Internal Investigations

Case study of an internal investigation

One tip-off, four fraudsters, years of litigation and millions in damages

Disbelief, schadenfreude, horror: reactions vary widely when major fraud scandals hit the headlines. That is what happened in the case of Wirecard. It also happened to a long-standing CMS client who fell victim to a multi-million episode of white-collar crime between 2009 and 2013 and instructed us to handle the matter.

As one of the largest investigation teams in Germany, we have decades of practical experience as well as the strategies, structures and tools to investigate the background to white-collar crimes and serious compliance violations, assess the legal implications and assist with the relevant legal action across the full spectrum from employment law to civil procedures. Despite our familiarity with such cases, they never become routine. Every internal investigation has its special features and surprises. 

When our client contacted us in 2014 to report a case of suspected fraud following an anonymous tip-off, the scope, depth and full implications were not immediately apparent. The chairman of the supervisory board and one of the managing directors were suspected of having entered into disadvantageous contracts with external parties on our client’s behalf – and received millions in bribes in return. The vehicles used for this purpose allegedly included several property sales below market value and the granting of unsecured loans. 

At the time, nobody in our client’s organisation believed there was a shred of truth in these allegations. In line with standard practice, the first step was therefore to check whether the tip-off was plausible. For this purpose, we inspected and analysed the information received and the available documents relating to the matter. After concluding that there might be some truth to the tip-off, we firstly compiled an overview of urgent steps in order to protect our client’s interests as best as possible and to prevent further damage. This included not only “freezing” digital data to preserve evidence, but also complying with any reporting obligations and time limits, e. g. for reporting the matter to the D&O insurer, short-term personnel measures, informing official bodies and taking urgent legal action to secure assets. In order to give our client an idea of what the near future might look like, we also summarised the possible steps of our internal investigation, along with a schedule and details of responsibilities. We additionally prepared crisis communications, which enabled us to respond to press enquiries at short notice and avoid unease within the company itself. 

Then the actual internal investigation got under way. We analysed many contracts, e-mails, letters and other documents with the help of our e-discovery program CMS Evidence [hyperlink to CMS Evidence], conducted numerous interviews with the individuals involved and carried out meticulous background research into corporate structures. The information obtained in this way revealed the initial details and seriousness of the case. 

Based on our complex investigation and the analysed evidence, it was then necessary to address the following questions from a legal standpoint in order to determine what further action our client needed to take: Were criminal offences committed within the company or by external persons? Should they be reported to the investigating authorities? What civil law measures can be taken to recover lost assets, obtain compensation for the loss or damage suffered, and to minimise further liability risks? Is it necessary to take labour law actions? 

On the basis of the information, we had already obtained, we decided to file a criminal charge. Involving the investigating authorities not only gave us access to information that could only be obtained through official means. The public prosecutor’s office was also able to secure assets by seizing them. The police took several steps, including searches and telephone surveillance. As the representative of our client, we closely followed the criminal proceedings and were granted access to the extensive investigation file by virtue of the injured party’s rights. This revealed the full extent of the wrongdoing for the first time: dubious commissions and bribes, disguised by way of bogus invoices and kickbacks using special-purpose vehicles, some of them located outside Germany, planned long in advance by a group consisting of the chairman of the supervisory board, one of our client’s managing directors and external third parties. 

With our client having lost real estate as a victim of fraud and corruption that caused damages running into the millions, the aim was to hold the perpetrators accountable and restore the original asset situation. The extensive knowledge of the facts of the case gained during the internal investigation and through the investigation file was thus also used against those responsible under civil law, initially out of court, and then in court. During various civil proceedings throughout Germany, we not only brought lawsuits for recovery of the properties, but also for compensation from multiple defendants to cover the millions in damages. The proceedings were characterized not only by the massive scope of the investigation file introduced, criminal law assessment and complex civil law assessments of the disadvantageous contracts, but also by a large number of witness hearings. 

Although not all the proceedings have yet been completed, with appeals in particular still ongoing, one thing is already certain: the effort invested to assert our client’s rights in this complex case over many years was worthwhile. Not only were the fraudsters stopped, but we were also able to significantly reduce our client’s losses. All the properties affected have now been returned to the client. Some of the claims for damages have also been awarded with binding effect. This would not have been possible without an internal investigation. The key to success laid particularly in the way we combined the speed and thoroughness in internal investigations gained through long experience with the necessary perseverance, legal expertise and extensive litigation experience in civil and criminal law.

To prevent such serious compliance violations in the future, we subsequently identified and introduced additional compliance measures for our client, based on the knowledge acquired over the previous years. 

Our Advisory Portfolio

We provide you with full support for internal investigations. Our advisory portfolio includes services such as

• Structuring, management and implementation of internal investigations
• Review of complex issues, including by analysing documents and e-mails using forensic tools, database queries, background research and conducting interviews
• Detective investigations
• Comprehensive legal assessment of compliance violations, involving a range of legal experts at CMS
• Informing management and the relevant supervisory bodies of their duties and liability risks in a compliance crisis, and developing a crisis management plan
• Crisis communication
• Negotiation with and representation before public authorities
• Representation in administrative fine proceedings
• Advice on official searches (dawn raids)
• Advice and representation under white-collar crime and civil law
• In-court and out-of-court assertion of claims / defence of claims for damages
• Enforcement of claims involving liability of company organs
• Corporate defence, individual defence (and collaborative defence) in all areas of white-collar crime and tax criminal law
• Customised defence strategies
• Support from a team of experienced collar-crime and criminal tax lawyers, defence attorneys and former public prosecutors

Schedule a Consultation