trust, but verify: online sources and strategies for due ... · online sources and strategies for...

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Online Sources and Strategies for Due Diligence InvestigationsMarcy [email protected]

5/17/19

Trust, But Verify:Online Sources and Strategies for Due Diligence Investigations

8th Annual Chicagoland Fraud Conference

May 17, 2019

Marcy Phelps, CFE

Marcy Phelps & Associates, Inc.

www.MarcyPhelps.com

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http://www.wsj.com/articles/craving‐growth‐walgreens‐dismissed‐its‐doubts‐about‐theranos‐1464207285

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Objectives

Purpose & goals of due diligence

Strategies for basic online due diligence investigation

Recognizing warning signs that may indicate past or potential for fraud

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Due diligence – What?

Investigation of a business or person before entering into an agreement

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Types of due diligence

Operations

Legal

Financial

Regulatory / Compliance

Intellectual property

Market / competitive

Background investigations

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When?

M & A

Investments

Partnerships

Vendor/supply alliances

Expert witnesses

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Due diligence investigation

Not a compliance check

Not an employment screening

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Due diligence investigations

360-degree view

Create a profile of professional/private lives

Good and bad

What happened and what they did next

The past will help predict future actions

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Due diligence - Goals

Confirm all provided information

Uncover any missing information

Reconcile any inconsistencies

Identify warning signs

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Personal Info

Identifiers

Family

Known addresses

CV, resume, bios

Company Info

Address

Ownership, history, legal structure

Subsidiaries

SOS, corporation filings

Executive management

Assets/Liabilities

Real estate

Vehicles, watercraft, aircraft

Credit history

Foundations, sponsorships, other causes

UCC filings

Bankruptcies, foreclosures, judgments, liens

Regulatory

Regulatory filings, sanctions, watch lists

Education/Credentials

Courts

Federal/State/other civil, criminal court records

Media

Individuals

Work history

Images

Affiliations

Career

Education

Legal, regulatory

Misc., incl. charitable/political giving, family, hobbies, etc.

Companies

History

News

Legal, regulatory issues11

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Align level of due diligence with level of risk

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Online Due Diligence: Caution

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Online investigating myths

I can find everything online

It’s on the internet, so it must be true

I can find it fast

Everything’s in one place

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Name searching

Full legal name

Common/business name(s)

Middle name/initial

Nickname

First name first/last name first

Maiden/married names

Screen names

Verify, verify, verify!

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Know when to pay

Specialized content

Authoritative sources

Pro search tools

Search multiple sources

Easy formatting

Customer service

Copyright compliance

Added analysis/opinions

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Know the law

Non-public personal info

Fair Credit Reporting Act (FCRA) https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf

Gramm-Leach-Bliley Act (GLBA) www.ftc.gov/tips-advice/business-center/privacy-and-security/gramm-leach-bliley-act

Drivers Privacy Protection Act (DPPA) http://en.wikipedia.org/wiki/Driver%27s_Privacy_Protection_Act

Family Educational Rights and Privacy Act (FERPA) http://www2.ed.gov/policy/gen/guid/fpco/faq.html

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Rules of the road

Manage expectations (yours and clients)

Develop a process

Checklists – use with caution

Templates

Save everything

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Warning signs

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Red Flags

Past fraud

False credentials

Criminal actions

Civil suits

Regulatory, compliance issues

Bankruptcies, judgments, liens

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Yellow flags

Biographical issue

Overly vague / missing info

Unverifiable credentials, claims

Unnecessary content, grandiose self-descriptions

Litigation

Distractions

Personality, ethics issues

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Yellow flags

Now I’m a…

Job switching

Square peg / round hole

Ostentatious charitable giving

Reverse Midas Touch

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Other warning signs

Silent, obscure partners

Distractions, overly committed

Lots of related (shell?) companies

Not forthcoming with information

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Information Gathering

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Watch listsRisks from customers, suppliers, other business partners

Companies where irregularities are present, or where potential for corruption exists

Terrorism, politically exposed person (PEP), other regulatory risk

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Watch lists – Sources

System for Award Management (SAM) https://www.sam.gov/sam

Export.gov Consolidated Screening List (CSL) https://build.export.gov/main/ecr/eg_main_023148

Red Flags and Watch Lists https://www.state.gov/strategictrade/redflags/

Nonproliferation Sanctions http://www.state.gov/t/isn/c15231.htm

OFAC Sanctions List Search https://sanctionssearch.ofac.treas.gov/

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Watch lists – Aggregators

Revinitiv World-Checkhttps://www.refinitiv.com/en/products/world-check-kyc-screening

Dow Jones Risk and Compliance http://www.dowjones.com/products/risk-compliance/

LexisNexis Risk Solutions https://risk.lexisnexis.com/

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Regulatory Restrictions

Disciplinary history

Unreported affiliations

Full legal name ‐ individual, company/units

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http://wtkr.com/2018/05/26/former‐chesapeake‐investment‐adviser‐sentenced‐for‐6m‐fraud/

“Hudspeth performed inadequate due diligence into the fraudulent investment offerings and concealed that the offerings were created, offered, and controlled by his associate, who previously had been banned by the Financial Industry Regulatory Authority (FINRA) for fraudulent activities,”

Financial industry

U.S.

SEC http://www.sec.gov/litigation.shtml

FINRA https://brokercheck.finra.org/

NFA /CFTC http://www.nfa.futures.org/basicnet/welcome.aspx

U.K. Financial Conduct Authority: https://register.fca.org.uk/

Note: The FCA’s Financial Services Register format does not state if there are no disciplinary actions. It includes the disciplinary section only if there are disciplinary actions against the individual/firm.

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Other financial regulatory

Wikipedia - List of financial regulatory authorities by country: https://en.wikipedia.org/wiki/List_of_financial_regulatory_authorities_by_country

International Organization of Securities Commissions (IOSCO) Investors Alert Portal: http://www.iosco.org/investor_protection/?subsection=investor_alerts_portal

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Education / Credentials Verification

Complaints, disciplinary history

Full names?

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https://www.wsj.com/articles/short‐seller‐on‐samsonite‐ceo‐you‐cant‐go‐around‐saying‐youre‐a‐doctor‐when‐youre‐not‐1527672016

Verify degrees

Official verification

Direct / verification services

Need signed consent, other documentation

Best alternative

News, social media

Alumni, university websites

Academic searching

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Degree verification services

DegreeVerify.com - National Student Clearinghouse (U.S.)

QualificationCheck.com (non-U.S.)

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Credentials

Associations – member directories

State licensing boards

Google:

[entity] member search

[state] professional licensing

The Alphabet Soup of Financial Certifications http://www.investopedia.com/articles/01/101001.asp

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Member directories

Are all members included?

What info is available?

Consent needed?

Pick up the phone

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Assets / Liabilities Financial strengths & weaknesses

Other names

Locations

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Assets

Real property – homes, investments

Vehicles, watercraft, aircraft, business equipment, other personal property

Businesses

Intellectual property

Foundations, sponsorships, other causes

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Liabilities

Bankruptcies

Foreclosures

Judgments, liens

Credit reports

UCC filings

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Sources

Secretary of State

County clerk, recorder, etc.

LexisNexis, IRBsearch.com, LexisNexis Risk Solutions

SkyMinder.com – business credit reports, “fresh reports”

USPTO.gov

Guidestar.com

DonorSearch.net

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Court Records Federal, state, county, local

Civil, criminal

Divorce, child custody/support

Traffic

Specialty – tax, contracts, environmental/regulatory issues

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http://www.denverpost.com/2016/04/22/denver‐schools‐admits‐failing‐to‐fully‐vet‐school‐board‐appointee/

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Online court searching

No centralized database

Not all jurisdictions, courts

Court systems vary by jurisdiction

Not all dates

Inconsistent case numbering

Missing records, errors

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Disclaimer

Note that online databases do not cover all courts, cases, or

dates. In light of these limitations, it is recommended that you ask

all subjects to disclose present and past litigation involving them

and/or their company(ies).

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Docket sheet

Register of actions – running summary of case history

Court name, location, judge

Case number, name

Plaintiffs, defendants

Nature, cause of action

Date, summary of all filed materials & motions

Outcome (disposition)

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Courts - sources

State / county / local systems

Free/fee

PACER.gov (U.S. District, Bankruptcy, Appellate courts)

U.S. Tax Court https://www.ustaxcourt.gov/docket.htm

LexisNexis, Westlaw, CourtLink

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Criminal records

CriminalRecordSources.com

Incarceration records

www.bop.gov

State systems

Sex offender registries – www.nsopr.gov

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Media News

Social media

Industry sources

Academic content

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Media research

Go beyond Google and use more than one source

LexisNexis

Dow Jones Factiva

ProQuest Dialog

Bing

Specialized sources

Go beyond just negative news

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Filling in the Gaps

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Local researchers/investigators

Association of Independent Information Professionals (AIIP) www.aiip.org/discover/business-directory

National Council of Investigation & Security Services (NCISS) www.nciss.org/member-search

World Association of Detectives https://wad.memberclicks.net/member-directory

Council of International Investigators http://bit.ly/1UULrKE

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Packaged reports

Thomson Reuters Enhanced Due Diligence reports http://info.risk.thomsonreuters.com/US-enhanced-due-diligence

Dow Jones Risk & Compliance – Due Diligence reports http://www.dowjones.com/products/risk-compliance/

LexisNexis Business Assurance reports https://risk.lexisnexis.com/products/business-assurance-report

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Packaged reports

What’s included?

Can the report be shared with client?

Other copyright / ownership issues

How much customization is available?

Updates?

Time frame?

Cost?

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Final stepsAnalysis

Reporting

Follow‐up

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Follow up

Answer all client questions about current due diligence

Conduct any additional research

Follow up on outstanding info

Conduct regular updates

Set up alerts

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Monitoring

Google.com/alerts

TalkWalker.com/alerts

IFTTT.com (If This, Then That)

Mention.com ($)

LexisNexis, Dow Jones Factiva, ProQuest Dialog alerts ($)

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Resources

The Guide to Online Due Diligence Investigations, Cynthia Hetherington

The Manual to Online Public Records, Sankey & Hetherington

Hedge Fund Due Diligence, Randy Shain

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Online due diligence investigations

Great tool for fraud prevention / managing risk

Constantly improve!

Stay up-to-date on sources, techniques

Keep improving deliverables, adding value

Re-evaluate client needs often

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Thank you!

Slides: marcyphelps.com/chicago

[email protected]

twitter.com/marcyphelps

linkedin.com/in/marcyphelps/

trust, but verify: online sources and strategies for due ... · online sources and strategies for...

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