Operational Due Diligence

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.

An excerpt from the following link provides a low dose of fresh language for due diligence:

www.naturaltraining.com/blog/2005/08/13/wanted-your-brains-not-your-slickness/

Icing the due diligence cake
With the ever widening array of hedge fund companies and investment products available it makes sense for investors to spend time weeding out unsuitable prospects.

Many fund of fund managers now have a comprehensive due diligence policy. This includes factors such as sending questionnaires to the hedge fund, investigating their processes and running a question and answers style “beauty parade”.

This allows them to control the process from start to finish.

More and more companies are chosen on merit as the result of proper research. By the time the presentation comes, they have all but made their decision.

Stephen Holt of Threadneedle Asset Management thinks the onus is on the fund of fund managers to drive the process of due diligence. “It’s better to spend the time upfront on the true aims and objectives of the fund than leave everything in the hands of one presentation”.

The due diligence process won’t go away, and nor do we want it to. It is in effect your sales process. If care and good management of this process is undertaken by your team, then the presentation should be the icing on the cake.

Should be…but there are a number of times presentations have fallen over at the last hurdle.

Your prospective clients want to see the results of their time and effort backed up by the presentation content and delivery – so spend the time to ensure you aren’t letting yourself down.

After the due diligence, it’s up to you to let your professional style come across in a compelling and engaging manner. A good presentation is the icing on the cake.

If you can do this then you’re well on your way to securing the deal. If not, the poorly prepared, formulaic presentation may stick in their minds.

So, while due diligence is important, don’t underestimate your ability to provide trust and a natural flavour of your team at this last crucial stage.

The full article can be found here:
http://www.nypost.com/seven/03162008/news/regionalnews/eliots_gal_a_shared_asset_102203.htm?page=0

In March of 2008, James Chanos was reported to have known Ashley Dupre, the high-priced call girl that sunk Eliot Spitzer’s political career. Mr. Chanos, a financial backer of Spitzer, had pumped close to $100,000 into his campaign over the past five years. James Chanos admitted to knowing Ms. Dupre, but claims he did not introduce her to Eliot Spitzer, nor did he know she was a hooker. Ms. Dupre was said to refer to Mr. Chanos as “Uncle Jim.”

The article also states that since Mr. Chanos finalized a divorce with his wife Amy Chanos. Since his divorce, he has been known to throw very lavish parties at his home in the Hamptons. These parties are said to include “scores of sultry young women.” One nightclub promoter, who asked not to be named, stated that “Chanos often invited pretty young women he met in nightclubs to his Hamptons home.”

**Now, the question is, how would you factor in such information in determining whether you would place investment capital with a manager? It doesnt appear like he did anything wrong, although it also doesnt appear that he goes home after work, has a vodka tonic, watches the game and goes to bed either.

Would his party lifestyle have an effect on how you viewed the risk of the investment?

The following are the top 10 most requested managers on CheckFundManager.com for 2007:

1. Brett Stuart Messing, GPS Partners LLC
2. James Gerard Dinan, York Capital Management, LP
3. Daniel Alexander Schwartz, York Capital Management, LP
4. Barry Stuart Rosenstein, JANA Partners, LLC
5. Robert Scott McLellanm, Marble Arch Investments, LP
6. Peter Brendan Doyle, Horizon Asset Management Services, Inc.
7. Gary Edward Claar, JANA Partners, LLC
8. Donald Ellis Morgan, III (also Donald Earle, Brigade Capital Management, LLC
9. Andrew Victor Rechtschaffen, Obrem Capital, LP
10. William A. Ackman, Pershing Square Capital Management, LP

The following are the top 10 most requested managers on CheckFundManager.com for Q1 and Q2 of 2008:

1. John Alfred Paulson, Paulson & Company
2. Paul Matthew Britton, Capstone Asset Management LLC
3. Christopher Neil Brodie, Krom River Partners LLP
4. Lee Atzil, Broadway Gate Capital LLC
5. Adam Bryan Stern, AM Investment Partners LLC
6. Jay Alexander Johnston, Gramercy Advisors, LLC
7. Mark Lawrence Friedman, AM Investment Partners, LLC
8. Dane Carl Andreeff, Andreeff Equity Advisors, LLC
9. Robert Scott Koenigsberger, Gramercy Advisors, LLC
10. Jeffrey Lance Bellman, Bellman Walter Capital, LLC

The first step is to decide on the type of investigation you would like to order by going to http://www.checkfundmanager.com/cfm_products.html

On this page you can click on the individual links to find a definition of that search. Many of these searches are “packaged” reports that consist of a variety of records, including regulatory registrations, corporate affiliations, media research, bankruptcies and criminal & civil checks.

There is also a link to expanded searches. This takes you to an options page that includes credit check, driving records, deluxe credentials verification, pre-employment screening and many others. After you decide which search to buy, select the box or boxes and click the BUY button. Next, follow the prompts. If you have any questions while ordering or after the order has been put through; please call CFM at 888.523.4483.

If you are not a current client and would like more information on becoming a client, please contact us and we will gladly send you a sample report and explain the entire process to you.