In The Accountant, Ben Affleck plays a small-town CPA who secretly keeps the books for some of the world’s most dangerous criminal organizations. Well, how about a sequel called The Appraiser? It could be about putting a value to these criminal enterprises. Of course, you’d have to include a “Mafia discount,” a concept that could have implications when valuing any minority interest, not just ones owned by unsavory characters.
Offer you can’t refuse: During a recent BVR webinar, Lance Hall (FMV Opinions) says he was once asked to value a one-third interest in a landfill in New York City. But this was not your everyday client. He was an alleged senior member of a crime family, and the feds were targeting him under RICO. The government claimed that this gentleman used the strong arm of the Mafia to buy his interest at an unbelievably low price. Hall took the engagement (who would refuse?).
One of the ways he supported the low valuation was to research articles written over a 20-year period about the specific landfill and its mob ownership. “As a hypothetical willing buyer, you know that the other shareholders of this landfill are all high-up individuals connected with the mob,” he points out. “Do you really want to be that shareholder?” The Department of Justice did not challenge the valuation or the Mafia discount.
What to do: Look to the other shareholders when valuing an interest under the hypothetical willing buyer, hypothetical willing seller standard. Of course, you won’t always find underworld characters involved, but there could be some related issue that could have an impact on your valuation.
Hall’s webinar, Discounts: Beyond DLOC and DLOM, is available here.
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