Monthly Archives: September 2009

Updating investigations as part of your risk management strategy

As part of its standard risk management program, our client requested background investigations of two individuals in connection with an engagement continuation. SI had conducted investigations of these subjects three years prior when our client initially began its consulting engagement with them. No negative information was located in the previous investigations; however, our client quickly learned the value of conducting periodic updates.

    The new investigation revealed recently filed federal indictments charging both subjects with aiding and abetting in the evasion of taxes owed on their salaries between 2006 and 2008, amounting to more than $450,000 each. The government also charged that subject #1 directed his wife to evade income taxes on her salary between 2004 and 2007 by claiming as many as 99 exemptions on her W-4. Additionally, searches of the State Real Estate Board disclosed a pending disciplinary action against subject #2 for “misstating a material fact” that “included fraud.” Both subjects had filed personal Chapter 7 bankruptcies in December 2008 and had been named as debtors in multiple judgments and tax liens for amounts ranging from $35,000 to $2,300,000. The subjects had begun their start-up company three years earlier with clean records, but in short-order they had become a liability to our client.

    September 15th, 2009|Educational Series, Fraud, Taxes|

    Background investigation reveals untruth in advertising

    SI was engaged to investigate a national company along with two of its principals as part of our client’s risk management program. The company’s ads have appeared almost daily in major newspapers and on the Internet, and the merits of its consumer services (for confidentiality, we can’t say what they are) have been touted in the professionally scripted testimonials of “real” customers. But SI’s investigation found media reports and court documents showing that the claims were not so credible. There is a pending federal class-action lawsuit against the company and its principals alleging several fraudulent business practices, including the misleading advertising of a service guarantee that “is riddled with restrictions, waivers and limitations” and service enrollments without authorization. Six additional lawsuits for similar causes of action are pending in various county-level courts.

      Further, SI’s investigation uncovered the checkered backgrounds of the two principals behind the company. Searches of bankruptcy records revealed that both subjects had filed for protection from creditors – and in the co-founder’s case, had filed multiple times. Also missing from the company’s pitch was that the co-founder’s previous career in a similar business culminated in a federal judge’s order barring him from “promoting, offering for sale, performing or distributing any product or service related to

      [consumer] services.”  Had our client’s decision-makers relied on the company’s presentation of itself and its principals, they would not have been able to realistically assess the risk of engaging in business with the subjects. While a search of media stories might reveal complaints against a potential client, it’s a full in-depth investigation that brings all the pieces together.

      September 8th, 2009|Bankruptcy, Criminal Activity, Fraud|
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