Days before a $180M add-on acquisition closed, Law & Forensics' forensic investigation revealed that the target company's CFO had systematically falsified revenue records for three years, giving the PE firm the evidence it needed to restructure the deal and pursue recovery.
The situation
A mid-market private-equity firm managing $8 billion in assets was four days from closing a $180 million add-on acquisition for one of its platform companies when an anonymous tip arrived alleging financial manipulation. The tip was specific: it named the target company's CFO and claimed that revenue figures in the data room had been artificially inflated using fictitious customer contracts and accelerated recognition of multi-year service agreements.
The firm faced a dilemma with no good answers. Raising the allegation openly risked triggering a material-adverse-change dispute that could collapse the deal entirely, destroying months of work and tens of millions in sunk transaction costs. Ignoring the tip and closing risked acquiring a materially misstated business — and potential securities exposure if fund investors later claimed inadequate diligence. The firm needed a rapid, covert forensic assessment that could be completed before closing and that would produce evidence sufficient to support a purchase-price renegotiation or, if necessary, litigation.
Our approach
Law & Forensics was engaged under attorney-client privilege through the firm's outside M&A counsel, providing an additional layer of confidentiality protection. The team structured a 96-hour covert investigation designed to answer a single binary question: were the allegations credible and quantifiable?
Forensic imaging and metadata analysis. With the cooperation of a small number of trusted personnel at the target, Law & Forensics forensically imaged the CFO's workstation, the finance team's shared drives, and the email archive of the CFO and two direct reports. Metadata analysis of the contract documents in the data room immediately surfaced anomalies: 23 customer contracts bore creation and modification timestamps that postdated the revenue recognition periods they purported to support.
Financial-record reconstruction. The team correlated the suspect contracts against the target's ERP transaction data, accounts-receivable aging, and bank statements. The analysis identified $28 million in revenue recognized against contracts that either did not exist as executed agreements with actual customers or had been backdated to shift multi-year license fees into prior reporting periods.
Communication forensics. Email and collaboration-platform analysis revealed a pattern of internal communications in which the CFO had directed subordinates to "adjust" revenue schedules and had deleted a series of emails with a third-party accountant in the 60 days before the data room opened.
Evidence packaging for negotiation and prosecution. Law & Forensics produced a privileged forensic findings report suitable for use in purchase-price renegotiation and a separate evidence package, preserved in forensically sound form, for potential referral to federal authorities.
The impact
Armed with court-grade evidence delivered within 96 hours, the PE firm's counsel confronted the seller before closing. The deal was restructured with a $31 million purchase-price reduction and a seller indemnification covenant covering identified and unknown pre-close liabilities. The acquisition closed on the restructured terms, preserving the investment thesis. The CFO was terminated and a criminal referral was made to federal law enforcement. Law & Forensics subsequently supported the firm's portfolio-company management team in remediating the ERP environment and establishing a financial-controls monitoring program.
| Metric | Result |
|---|---|
| Fraudulent revenue identified | $28M across 3 fiscal years |
| Purchase-price reduction negotiated | $31M |
| Investment capital protected | $180M |
| Time from engagement to findings delivered | 96 hours |
