The Dream of Owning a Business — and the Nightmare That Followed
Some of our business clients come to us after realizing that the dream business they purchased is nothing like what they were sold. One of our current matters involves a small investor who purchased a business after reviewing glossy marketing materials, tax returns, and financial statements provided by the seller and a business broker.
On paper, the business appeared to be thriving: strong revenue, steady growth, and attractive profit margins. The buyer agreed to pay a substantial price based on those numbers and on the seller’s written warranties in an asset purchase agreement that the financials were “accurate” when provided and at closing.
Shortly after the sale, the new owner began comparing the point-of-sale (POS) data to the historic financials. The numbers did not come close to matching. The prior owner had used numerous no-tax transactions or other sleights of hand o inflate apparent sales. A later reconciliation showed the alleged inflated sales figures.
Our lawsuit in that matter alleged common-law fraud, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2, and breach of contract. The theory is straightforward: the seller and broker supplied false financial statements and a misleading sales materials, failed to disclose critical POS discrepancies, and then warranted in the purchase agreement that the financials were accurate.
815 ILCS 505/2 declares it unlawful to use deception, misrepresentation, or the concealment of material facts in trade or commerce. By overstating revenues and hiding expenses, the seller engaged in precisely the sort of conduct the statute is designed to prevent. Those statutory claims complement our common-law fraud counts> In cases like this and other consumer fraud cases, we seek both rescission and damages, including punitive damages where the conduct is willful and part of a pattern. If the plaintiff is an individual we also seek aggravation inconvenience and stress damages.
The Role of Forensic Accounting and POS Analysis
In many business-fraud and corporate freeze out and breach of fiduciary duty matters, our ability to tell a compelling story depends on the numbers. We work closely with forensic accountants who examine POS data, bank records, tax returns, and internal spreadsheets. They quantify how much the revenues were inflated and how that inflation translated into an overpayment for the business or in case of corporate freeze otu cases excessive paymetns to the controlling managers through expense account or other types of over compensation..
Because we regularly collaborate with forensic accountants in fraud and breach-of-fiduciary-duty cases, we know how to translate technical accounting conclusions into plain language that judges and juries can understand.
Strategic Remedies: Damages, Rescission, or Both
Buyers who are defrauded into purchasing a business often have a choice: seek rescission and unwind the transaction, or affirm the deal and sue for the difference between what they paid and what the business was actually worth. In our cases, we often preserve both options, making clear in our pleadings that our client may elect rescission before trial.
We also pursue punitive damages based on the willful nature of the misconduct: the seller and broker did not simply make a mistake, they allegedly used fake sales entries and omitted sales tax on numerous transactions to pump up the numbers in a way that would be obvious to any experienced industry player. That type of conduct often justifies a substantial punitive award on top of actual damages and also sets the stage for stress and aggravation damages.
What Makes Our Firm Effective in Deal-Fraud Litigation
Our practice combines commercial litigation, consumer-fraud work, and a deep bench of relationships with forensic experts. In deal-fraud cases like this, we typically:
- Obtain and analyze POS data, merchant statements, and bank records;
- Compare tax returns and internal financials against source data;
- Depose brokers, accountants, and sellers about what they knew and when; and
- Use consumer-fraud statutes like 815 ILCS 505/2 to pursue fee-shifting.
Because we also handle business squeeze-out and freeze-out cases, we are familiar with disputes among partners and shareholders that often arise when one owner discovers that another brought them into a business based on false numbers.
Contact us
If you bought a business—whether a restaurant, retail store, or service company—and are now discovering that the numbers you were shown do not match reality, you may have strong claims for fraud in the inducement, consumer fraud, and breach of contract. Contact DiTommaso Lubin for a free consultation at 630-333-0333 or online. We can review your purchase agreement, financials, and POS data and help you decide whether to pursue damages, rescission, or another strategic solution.