No more Mr. Tough Guy in the detective biz
No more Mr. Tough Guy in the detective biz
By Hilary Potkewitz
E-mail banking scams, credit card and mortgage frauds, Ponzi schemes. The spike in white-collar crime has been a boon for private investigators, local gumshoes say, citing double-digit gains in revenue the past few years.
But if you’re thinking Magnum, P.I., think again. Today’s detective for hire typically must be an expert in forensic accounting, insurance underwriting, information technology and privacy law. If Magnum ever gets a true remake, Tom Selleck’s character should be wearing a suit and carrying a laptop.
“If you’re a P.I. nowadays, you have to speak white-collar,” says Kenneth Springer, president of private investigation outfit Corporate Resolutions and a former FBI special agent accountant.
“You have to be able to read a balance sheet and follow things like assets,” Mr. Springer says, demonstrating his fluency. “Someone can be claiming they have a certain asset, but it could be a nonliquid passive interest in a partnership that has no real value.”
This type of in-depth financial investigation used to be a niche specialty, limited to a few dedicated firms. But even workaday private eyes these days find themselves analyzing troves of electronic communications.
“I need guys who can wrap their arms around this derivatives thing, if you know what I mean,” says Steve Bursey, a former FBI agent who spent most of his government career going after the Mob. He now heads up the investigative team at plaintiffs law firm Milberg, which represents several victims of Ponzi schemers like Bernard Madoff.
“This stuff has gotten so complicated.” Mr. Bursey says. “The most recent guys I’ve hired have a background in investment banking.”
Hedge fund and PE clients
While there will always be small P.I. firms doing traditional sleuthing—human nature doesn’t change—the real boom is in areas like mortgage fraud, which can range from multiple liens on a single property to cash-back refinancing schemes; computer-related crime, like identity theft and credit card fraud; and work for hedge funds and private equity clients looking for background investigations of potential investment opportunities.
“Over the past four years, we’ve seen the more traditional investigative cases—the matrimonial stuff, the ‘My employee is stealing from me’—lag behind,” says Robert Tucker, president of the Associated Licensed Detectives of New York State, an industry trade group. There are about 3,130 licensed private investigators in New York. “Financial data and forensics investigations are coming in far more rapidly,” Mr. Tucker adds.
Anthony Roman, chief executive of Roman & Associates, a private investigation firm that mostly serves large companies, says his caseload is up 20% this year, due to mortgage fraud and computer-related crime. His team combs through electronic documents, builds timelines with e-mail archives, and sometimes has to pay a surprise visit to a company to inspect its electronic records or interview a former employee.
Five years ago, most of his investigators were former FBI agents, he says. “Today, we’ve added accountants, engineers, former attorneys and software folks.”
The mortgage crisis has spooked sophisticated investors, says Edward Stroz, a former bank examiner who is now co-president of investigative firm Stroz Friedberg. His hedge fund and private equity business has doubled over the past year.
“We’re being asked to do a tremendous amount of due diligence before they commit financial capital,” Mr. Stroz says. He declines to divulge the names of any of his clients but notes that the names would be familiar.
Due diligence deluxe
In a recent case, due diligence meant journeying to rural Poland to check on a factory that a potential venture partner had claimed as an asset. It turned out to be an old plant tended by a skeleton crew that did little more than keep the lights on, and it hadn’t been fully operational for decades. “We see a lot of instances where assets were way overstated,” Mr. Stroz says.
More Fortune 1000 companies also want to go deeper into a job candidate’s professional, personal and financial background than a simple reference call or a credit check. An experienced investigator would ask more detailed questions than a hiring manager and would look at a person’s financial records with the jaded eye of an auditor.
Industry veterans and investors alike have taken note of these fast-growing markets. Jules Kroll, legendary founder of corporate security and detective firm Kroll Inc., which he sold to Marsh & McLennan in 2004 for a stunning $1.9 billion, recently launched a private investigation firm specializing in fraud and financial transaction risk called K2 Global Consulting.
And last month, $9 billion private equity firm New Mountain Capital took a nearly 50% stake in Stroz Friedberg, investing $115 million.
One has to wonder: Who’d they hire to investigate the investigators?