Operational Due Diligence

Guilt by association???

Filed under: Background Investigations, Busted Funds, Company Fraud, Due Diligence Manager's Corner, Investigative Techniques — aad21 @ 9:46 am

I had a report recently where we went to confirm employment. When searching for company contact information, I realized that my subject had worked at two of the same companies at the same time as a fraudster. The fraudster had worked at one company, then went on to found his own firm in the 1980s. In the early 1980s, he was indicted. At the time he was out of the country and never came back.

There was no connection to my subject, other than they worked at the same seemingly small company, and then my subject went on to work at the company that the fraudster had started. He also appears to have worked at this company during the time that the fraudster committed the crimes that the US Govt accused him of.

I had a hard time deciding how to report that information. Ultimately I decided that the best thing to do was to provide details on the criminal activity and simply report that my subject had worked at the same companies during the same time as the fraudster.

Comments (0)

FINRA (formerly the NASD)

Filed under: Credentials Misrepresentation, Educational Verifications — aad21 @ 4:50 pm

A client recently provided a CRD number and said that she was able to obtain a FINRA record on an individual. Yet our researcher was unable to obtain one. We searched the online Brokercheck, then contacted FINRA directly, then contacted the local regulatory agency at the state level. All of which stated that there was no person by that name or with that CRD number registered.

I discussed with the client and she said that she might have special persmission because her company is considering the person as a registered rep. Might give her more authority than a background checking firm can do?

Comments (2)

Hedge Fund Fugitives, add Sam Israel to the list of investment scam artists on the run

Filed under: Company Fraud, Wall of Shame — gs @ 6:59 pm

How long will Sam last? They all get caught eventually.

Please see the discussion thread on Sam Israel already started elsewhere on this site. Please Comment/Reply with the names and plights of other fugitives that investment scams.

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CFA Designations discussion

Filed under: Credentials Misrepresentation, Educational Verifications — gs @ 5:30 pm

The “Chartered Financial Analyst” program is administered by the CFA Institute. This organization is very particular about who can claim the title of “CFA” after their name.

See http://www.cfainstitute.org/

We do find a fund manager who claims to hold a CFA, but is not entitled to that title. Typically they have either not completed their studies, or have not kept their dues and credentials up to date.

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Cioffi/Tannin Former Bear Stearns hedge fund managers busted by FBI

Filed under: Busted Funds, Company Fraud, News Stories, Sanctioned by Federal Regulators, Wall of Shame — OverFunder @ 1:50 pm

Report: 2 ex-Bear Stearns hedge fund managers likely to be indicted

Two former hedge fund managers at Bear Stearns are expected to be indicted this week on criminal charges of securities fraud, the Wall Street Journal reported today. The collapse of the funds helped precipitate the credit crisis that continues to rock the financial sector and beyond.

In a year-long investigation, the U.S. Attorney has sought evidence as to whether Ralph Cioffi and Matthew Tannin intentionally misled investors by presenting a rosy picture of the funds at a time when they were privately communicating with colleagues about their worries over how the investment vehicles would ride out weakness in the mortgage market, the Journal writes. Their indictments would be the first arising from the credit crisis.

Comments (5)

June 16, 2008

Exceptional Records

Filed under: Background Investigations, Exception Types — OverFunder @ 9:13 am

A report recently yielded an abundance of controversial criminal and traffic records:

Mr. X was charged with disorderly conduct, resisting an officer
>without violence, and two counts of trespassing on property in Orange
>County, FL in January 2005.
>
>On November 5, 2002, Mr. X was charged with criminal mischief in
>the first degree involving damages ranging from $200-$1,000. He was also
>charged with a second count of criminal mischief (in the second degree)
>involving damages less than or equal to $200. Court proceedings for this
>case began in November 2002, and ended in September 2003. It appears as
>though the end result was a nolle prosequi entry; this means that the
>prosecutor applied to discontinue criminal charges.
>
>
>Traffic:
>
>Mr. X was charged with failing to yield/stop at a stop sign in Lee
>County, FL in May 2007. For this he incurred a $113.00 fine.
>
>Mr. X was charged with failure to pay a toll in Orange County, FL in
>October 2005. During the course of this case, Mr. X drivers license
>was suspended. It appears as though this case ended in May 2006, with Mr.
>X “electing” to pay the toll.
>
>Mr. X was charged with failure to pay a toll in Orange County, FL in
>September 2005. His drivers license was suspended in February 2006, and
>reinstated in May 2006.
>
>Mr. X was charged with making an improper right turn in Orange County,
>FL in August 2005. This case was satisfied (a fine was probably paid) by
>November 2005.
>
>Mr. X was charged with failure to signal for a stop or turn in Orange
>County, FL in August 2005. His drivers license was suspended in 12/2005,
>and this case was closed by March 2006.
>
>Mr. X was charged with parking on a highway outside of municipalities in
>Orange County, FL in April 2005. To this charge, he pleaded not guilty.
>
>Mr. X was charged with unlawful speed in Orange County, FL. He was
>sentenced to traffic school.
>
>Mr. X was charged with DRIVING UNDER THE INFLUENCE in Orange County, FL
>in March 2001. During the course of this case, Mr. Davis failed to appear
>for his arraignment. He was sentenced to probation, jail time (it seems that
>this was “time served” on the day of the incident and arrest), driver’s
>school, a fine and court costs.

The question is, how may this reflect a manager’s stability and reliability? When criminal records indicate that they cannot control themselves, what must one assume about their professional personality? This blog has discussed red, yellow, and green colour codes for reports - and has often agreed that traffic records aren’t usually of much concern. When there is a perfect record trail of disregard for moderation and self-control, though, even when it is documented through traffic records (supported, of course, by the two non-traffic criminal records), what is the conclusion? Is this a compliance nightmare, or is it all overlookable?

Comments (2)

June 11, 2008

Flagging of Investigations & Severity of Offenses

Filed under: Background Investigations, Exception Types — gs @ 4:12 pm

Under our Ongoing Due Diligence Monitoring Service, we will have three severity types. Green for no events, Yellow for moderate, and Red for severe. Let’s discuss which “exception types” belong in each category.

(Currently, when we notify a client by email of an investigation that that should be reviewed because it contains an “exceptional” event the subject line starts with ***.)

Comments (4)