Motion to Dismiss due to Destruction of all Original Business Records

It was a beautiful Saturday morning in the spring of 2005 and under normal circumstances, I would have been out with my three kids going to the park, setting up playdates, exploring and the like, but as hard as I tried nothing felt normal. I was a defendant in a criminal case that I had no idea what things were going to happen and when. At that time, my activities were a juggling act combining me working and playing with the kids as much as I felt I could afford given Court deadlines and projects that my attorney gave me. 

The doorbell rang mid-morning and a familiar face smiled at me. Robin was the CPA I contacted when Fund III failed.  It was only at the conclusion of Fund III that I understood the very poor job the Fund III accountant had done and the accounting work that truly needed to be tackled.  I found Robin to be efficient and thorough. 

Robin had spent the better part of a few weeks in my home office using my computer to reconcile all the Fund III accounting records about 4 years prior.  I was always close by as she went through one pile of numbers after another.  From all the original business records, she was able to create the necessary financial reports to show everyone just where every Fund III penny had gone to.  It was vital as we were communicating with Fund III investors and wanted to be transparent and give them tax information. 

Carefully, Robin stepped into my house and saw me with my kids.  The last time I had seen her, I was quite pregnant and she had never met my other kids. Her eyes seemed to survey the situation as if to say…this is the family who is at risk. Robin and I had no reason to keep in touch after her Fund III reconciliation, so it was curious that she stopped in unexpectedly.

Robin explained that she had been contacted by the Government. I swallowed hard as she continued to explain the purpose of her visit. The Government wanted her to recreate the financials because all the original business records were destroyed.   I can only imagine the look on my face when she said that the original business records were destroyed.  Like, what? Back up. The 22 original business records that Robin and I had worked on together were now nowhere to be found just a couple months after I have been charged with a crime. What an amazing coincidence I am loudly thinking. 

Robin asked if I still had the computer that she had used when she had reconciled Fund III at my house years prior.  I said I did and she was able to set up the computer and run reports that assured her that no one had tampered with any of the files she had previously worked on. She smiled at me as if to understand that having pristine files to work with might be helpful to her and to me, but she was proceeding cautiously. As I walked Robin to the door, she asked to come back in a couple of days and print some information out to which I readily agreed. 

It was crazy news to me that all the documents were missing and I just sat for a few minutes quickly flooded with emotion.  On one hand, it seemed like great news because why/how could we possibly move on with a criminal case when the essence of the case was grounded in those documents. On the other hand, would the Government continue to try to make a case against me? Testimony from people involved many years later could never substitute for documentation at the time of Fund III.  People’s memories can be convenient and out of context.  I began to vacillate from hope to doom again.

I called my attorney, Dan, which I rarely did on the weekend.  It was clear that as intense as the case was for me, it was for Dan too and he needed a break.  The weekends were usually off-limits, a time to rejuvenate. This news seemed potentially game-changing, so I selfishly called Dan with this startling news.  Fortunately, I was able to quickly catch up with Dan and told him about Robin’s visit. Dan was stunned.  He shared my disbelief and just wasn’t sure how it would impact the case.  For now, just the fact that maybe there was hope again that the truth would resurface gave me a lift.

The reason that I was so upset at the disappearance of the original business records was varied.  First, the importance of the records was that it showed the intent and mindset of the Fund III committee and its investors at the time of Fund III. Second, it was very important to find out when who was involved and why the documents were destroyed. Third, the records were complete proof of what happened in Fund III from start to finish. Even having taken the inventory and pictures of the records, every last detail was not part of the inventory and we deserved to have all of it. Last, I wanted to consider if/what could be used to replace the documents which I struggled with since my thought was that the original business records were irreplaceable. 

There were 4 documents that we used to subscribe every investor to Fund III:  a subscription agreement, an investor questionnaire, a personal representative questionnaire (optional), and a receipt of the offering circular. The key to the documents was that on every investor questionnaire there were many and very specific questions that shed light on how the investor became an investor, the risk tolerance, and who they relied on in the process. There were over 40 risk factors that were bold and capitalized in the offering circular. 

The nature of some of the questions was:
1. Who did you rely on for your decision to invest in Fund III?
2. Can you afford to lose your entire investment?
3. Had you been given an opportunity to have all your questions answered?

Each portfolio company that was a part of Fund III had unique documents contained within the original business records. There were business plans, non-disclosure agreements, executive summaries, background checks, and the like. We had to vet each opportunity and document how much equity we were receiving or if we loaned funds, what were the terms. It would be nearly impossible to replicate any of those documents. No one else would necessarily have them years later for any reason.

Accounting, notes from meetings, calendars, etc… were all irreplaceable and gone. 

When I was wrapping up the Fund administrator role in 2001, my last child was born and I was understandably exhausted. When I was told to gather the Fund III documents from my make-shift home office, I was given legal advice to inventory, photograph, and have someone sign for receiving them.  I did exactly that.  I still have the photos of the 22 boxes and the signed inventory of every document that was handed over. A trustee that would reconcile the winding up of Fund III was to receive the documents, I was told. 

Before I released the documents, I copied a few investor documents that I thought I might need knowing that it might be impossible to get the documents back.  Little did I know…. There had been a few investors that had given some indications that they might take legal action against Fund III and/or the Fund III committee.  Legally, as committee members, we should have had a kind of immunity, but there were exceptions and I just wanted to defend myself, if I had to do so.  

The integrity of the documents was simply an unbiased reflection of what actually happened. That is all I wanted. To this day, I have no idea if the documents were actually destroyed, by who and when. 
I have a feeling that Robin thought she knew me and she didn’t like what was going on. We didn’t discuss it and I may be flattering myself to think that I know how Robin felt. Robin either had to or wanted to comply with the Government’s request but as she spent more time printing reports, I saw her more and more annoyed about what was asked of her. 

We filed a Motion to Dismiss the case based on the destruction of the original business records. We got a letter from the prosecutor saying in part, “we were surprised to learn records pertinent to the bankruptcy were destroyed and are seeking additional details ourselves.”

Interestingly, around this same time, the Arthur Andersen/Enron case came to light when Enron suffered a collapse that resulted in the largest Bankruptcy to that point in US history. The controversy extended to Arthur Andersen, which was accused of overlooking significant sums of money that had not been represented on Enron’s books. Arthur Andersen was later found guilty on federal charges that it obstructed justice by destroying thousands of documents related to Enron. The shoe was on the other foot for me.  I wanted the documents preserved as the defendant. I genuinely thought it would help prove my innocence against the crimes I was charged with. While the Government could charge Andersen with obstructing justice, I had the power to do virtually nothing when I found out the documents were destroyed.

When you are trying to do your best to get the truth out, it can be hard work.  The original Fund III business records represented the truth to me.  That's what documents do.  It's not someone's opinion, recollection, or interpretation, it's what happened when it happened.  I just wanted to prove who I was and what I did and did not do.  The loss of the original records was going to make that harder.  Nothing could substitute for those records. 

Our Motion to Dismiss based on the destruction of documents was DENIED. Life was getting harder. 

Write a comment

Please login to comment

Remember Me

Become a Member

FREE online community for women in the legal profession.



Subscribe to receive regular updates, news, and events from Ms. JD.

Connect with us

Follow or subscribe