Digging for Disclosure Tactics for Protecting Your Firm's Assets from Swindlers, Scammers, and Imposters

by Springer, Kenneth S.; Scott, Joelle

• ISBN13: 9780131385566
• ISBN10: 0131385569
• Edition: 1st
• Format: Hardcover
• Copyright: 2010-12-08
• Publisher: Ft Pr

Summary

The indispensable due diligence guide: how to protect yourself from corporate crime or fraud in any major investment, acquisition, merger, or deal! Top investigators reveal how to "think like a swindler"hellip; uncover hidden assets and a borrowerrs"s true financeshellip; perform international or corporate background checkshellip; gain powerful competitive intelligencehellip; and more!

Author Biography

Kenneth S. Springer, a Certified Fraud Examiner, is president and founder of Corporate Resolutions, Inc. A former special agent of the Federal Bureau of Investigation, Mr. Springer has conducted business- related investigations and intelligence gathering for more than thirty years. While in the FBI, Mr. Springer worked on numerous internal and external bank frauds, wire frauds, Wall Street-related crimes, and other complex white-collar investigations. Prior to founding Corporate Resolutions in 1991, he was president of Bishops Services, Inc., an investigative firm in New York City.

 

A 1975 graduate of Siena College with a B.S. in finance, Mr. Springer is an active member of the Society of Former Special Agents of the Federal Bureau of Investigation, the Association of Certified Fraud Examiners (ACFE), the Securities Industry and Financial Markets Association-Legal and Compliance Division (SIFMACL), the Association for Corporate Growth (ACG), the Association for Independent Private Sector Inspectors General (IPSIG), the American Society for Industrial Security (ASIS), the Managed Funds Association (MFA), Commercial Finance Association (CFA), and the European Venture Capital Association (EVCA). Corporate Resolutions is also a sponsor of the New York Private Equity Network (NYPEN), the HedgeFund CFO Association, and a recommended service provider of the National Venture Capital Association (NVCA). Mr. Springer is also a frequent speaker and lecturer on private equity, hedge funds, global due diligence issues, risk management, and corporate investigations.

 

Joelle Scott is the Director of Business Intelligence at Corporate Resolutions, Inc. Ms. Scott has spent the last twelve years in business investigations and currently oversees the intelligence analysts at Corporate Resolutions to ensure quality control and accuracy of all investigative reports. A graduate of Colgate University, Ms. Scott received her master’s degree in journalism from the Columbia University Graduate School of Journalism. Ms. Scott is also a teaching assistant for Richard Wald at Columbia’s Journalism School on the topics of Critical Issues in Journalism and National Affairs Reporting.

Table of Contents

Introduction	p. 1
Just When You Think You Know Someone	p. 5
Really?	p. 6
The Tactic: Turning Over Neighboring Stones	p. 7
Moving Forward	p. 7
A Swindler State of Mind	p. 11
The Idea	p. 11
The Payout	p. 12
The Scenery	p. 12
We Call That a Clue	p. 15
Dried Up Dreier	p. 15
The Situation: Banking With a Binge	p. 16
The Tactic: Dirt In the Documents	p. 17
The Situation: The Subversive CFO	p. 17
The Tactic: Collecting Corporate Records	p. 19
The Gray Area: Somewhere Between Fraud and Fudging	p. 23
The Situation: A Lazy Loan	p. 23
The Tactic: Don't Be Complacent	p. 25
The Situation: A Degree of Arrogance	p. 26
The Tactic: Canvassing the Cases	p. 27
Sometimes, You Just Gotta Ask	p. 29
The Situation: Protecting the Innocent	p. 30
The Tactic: Ask And Ye Shall Receive	p. 32
The Situation: Baby Proofed Résumé	p. 33
The Tactic: The Friends and Family Plan	p. 34
The Situation: Case of Contagious Coercion	p. 36
The Tactic: Secrets of Former Employees	p. 37
The Situation: Unearthing the Ugly	p. 38
The Tactic: Corralling the Criminals	p. 41
Crossing Borders: International Investigations	p. 43
The Situation: The Facility That Never Was	p. 43
The Situation: The Meandering Hedge Fund Manager	p. 44
The Situation: Son of Scam	p. 46
The Tactic: International Sources	p. 47
The Foreign Corrupt Practices Act	p. 48
The Situation: Blackmail in Brazil	p. 49
The Tactic: Changes in Brazilian Business	p. 50
Digging for Disclosure	p. 55
The Situation: The Empty Suit	p. 56
The Whitest Lie Is Always Gray	p. 56
Navigating Through Nicholas Cosmo	p. 57
The Tactic: Capturing Criminal Records	p. 59
The Situation: Cocktail Party Perpetrator	p. 60
The Tactic: Debunking The Deceit	p. 62
Best Practices	p. 63
The Competitive Edge	p. 65
The Situation: The Backdating Bluff	p. 65
The Situation: The Medicaid Fraud Mix	p. 67
The Tactic: Going Old School	p. 69
The Situation: The Grapple in the Garment Industry	p. 70
The Tactic: Combing Through Corporate Documents	p. 72
Never Too Late: When Problems Arise Post-Investment	p. 73
The Situation: Buy Now, Pay Later	p. 73
The Tactic: Employee Reunion	p. 74
How to Get the Most from an Interview	p. 75
The Situation: The Misled Lender	p. 77
Insuring Investments	p. 77
Protecting the Innocent	p. 78
The Situation: The Faultless Fraud	p. 78
The Tactic: Don't Stop Digging	p. 80
Tracking Down a Threat	p. 83
The Tactic: Three Principles of Wrongdoing	p. 86
You Have an Internal Problem: Now What?	p. 86
Now That Is Criminal	p. 89
The Situation: The Criminal Connection	p. 89
The Tactic: The Merits of Media	p. 93
The Situation: Employee Embezzlement	p. 94
The Tactic: Combing Credit	p. 98
The Situation: Fraud in Flight	p. 98
The Tactic: Connecting the Dots	p. 101
Dial 'F' for Fraud: The Benefits of an Ethics Hotline	p. 103
The Situation: The Spread of Swindlers	p. 104
The Tactic: Hotline Help	p. 104
Prime Time Whistleblowers	p. 105
This One Goes Out to the Attorneys	p. 107
The Situation: The Bragging Banker	p. 108
The Situation: A Leg Up for Lawyers	p. 109
The Godfather in the Boardroom	p. 113
The Situation: Crime in Construction	p. 115
The Tactic: The RICO Reason	p. 116
Crime Beyond Construction	p. 117
The Situation: The Russian Racket	p. 118
The Situation: Connected	p. 119
Show Me the Money: Asset Investigations	p. 121
The Situation: Going for Broke	p. 121
The Tactic: The Property Paper Trail	p. 123
Finding Hidden Assets in the Real Estate Business	p. 124
The Situation: The Driver Has the Keys	p. 126
The Tactic: Human Sources	p. 126
Methods for Finding Assets	p. 127
Investigating the Inc.	p. 131
The Situation: Submitting to a Scam	p. 132
The Tactic: Regulators Rule	p. 133
You, the Referee	p. 137
The Situation: Fraud vs. Brothel: You Choose	p. 137
The Situation: Sex, Documents, and a Deal	p. 140
The Situation: Thieves Then; Executives Now	p. 140
The Tactic: Assessing Your Appetite	p. 141
The Secret Sauce	p. 145
Testing, Testing	p. 159
The Brazen Bernie	p. 160
Stanford's Instabilities	p. 162
The Sting of Pang	p. 166
Remember Bayou?	p. 169
And the Moral of the Story Is...	p. 170
Resource Guide	p. 173
Index	p. 179
Table of Contents provided by Ingram. All Rights Reserved.

Excerpts

Introduction Introduction "I should have done more." "I did not even think to look into it." "I didn't think this would happen to me." No, I am not a psychologist, and these are not quotes from my patients. These are some of the painful comments made by investors who have been fleeced. Whether you have been monetarily slammed by Bernie Madoff or simply misled by a borrower, hedge fund manager, or executive with whom you have invested, the economic pain and embarrassment has the same pinch. As a former Special Agent with the Federal Bureau of Investigation (FBI) and the president of a business investigations firm, I have accumulated a number of preventive business methods that help investors of all sizes protect their interests and avoid being the victims of fraud. Even if you have made successful investments over the years and have, thankfully, not been ensnared in a ring of investment fraud, on any scale these methods illuminate the need for gathering intelligence to ensure you keep your track record. From my vault of cases I have investigated over the past 20 years, I have compiled these practices, lessons, and stories to share with you and hope you will arm yourself with these tools before making your next investment. Financial and legal due diligence are accepted norms in the investment community. What is often overlooked, however, is the importance of conducting proper background checks on a management team, fund manager, or investment adviser. Background checks are your "people due diligence." The success of your investment reliessolelyon the abilities of the people (or person) who oversee your money. Although not a line item on the balance sheet of a company, management is your biggest asset. Unfortunately, many investors only realize this when damage has been done and liabilities are being tallied. At Corporate Resolutions, Inc., the business investigations firm I formed in 1991, I have conducted background checks on thousands of individuals and companies. Three of the biggest mistakes that we have seen investors make repeatedly are Flock Funding.Investors hire based on reputation instead of research (the perfect example is Bernie Madoff's affinity fraud). Everyone assumes someone else did the homework. If someone says, "He is well-known," "I checked them out," or "I know him; he is a good guy," what does that mean? The onus is on you. You need to do your own investigating because not everyone adheres to the same definition of risk (or comfort). Very few investors get cheated by people they do not like; Bernie Madoff's investors liked him. While Madoff did not cause a recession, he did cause us to reassess our processes. The Bottom-Line Blockade.Investors tend to have blinders on. They are focused solely on the predicted returns of a deal and thus overlook the yellow or red flags that exist. Keep your mind open to all the information you can gather and remember that high rates of return on your investment are worthless if your money is in the wrong hands. Precipitate, Not Investigate.Investors often move too quickly and do not take the time to look into an individual's background. We are all accustomed to making swift decisions and having information instantaneously. But when making an investment, you need to take precautions. A person's past performance is often indicative of future behavior. Although much information is available at our fingertips, it takes time to conduct an appropriately rigorous background check. References must be contacted, degrees must be confirmed, lawsuits must be reviewed, media and Internet attention must be considered, and so on. These steps cannot be done overnight. As President Ronald Reagan used to say, "Trust, but verify." Background checks are often viewed as deal-killers. In actuality, background checks rescue investors from inevitably explosive deals or even resuscitate investments that otherwise looked murky. As more state and federal regulations clamp down on the investment industry, businesses will be (and some already are) required to implement meticulous due diligence techniques. These techniques should involve a lot more than a quick Google search or simple check-the-box criminal record review. If you look at Bernie Madoff, Robert Allen Stanford, and Danny Pang, the perpetrators of three of the biggest investment scandals in 2009, you will find all three had something in common: no criminal record history (until now). This alone is proof that you cannot rely on meager background checks. Securing your investment is crucial; comprehensive background checks are your most reliable tools. We have found that although a tremendous amount of information is available online, it is imperative to know what isnotavailable. The gap between the two is wide, and the awareness of this will better serve you in your role as a prudent investor. As we detail throughout this book, the ability to identify discrepancies, vagaries, and half-truths is as indispensable as finding overt criminal record histories or regulatory problems. That is not to say that glaring criminal records are not hazardous. We have uncovered considerable and sizable frauds: complex money laundering schemes, a narcotics ring, overt sexual harassment, theft of intellectual property, theft and fraud of investor money and trust, spousal abuse, and blatant lies regarding accomplishments. Our firm conducts global background checks, business intelligence, and corporate investigations. Our clients include lenders, private equity funds, investors, hedge funds, investment advisers, law firms, insurance companies, pension funds, corporations, and government agencies. Conducting background checks is no longer a cloak-and-dagger operation devised in a dimly lit and smoky room. The need to know more is not only something we preach from our desks but also has become the suggested method of regulators. Background checks are a mandated component of the Sarbanes-Oxley Act, U.S. Patriot Act, Know Your Customer, and corporate governance. With the help of investigators and intelligence analysts, we conduct exhaustive public record and database research, verifications, and independent interviews on individuals and companies before deals are inked, companies are merged/acquired, or executives are hired. I have spent more than 12 years with the FBI investigating white-collar crime, and my experiences there were not nearly as enlightening as those I have witnessed since I started Corporate Resolutions, Inc. What we have encountered in this business is more than fodder at a cocktail party. The stories are diverse, yet there is one theme common throughout them all: deception. Recently media such asThe Wall Street Journal,The New York Times, Hedgeworld,Kiplinger's, CNBC, Bloomberg, and Fox Business Network have sought out our professional expert investigative perspective on the Madoff scandal, Robert Allen Stanford, and Ponzi schemes in general. Our message has always been the same: There is no such thing as too much due diligence. Desktop research is not sufficient. The Madoff scandal was a game-changer for investors. The risk investors assume no longer impacts just your financials; it is also affects your reputation. As shown throughout this book, blind faith and reputation no longer suffice as solid reasons to invest. We hope our experiences illuminate some of the warning signs that should not be overlooked and provide investors with ways they can protect themselves from future problems. Copyright Pearson Education. All rights reserved.