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

Hardcover | December 8, 2010

byKenneth S. Springer, Joelle Scott

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Financial crimes and scandals constantly victimize sophisticated companies, investors, executives, and business deal-makers. Whether you’re planning a major investment, a corporate acquisition, or merger, you can’t afford to have it happen to you. In Digging for Disclosure , the leaders of a world-class corporate investigations firm show you exactly how to protect yourself from financial fraud.

 

Kenneth Springer and Joelle Scott draw on decades of experience as investigators working for top clients. They present dozens of stunning stories of real-world financial malfeasance, as well as powerful lessons and techniques for recognizing the signals of fraud, and successfully exposing it. You’ll discover little-known databases for uncovering what corporate criminals don’t want you to know—and how to go beyond the Internet to find crucial information that only exists offline. Springer and Scott show how to “think like a swindler”… track down fraud both before and after a transaction… gather crucial competitive intelligence… find hidden assets such as co-op real estate… uncover foreign criminal convictions… understand a potential borrower’s true financial situation… perform background checks on corporations… even investigate the potential involvement of organized crime.

 

You can’t afford not to know who you’re dealing with. Digging for Disclosure will help you make sure you do—always.

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From the Publisher

Financial crimes and scandals constantly victimize sophisticated companies, investors, executives, and business deal-makers. Whether you’re planning a major investment, a corporate acquisition, or merger, you can’t afford to have it happen to you. In Digging for Disclosure , the leaders of a world-class corporate investigations firm s...

From the Jacket

The Start-to-Finish Due Diligence Guide to Investigating Potential Partners, Borrowers, Acquisitions, and Investments   “Our members, being both high net worth individuals and private investors, need to be wary of potential fraudulent landmines when investing. This book provides both a guide and resources of savvy due diligence p...

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 int...
Format:HardcoverDimensions:208 pages, 9.18 × 6.18 × 0.8 inPublished:December 8, 2010Publisher:Pearson EducationLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0131385569

ISBN - 13:9780131385566

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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 relies solely on 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 is not available. 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 as The 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.

Table of Contents

Introduction     1

Chapter 1: Just When You Think You Know Someone     5

Chapter 2: A Swindler State of Mind     11

Chapter 3: We Call That a Clue     15

Chapter 4: The Gray Area: Somewhere Between Fraud and Fudging    

Chapter 5: Sometimes, You Just Gotta Ask     29

Chapter 6: Crossing Borders: International Investigations     43

Chapter 7: Digging for Disclosure     55

Chapter 8: The Competitive Edge     65

Chapter 9: Never Too Late: When Problems Arise Post-Investment     73

Chapter 10: Tracking Down a Threat     83

Chapter 11: Now That Is Criminal     89

Chapter 12: Dial ‘F’ for Fraud: The Benefits of an Ethics Hotline     103

Chapter 13: This One Goes Out to the Attorneys     107

Chapter 14: The Godfather in the Boardroom     113

Chapter 15: Show Me the Money: Asset Investigations     121

Chapter 16: Investigating the Inc.     131

Chapter 17: You, the Referee     137

Chapter 18: The Secret Sauce     145

Chapter 19: Testing, Testing     159

Resource Guide     173