Digging for Disclosure: A Book About Investors' Need For Information

HIGHLIGHT: Kenneth Springer’s books suggests: Do your background checks, unless you want to make business with a CEO who spent his earlier years running a prostitution ring or with a hedge fund manager who crossed several country borders with the hopes his insider trading charges wouldn’t catch up with him.
In my new book “Digging for Disclosure: Tactics for Protecting Your Firm’s Assets from Swindlers, Scammers and Imposters” , I discuss why investors need to be armed with intelligence to protect their deals.& Information gathered in a background check can alert you to any problems or conflicts that may not only impact your decision but also affect how you structure the deal.
As I have seen in my 30+ years in the business of investigations, thorough background checks are your greatest tool; they provide you with the information necessary to make sound investment decisions. Using our arsenal of cases investigated at my firm, Corporate Resolutions Inc., our book illustrates why investors and others need to know more before they ink a deal and what can happen if these investigative steps are overlooked. The stories are real but have been fictionalized to protect the confidentiality of our clients. We also present critical information that shows why investors could have avoided the sting of recent Ponzi schemes, such as Bernie Madoff and Robert Allen Stanford.
Rather than focus on the mechanics of what we do and how we do it, our book, “Digging for Disclosure,” uses stories to entertainingly illuminate challenges investors have faced and ways to overcome these barriers to deals.& The thread of the book relies on one prominent theme: disclosure.& Investors need more of it and background checks are the tools to get it. Sometimes our background checks will uncover daunting information, like when we found a CEO spent his earlier years running a prostitution ring or the hedge fund manager who had crossed several country borders throughout Asia with the hopes his insider trading charges wouldn’t catch up with him. But, whether the information is inflammatory on its surface or implicitly conflicts with your interests, the key is knowing all of this before you get involved.&
We were once hired by investors who were contemplating an investment in a company founded by a group of young, Ivy League tech guys.& The company was a sneeze away from going public. The founders voluntarily disclosed to the investors that they were arrested for smoking marijuana while in college.& Before the investors made a commitment, they called us to run background checks on the founders. We found that their initial “disclosure” was downplayed just a little: they were federally criminally indicted for running a national cocaine and marijuana ring. They were caught by the Drug Enforcement Agency and had each served several years in prison.& Did the investors walk away from the deal?& No. They removed the founders from their positions of officers and directors and allowed them to remain large shareholders in the company.& The company eventually went public and remains successful.
Rigorous background checks uncover information that not only sheds light on the integrity of your executive or fund manager but also on the integrity of the deal.& Each story throughout the book discusses information we found during a background check or corporate investigation.& We have found that the most common problems investors face are material non-disclosure and conflicts of interest. Non-disclosure is when the individuals responsible with your money choose to omit critical information about themselves or their career history, such as being disbarred by the SEC, a penchant for Driving Under the Influence or lying about the colleges they attended.& And, a conflict of interest is defined by anything that would impact the life of your deal, such as an individual’s involvement in other businesses that blur the lines of commitment to the deal; a pattern of being sued by investors or lenders, and other issues.
As you see in “Digging for Disclosure”, the situations that surface in background checks are shocking, comical and complex; investors need to be prepared to deal with anything.& The book details not only how to recognize fraud of any color but also how to interpret information found in a background check and reveals some secret sources we rely on.& In our discussion of the strategies used during our background checks and corporate investigations, we also point out what could have been known about Bernie Madoff, Robert Allen Stanford and other Ponzi schemes and highlight ways investors can protect themselves from vulnerability to such frauds in the future.
Everyone has a different appetite for risk.& But the key is knowing as much about your exposure before the deal is done. We have seen clients respond nonchalantly when we discovered a fund manager had been the main perpetrator in a bank fraud scheme and other clients who have cancelled a deal because a member of the management team had an outstanding federal tax lien.& Our background checks do not rely on mere data; it is our analysis of the facts that assists our clients in making tough decisions and leveraging information to their benefit.
Before you move ahead with your next potential investment, remember that information is at your disposal. With the intelligence of a background check, investors can diffuse an inevitably explosive deal, resuscitate an investment that looked murky or walk away from a deal that was nothing other than a disaster.&&Let information be your advocate.
Kenneth Springer is the author of “Digging for Disclosure: Tactics for Protecting Your Firm’s Assets from Swindlers, Scammers and Imposters” and is the President and Founder of Corporate Resolutions Inc.& Mr. Springer is a Certified Fraud Examiner and a former Special Agent with the FBI.