H.S. Grace & Company, Inc.
Case Studies

Executive Compensation Dispute

  • HSG was deposed in an arbitration between an executive seeking back compensation and his former employer (HSG client) who asserted the executive was terminated with cause and no compensation was due.
  • HSG examined the roles and responsibilities of internal and external professionals, senior executives and board members, and found that the executive repeatedly violated the company’s code of ethics in respect to his own and certain other executives’ compensation. The executive overrode the concerns of other professionals and executives, made inappropriate investments of company money to keep selected personal investments afloat and intentionally oppressed the value of shares of a subsidiary company that he and another executive would benefit from, as HSG discovered a number of other self-dealing transactions.
  • Subsequent to HSG testimony just prior to the arbitration, the company achieved a favorable result paying much less than they had reserved.


Examining the Responsibilities of Internal and External Financial Executives and Advisors

  • Legal action was taken against a group of banks involved in credit lines to a large bankrupted company. The court appointed Examiner found questionable behavior on the part of several banks.
  • HSG assisted one of the banks in distinguishing the responsibility of the senior financial officers of the bankrupted company from the responsibilities of the banks participating in the credit facilities.
  • Counsel for the bank subsequently extricated his client from the litigation while other banks’ settlements exceeded $1 billion.


Detrimental Spin Off Transaction

  • Management of a surviving corporation and its advisors had “engineered” a spin-off from a sister company to the detriment of the shareholders of the sister company which subsequently filed for bankruptcy.
  • Representing the bankrupt plaintiff, HSG assessed the roles and responsibilities of external accounting firms, legal counsel, financial advisors and senior management, and the process used and assumptions developed by the surviving company to determine the fairness of the valuation and separation of the spin-off company.
  • After a motion to exclude HSG was denied, HSG presented its determination that the spin-off process and the valuations created by the surviving company management and its advisors did not follow customary and ordinary business practices and that outside counsel and the public accountants had conflicts of interest. Defendants jointly agreed to and funded a $165 million settlement.


The Determination of Causation Requires the Assessment of the Actions of All Parties Involved

  • Insurance companies paid a building owner for losses incurred due to a fire and then sued contractors who previously worked on the building for negligence.
  • HSG was retained by the contractor firms to determine whether their actions complied with normal and customary business practices and to review the opinions of certain experts engaged by the insurance companies.
  • HSG’s analyses established the cause of the fire was primarily attributable to the duties for which the building owner and certain of its advisors were responsible and the case was favorably settled during trial.


SEC Securities Fraud Filed Against CEO

  • The SEC alleged that a CEO of a company committed securities fraud through the revenue recognition of a contract that had yet to be approved by a customer’s board of directors and that the CEO did so to avoid busting debt covenants and to meet revenue expectations. If found guilty, the CEO would be prohibited from serving as an officer or director of a public company.
  • HSG’s assignment was to rebut an expert report that asserted the CEO’s primacy in the propriety and accuracy of company financial statements.
  • HSG’s report demonstrated that management involved in directing and operating the finance function play a far more significant role in assuring the propriety and accuracy of the company’s financial statements; that the CEO and other senior management members are entitled to rely on internal and external advisors; and that a financial restatement is not tied to the certifying CEO’s personal acknowledgment. Shortly before trial, the judge questioned the SEC’s basis for a fraud suit. The matter settled with no suspension for the CEO and for a monetary amount of approximately fifty thousand dollars.


Reporting Fraud and Insider Trading Filed Against Senior Executives

  • The matter filed involved more than a billion-dollar accounting restatement due to improper revenue recognition and allegations of tens of millions of dollars of insider trading by the three executives.
  • HSG addressed the allegations against the CEO and found that he was not responsible for the organization that made the decision of when revenue could be recognized, nor for the decisions made internally by the organization or its external auditors on when to recognize revenue.
  • HSG highlighted several important facts that helped dismiss the case against the CEO – that his tenure was only 11 months out of the 57 month restatement period; that the CEO was appointed during a time of a radical reduction in force of 60% of the employees, thus making him out as the hachet man; and importantly, that the prior CEO kept the role of chairman when he stepped aside from his role as CEO and maintained control over the final approval of the revenue recognition decisions through the entire restatement period and was the single member of the company’s Options Committee.
  • The matter settled satisfactorily with the client being dismissed from the charges.