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we should find a court case where there was a dispute over a business valuation. My court case is Blake B. Hartman v Big Inch Fabricators & Construction Holding Company, Inc. (Hartman v BigInch, 2020) This court case is about the dispute between the terminated shareholder and former officer and director, Blake Hartman (“Hartman”), and Big Inch Fabricators & Construction Holding Company, Inc. (“BigInch”) about the buyback value of a shareholder’s interest. The contract states that the buyback should be based on the “appraised market value” as determined by third party valuation in accordance with GAAP. Wonch Valuation Advisors (“Wonch”) were hired to appraise Hartman’s interest. Wonch applied the fair market value standard to determine Hartman’s interest. Wonch discounted the shares for their lack of marketability and Hartman’s lack of control. Hartman sued BigInch and argues that the discounts are inapplicable. The trial court ruled in favor for BigInch appraisal. Hartman appealed and the Court of Appeal reversed in favor from Hartman concluding that the discount couldn’t apply to any closed-market sale. BigInch petitioned the Court of Appeal reversal and the final decision was made by the Indiana Supreme Court in favor of BigInch. and confirmed that the subtracted discounts are correct. (Hartman v BigInch, 2020).

The court decided for interpretation of the contract wording,” appraised market value”, that market value is the fair market value and that appraised means that a third party is appraising (Hartman v BigInch, 2020). In the Fraud Examiner Handbook, the fair market value is defined as estimated price at which the property would sell if freely offered on the open market. (ACFE #1, 2022) In a fair value business valuation it should be taken into consideration that the investor prefers investments that they can readily convert into cash. Therefore, investors aren’t willing to pay the pro-rata value for a minority interest in a business, and the discounts for lack of control and discounts for lack of marketability should be deducted from the fair value. (Karlsen, 2020) Based on the definitions above, Wonch did his valuation based on the facts and according to GAAP. The valuation itself wasn’t in question in all three court cases, it was more a battle for the definition of the contract wording and nothing against calculation and the evidence provided, however, this interpretation of the wording would greatly affect the final valuation.

According to the Association of Certified Fraud Examiners (ACFE) in their Code of Professional Ethics, Fraud Examiners should, among other things, ‘demonstrate a commitment to professionalism and diligence in the performance of their duties’, ‘exhibit the highest level of integrity in the performance of all professional assignments, and will accept only assignments for which there is reasonable expectation that the assignment will be completed with professional competence’, and also, ‘will obtain evidence or other documentation to establish a reasonable basis for any opinion rendered’ when conducting examinations. (ACFE #2, 2022)

As a conclusion of my research, I believe that Wonch did a correct business valuation and the discounts in question were deducted correctly. This was also confirmed by the Indiana Supreme Court. Also, I couldn’t find any unethical procedures and interpretation from Wonch.