International Arbitration Related to Commodity Trading
FRA was approached by the plaintiff in a $1.5bn claim in an international commercial arbitration to provide expert reports and witness testimony that proved in the arbitration finding for the plaintiff.
Challenge
FRA was approached by the plaintiff in a $1.5bn claim in an international commercial arbitration over purchase price of a global commodity trading company. We were asked to provide evidence expert evidence to support claims that the financial statements of the purchased company had been falsified, by incorrectly inflating assets values and profits, and so artificially inflating the purchase price.
Action
FRA extracted data from legacy operational databases and reconstructed the population of open commodity forwards contracts. From this, and using data extracted from the ERP system, we derived mark-to-market valuations of commodity contracts and inventory compliant with IFRS accounting standards. By comparing FRA’s results to the company’s we were able to show that commodity contracts and inventory values were materially overstated in the published financial statements. Further review found that further assets had not been accounted for correctly in accordance with accounting standards, thereby incorrectly inflating assets and profits.
Results
FRA’s expert reports and witness testimony at the arbitration was instrumental in the arbitration finding for the plaintiff and ruling that the purchased company had been materially overstated its profits, resulting in the plaintiff paying a higher price for the company than it would have done if the true situation had been known.
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