The science of dead money: if there is a scandal in South Florida involving absconded money, you can bet Lewis Freeman is on the case—or should be

South Florida CEO, April, 2004 by James Broida

Lewis Freeman likes to call forensic accounting "the problem solving business," but admits that doesn't really describe it. "What does forensic mean? Everyone thinks of Quincy, the medical examiner. That's probably the easiest way to explain it," he says. "Except we don't do dead bodies, we do dead companies. Or live companies that have a part that gets cut off."

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The analogies are a bit morbid, but Freeman does, in fact, perform the financial equivalent of autopsies on dead companies. His job: figure out where the money went. Cases range from the union funds spent by convicted former United Teachers of Dade honcho Pat Tornillo, to whether Plantation-based Mortgage.com should have revealed certain secrets before it went public--and then bankrupt.

"I don't care if you're Tyco or World-Com or Enron, accounting is purely book-keeping--where the money came from and where the money went to," says Freeman. "There is always a trail. It's a little tougher if it's cash, but you ought to be able to figure out where it went, who spent it, and what happened to it."

While most of the assignments involve small bankruptcies, Coconut Grove-based Lewis B. Freeman & Associates works several big cases each year, among them some of South Florida's most infamous scams. The firm is currently unraveling the money trail left behind by Bankest Capital, a factoring company on Brickell Avenue that is accused of bilking Espirito Santo bank out of more than $200 million dollars.

The scheme: Bankest "factored" receivables from different companies, borrowing the money from Espirito Santo to cover the advance payments. Bankest never intended on redeeming those receivables, however, because most were faked.

"It looked like Dolly Parton and it turned out to be Twiggy," says Freeman. "It turns out that $225 million of receivables may be worth $5 million." His job will be to find out where the other $220 million went. "This is sort of like a bowl of spaghetti. You've got all this pasta intertwined, and you've got to find the beginning and the end--and each one has a story. In the Bankest case, there were five or six portfolio companies."

Sometimes the scams are ingenious. One case which Freeman took on in 2000 was that of Professional Resource Systems Inc. (PRSI). "Like any other entrepreneur, scamsters have a way of following the most current trends," says Freeman. For PRSI, the trend was the emergence of the Internet for business use. Its model was to establish a private intranet for the business community, free of spam and porn, through which businesses could sell their products and services to each other. "They got 60,000 clients signed up for $300 a pop, but they never delivered on the intranet, they never delivered on the web sites," he says. "There were 45,000 [clients] we could account for in bank accounts, over $15 million. We couldn't figure out what they had in cash."

Freeman was given the PRSI job by the Florida Attorney General, which frequently happens. In other cases, he slips in through the back door. At Mortgage.com, Freeman got the assignment after making a speech to an audience of dotcom executives. "That was in November of 2001, just as the dot bombs were beginning to hit. I told them, "You're going to take my card because your businesses are suffering, and you're going to have to have an orderly liquidation, and if there is a part of the body worth salvaging, you need somebody like me to do it." Shortly afterward Mortgage.com came to Freeman, on a voluntary basis, for its bankruptcy.

When Freeman did his autopsy of Mortgage.com, he says, "a lot of things didn't make sense." Among them were a series of suits filed against the company's officers and directors. These eventually led to the discovery of "shadow directors"--company founders who sold out when the firm went public. Unfortunately, one had been barred from ever being involved in an SEC-related company, another had been banned from the banking industry and a third had been banned from ever being involved with a public company.

So far, Freeman has recovered $4.5 million for investors, and is currently suing the accounting firm, the law firm and Credit Suisse First Boston for fraud in the public offering and for professional malpractice.

Freeman has practiced accounting in one form or another ever since he moved to South Florida to attend the University of Miami. "I grew up in Syracuse, New York, and there was 60 inches of snow the weekend I was applying to college. I said, 'Miami seems a great place'--plus, they accepted me. So I came to UM in 1967 and haven't left," he says. He worked as a tax accountant for ten years, until one day the bankruptcy attorney for the Fontainebleau Hotel on Miami Beach called him for help. That attorney was Larry Schantz, now a partner with Adorno & Yoss.

"Outwardly, Lewis is a character, with his wisecracks," says Schantz. "But deep down, he is one of the smartest, most astute humans beings out there. Don't let that facade fool you. He is smart."