical aspects of our work. For lost profits this includes discussions on the best method for valuing lost profits (before and after, yard stick, but for) or the optimal discount method (ex ante, ex post, or hybrid). Occasionally, these become academic debates with little impact on our “real life” work. This year, I received an assignment that allowed me to apply some of these theoretical ideas to real life circumstances. This case involved stolen intellectual properties and three separate loss categories: lost royalties, lost profits, and…