Forensic accounting is often called upon in the realm of business litigation. The doctrine of ‘Alter Ego’ comes into play when a party argues that it has the authority to ‘pierce the corporate veil’, to treat a corporation or limited liability company as not a separate legal person but rather the same as its ostensible owner. Understanding how forensic accounting works in this context requires both a deep dive into the doctrine and into the sophisticated financial expertise required to navigate it.

Understanding the Alter Ego Doctrine in California

This doctrine is known as the Alter Ego Doctrine because it involves the court disregarding the separate legal existence or status of a corporation or LLC where it is simply acting as a conduit, cover or alter ego for some other corporation or natural person. This typically only happens with respect to the corporate form when the separate status from the other entity or natural person is being misused to somehow mislead or commit fraud, to escape an obligation or purpose, or for purposes of the unjust result. For example, if the court finds that a corporation or LLC is using its separate status for shielding some wrongful conduct or escape from liability, it may be held personally liable instead.

The Role of Forensic Accounting in Los Angeles

The work of forensic accountants is also essential because they undertake ‘the detailed financial analysis associated with an Alter Ego case it is their work, their work alone, that is likely to provide the critical information that the corporate veil is being misused’. They make sense of financial records and transactions and statements to trace inconsistencies, hidden assets and more, demonstrating signs that a corporate form is being misused.

The Engel & Engel Approach

Engel & Engel has developed an extensive forensic methodology for Alter Ego cases, and draws on a thorough understanding of the 28 alter ego factors identified in the courts to inform its financial analyses.

Comprehensive Analysis

Engel & Engel’s forensic accountants conduct a comprehensive analysis that includes:

• Forensic Accounting: They delve into the details of financial statements, transactions and practices to investigate misuse of the corporate form.
• Interviews and Testimonies: They might interview relevant parties who interacted with the company to get further information and evidence on how the business operated and what mechanisms of control might have been present.
• Forensic Testimony: We provide expert testimony in court that means our findings can be easily interpreted for judges and juries, illustrating the financials of the case and the significance of the findings.

In Alter Ego cases, we cannot do without forensic accounting. The deconstruction of complicated financial constructs – and figuring out the true nature of corporate operations – requires expertise. Alter Ego cases can involve millions, or even tens or hundreds of millions, of dollars. It takes diligence and patience to look at all the parties, transactions, holdings, movements, shells and subsidiaries, with an eye on the ultimate facts. Engel & Engel, other forensic accountants and their armies of assistants will perform the painstaking financial forensics. And they will provide the expert financial testimony that it takes to steer a judge and a jury through murky corporate waters towards reasoned justice.