For the eDiscovery practitioner community, a love story

“Love means never hiding your assets” 

22 MAY 2023 – Move aside, Swiss bank accounts, there’s a new (more traceable) kid in town: crypto! A husband hid $500,000 in bitcoin during a divorce – and got busted by a crypto hunter. From the article:

“A few months into her divorce proceedings, Sarita thought it was suspicious that her spouse, who earned $3 million annually, didn’t have many assets. After spending half a year on discovery and enlisting the help of a forensic accountant, the New York housewife eventually tracked down 12 bitcoins — then worth half a million dollars — in a previously undisclosed crypto wallet.

The world of financial infidelity has become increasingly sophisticated, as investors “hop” coins across blockchains and sink their cash into metaverse properties. CNBC spoke with divorce attorneys from Florida, New York, Texas and California, blockchain forensic investigators, financial advisors, as well as spouses who were either hunting down virtual coins or the crypto holders themselves. Most agree that the law can’t keep up with all the new ways that people earn and safeguard digital assets that largely exist outside the reach of centralized intermediaries such as banks”.

Forensic accounting is a combination of accounting, auditing and investigative services. While many eDiscovery vendors tout their end-to-end services, very few have the digital forensics/forensic accounting teams that are needed more and more. We seem enthralled with ChatGPT and generative AI right now – forgetting that the true eDiscovery skill sets are in the trenches.

We asked Craig Ball for his thoughts. Craig Ball has served as the Special Master or testifying expert on computer forensics and electronic discovery in some of the most well-know and challenging litigations, and may in fact hold the record for “Most Appearances A Forensic Expert”. He is a prolific contributor to continuing legal and professional education programs throughout the United States (his articles on forensic technology and electronic discovery frequently appear in the national media) and he runs a column on computer forensics and eDiscovery called Ball in your Court which is on the “must read” list of every eDiscovery practitioner. His point was simple:

“As we see this proliferation of non-traditional data sources which one might easily overlook when performing eDiscovery, you see the need for expert forensic accountants and digital analysts. And you see it turning up more and more in matrimonial and personal injury disputes. There are numerous cases where data should be there but isn’t. As the article notes, Florida only recently inserted “cryptocurrency” into the standard request for production of documents — a key part of establishing the couple’s marital property during the discovery process. Illinois is another. That adoption will continue”.

But where do you find the forensics experts you need? We turned to Nico Van der Beken, co-founder of Undecom – a platform that connects you with a global pool of investigators, forensic specialists, detectives, intelligence professionals, security experts, and legal consultants, providing quick and easy access to proven talent. We have known Nico for a long-time and we have worked with him at Deloitte, KPMG, PwC, and Stroz Friedberg where has has headed Forensic Technology teams. Nico’s thoughts:

“My co-founders and I saw the common dilemma, a dilemma we all faced: a constant struggle to find on-demand experts to assist with specialized areas of daily workflow, especially when the needs were outside of areas of expertise or geographic locations. Internet searches were time-consuming and inefficient. Referral requests took too long, causing project delays and lost revenue. From this frustration, an idea was born: a global networking platform for investigators and security experts.

The article you cite is interesting. Undecom has been tracking the dramatic rise of cryptocurrency that has led to some spouses hiding those digital assets during divorce settlements. And tracking down the funds isn’t easy. It is certainly one reason why there has been a spike in searches on our platform for cryptocurrency fraud and tracing services, as well as form forensic analysts can use specialized tools and techniques to recover data that has been deleted from electronic devices. This data can include deleted files, chat logs, and web browsing history, among other things”.

Lastly, I spoke with Markus Mosca, Chief Executive Officer of Arina AG. Arina is the dominant reseller for globally leading products in the areas of digital forensics, mobile forensics, e-discovery, cybersecurity, data duplication systems and network forensics. They are the leader in the DACH region (Austria, Germany and Switzerland). Twice a year they they run the “Digital Investigations Conference”, a truly a one-of-a-kind event – the only European conference that provides a platform for computer forensic experts, vendors, partners and sponsors working in digital investigations and e-Discovery that features keynote addresses, detailed session presentations and a multitude of hand-on workshops to increase skills and to learn more about software and hardware solutions in the digital investigations markets. My boss, Gregory Bufithis, has given the keynote speech twice in the past 5 years. I asked Marcus about crypto and discovery:

“Well, as you know, Chainanalysis is one of our partners and they are one of the world leaders on detecting and investigating crypto crime. And the question you pose is tricky: how can we prove that someone holds crypto if they do not voluntarily disclose it? So you really need some expertise. At present the only way of establishing whether someone holds crypto, if they have not voluntarily disclosed it, is by analysing their traditional bank/building society statements. Although crypto can be “mined” or created, the most common way of acquisition is by purchasing it using good old-fashioned cash. This means there will be a record on a statement of interaction with a crypto exchange either when the crypto was purchased or when it is eventually sold and converted back to currency. Lawyers need to find the crypto clue and then prize the door open by way of asking for details in a Questionnaires to establish the purpose of the debit or credit until the digital wallet is found.

But it is best to employ expert forensic accountant/investigators to look for the ‘finger print’ evidence of ‘entry and exit’ into the crypto market from bank statements, business accounts, tax returns, or electronic devices. If crypto assets can’t be located within proceedings, but there is evidence of activity in the crypto market, the applicable court might have the power to draw adverse inferences that the assets do exist and therefore some value should be included when dividing up the matrimonial pot”.

I spoke to one forensic accountant who says his practice has gone from 10% crypto cases to 25% crypto cases in 4 years. He said there are several ways to find secret cryptocurrency accounts:

– Forensic experts will scour electronically stored information for digital currency ticker symbols or search devices for login credentials.

– They will also check for confirmation emails from exchanges or transfer activity on bank statements. There may even be records of cryptocurrency income on past tax returns.

– Sometimes, a surprise: a spouse lists cryptocurrency on a past loan applications to boost their chances of approval

But it is all very tricky stuff. And expensive. While older cryptocurrencies like bitcoin or ethereum may be easier to track, others may be more difficult for experts to find. For example, monero, dash, zcash, PIVX, verge, horizen and grin are among the most anonymous cryptocurrency.And while attorneys can subpoena U.S.-based exchanges, it may be tough to get records from foreign companies.

And, of course, spouses need to weigh the cost before embarking on a cryptocurrency hunt. Before starting, a spouse may complete an analysis to gauge how much money they may be trying to track down. You are looking for people that have made significant amounts of money for it to be worth the investigation. Forensic experts typically charge hourly and may be costly, depending on the number of electronic devices and volume of information. Moreover, the divorce attorney has to spend extra time reviewing what forensic experts find to make a legal argument to the court. Said one divorce attorney I spoke with: “If it’s $5,000 of cryptocurrency, it’s really not worth it”.

But … plan ahead! The spouse with less money should do some planning before going forward with the divorce. They may start gathering information and tallying the marital assets. As they start putting that together, they’ll probably start seeing holes.
The spouse may check joint accounts to see if money is missing, and if the spouse knows a specific cryptocurrency account exists, their attorney may request access. It’s really about getting as much information as you can about how they’re buying it. Missing money may suggest a gambling problem, offshore bank accounts, an extramarital affair, another family or cryptocurrency. And once you have an idea of the value of what’s missing, or what might have been invested, then your attorney can do the rest of the work.