Published April 13, 2016 By Joelle Scott

The unraveling of Andrew Caspersen is alarming not only because of the amount of money Caspersen schemed out of friends, family and investors ($95 million and counting) but also that someone from such a perceived high perch (Ivy league schools; prominent wealthy family) would commit such a crime. The SEC filed civil charges, DOJ filed a criminal case and Caspersen, while silent on the matter to date, spent a few days in a hospital (no word yet on how many days he will spend in jail).  Once the smoke clears, the Caspersen debacle will reveal one major shift in the last five years:  investors are more empowered than ever before.

While a few other frauds have been exposed in the last six weeks, Caspersen’s scam seems to be the one that has the strongest reaction. When examining the Caspersen case you cannot help but think of Bernie Madoff.  Caspersen’s victims were not nearly as multiple as Madoff’s, thankfully.  However, there are many similarities between the two.

Caspersen, like Madoff, relied on his reputation to dupe investors. The son of a legendary businessman and philanthropist, Caspersen was armed with a trust fund and real estate portfolio that rivals any Chinese investor.  He belonged to the right clubs, wore the right clothes and, from the few stories we have read about his personal life, remained appropriately buttoned-up.  Using this reputation, Caspersen persuaded his Princeton alum friends (and their respective networks) that he was giving them a rare chance to get in on a sure thing.  But we all know the only thing that is “sure” is risk.

While Madoff abused the vulnerabilities in the entire financial ecosystem, Caspersen exploited the loopholes and trust of his employer, Park Hill. Madoff created fake deposit slips and trades; Caspersen fabricated email addresses and letterhead. Both men preyed on the trust of others. But, the significant difference between the two is that neither federal authorities nor regulators stopped Caspersen’s fraud – investors did.

A “mini-me” of Madoff, Caspersen also pulled the classic fraudster move: forming an LLC in Delaware that was so similar in name to a legitimate company that investors did not know the difference.  Irving Place Capital Partners III SPV was the actual fund that turned profits for investors while Irving Place III SPV (without the “Capital Partners”) was the shell formed by Caspersen.  Caspersen actually had formed many LLCs over the years, many of which were legitimate and related to his family’s real estate properties.

One of these companies was named Caveat Emptor, LLC a name that now seems satirically fateful. Many frauds originated from the simple forming of an LLC.  Most recently in the news was the former controller of Contrarian Capital Management who pulled this stunt when he needed a vehicle to embezzle $12 million from investors and his employer.

Why is it so easy for scam artists to form LLCs? Ask Delaware. Caspersen and other fraudsters have notoriously relied on Delaware’s lax laws to form new companies because Delaware does not require new companies to name their respective officers and directors. But, LLCs do not exist in a vacuum. All states are required to allow the public to search and review companies formed.  Identifying these companies (no matter where they are incorporated) is a critical component of the background investigation process. It goes like this: crooks need a place to hide the money once it is swindled; the only place to do it is through their very own LLC; knowing how to uncover these LLCs is what makes a background check worthwhile.

The SEC complaint against Caspersen details an investor who questioned Caspersen along the way. This was the person who figured out Caspersen formed a fake email address minutes before sending the email.  When his questions were not answered, the investor brought it to the attention of others, then asked for his money back and ultimately lit the fire that burnt Caspersen’s house of cards.

Let’s repeat this in case it was missed: investors stopped Caspersen.  Not the regulators who oversaw his activities, not the State of Delaware that waves its flag of apathy after each disguised LLC is formed and certainly not the banks who gladly gave Caspersen access to the very accounts that served as tools for embezzlement.  Nope.  If not for the sharp eye of an investor there is no way of knowing how long Caspersen’s swindle would have gone on or how much money would have vanished.

Investors are savvier and stronger than ever before. As we have seen from our perspective, investors’ level of scrutiny has widened and with each cautious step of due diligence, investors are sending a clear, strengthened message of intolerance.

About the author:  Joelle Scott is Senior Vice President and head of research for Corporate Resolutions Inc.  She is the co-author of “Digging for Disclosure: Tactics for Protecting Your Firm’s Assets from Swindlers, Scammers and Imposters” (released Jan. 2011).