In its forensic accounting role, HSNO is often asked to provide clients and their attorneys with testimony that supports the calculation of economic damages. One of the key issues that we often encounter is the question of causation. What is the connection between the allegedly wrongful acts and the damages that are being claimed? To what extent does the damages analysis hinge upon the causation analysis? These are sometimes difficult questions to answer, requiring close coordination between the forensic accounting firm and the client’s attorneys.
“Causation provides the critical link between a defendant’s wrongful acts and the damages suffered by the plaintiff,” said HSNO partner, Chris Money. “The plaintiff can only recover compensation for damages that prove to be the legal (or proximate) result of the defendant’s bad behavior.”
In a relatively simple tort case, causation is a straightforward matter. For example, the defendant punched the plaintiff in the nose and broke it, and therefore caused the plaintiff’s medical bills to treat the injury. In such cases, the causal link between the wrongful action and the damages is fairly clear.
But in cases involving complex financial questions, drawing a reasonably certain causal connection between the defendant’s behavior and the plaintiff’s claimed economic damages can be more involved. A plaintiff may be able to show that the defendant acted wrongfully, but whether the wrongful act was the clear cause of the plaintiff’s economic damages is not always easy to establish. In part, that is because financial loss can have numerous causes that must be accounted for in the damages analysis. For example, a defendant that committed contract fraud may have caused the plaintiff to lose revenue, but the lost revenue may be intermingled with losses caused by other issues, like unfavorable market conditions. Similarly, a drop in a firm’s stock price could be related to bad news in a press release, but could also be caused by other factors like an industry-wide downturn or unfavorable geopolitical events.
A forensic accounting firm like HSNO helps clients develop a causation analysis that can stand up in court. HSNO’s forensic accounting professionals conduct rigorous analysis using broadly accepted methodologies to evaluate the causal connection between the plaintiff’s damages and the defendant’s actions. As such, we can help plaintiffs prove that their damages claims are accurate, and defendants prove that a plaintiff’s claims are inaccurate or spurious. To find out how HSNO can be of service to you contact us today.