Category: Private Equity

Interesting Findings..., Investment Due Diligence, Private Companies, Private Equity

CEO who served time for wire fraud had launched a hedge fund from prison

DDC specializes is detailed executive background checks, and often finds information others do not.

DDC was recently engaged by a private equity firm to conduct a detailed background check on the founder and CEO of a privately held technology company.  DDC found that about 10 years ago the CEO was indicted for wire fraud and bank fraud while employed as a trader, and had pled guilty. He was sentenced to approximately 2 years and restitution of over $1mm.  DDC’s research also found that after 2 months in federal prison he formed an entity that he claimed in various bios to be either a hedge fund or a diversified financial services company, and the applicable dates of employment covered his entire sentence plus several other years, less those 2 initial months in prison.  In addition, he later provided our client with a written statement expressing remorse and regret while mischaracterizing the charges, claiming it was “a regulatory matter” and that it was settled without “admitting guilt”.

DDC’s client passed on this potential investment and later provided DDC with a background check done by an investigation firm that was engaged by a potential co-invest partner. That report did not find the indictment, the guilty plea or the prison sentence.

Family Offices, Investment Due Diligence, Private Companies, Private Equity

Ex-con fools investment bankers

DDC was recently engaged by a private equity focused family office to conduct investment due diligence on a person and business that claimed to be in the midst of a geographically focused “roll up” of smaller companies in a very fragmented industry in the eastern USA.

DDC found that the founder had been using a similar name to his actual name, was previously incarcerated for fraud, had been banned from the securities industry, had negligible assets while running large expenses (lease luxury vehicle, luxury rental home, etc.), and misrepresented his employment and education history.

During the course of this assignment DDC found that this person had raised almost $50 million from individuals and family offices who were shown the “opportunity” by two different investment bankers. Both investment bankers claimed to have done due diligence on this person and business.

The best way to avoid scenarios like this one is to (1) do a thorough check on a person or entity everywhere there is a contact or connection to the most original source level possible, and (2) do your own due diligence rather than rely on what someone else says they have done (especially if you are not given a copy of the written report).

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Peter Barakett

President

DDC – Due Diligence Consulting LLC

DDC Investigations LLC

 

Interesting Findings..., Investment Due Diligence, Private Companies, Private Equity

Man charged with investment fraud a 4th time

A few years ago we were engaged by an investor group to research a man who claimed his firm was the largest pasta, olive oil and tomato sauce importer in the USA. The client was introduced to this man by a trusted source with whom they had co-invested and/or shared investment ideas with from time to time. Our research showed numerous aliases, dozens of false claims, and 3 prior arrests for fraud (2 for bank fraud and 1 for mail fraud). In 1998 he was arrested for scheming to defraud a Canadian investment firm out of $180 million, while serving time in jail for a different fraudulent scheme. Based on our report, our client did not invest, and told the person who referred him to them of our findings. He was arrested by the FBI again in June 2016.

The most recent scheme, hatched around 2012, involved soliciting loans and other financing from investors in Kansas City and Florida to purchase olive oil in order to deliver on contracts to major retailers that did not exist. The man created phony bank statements and tax records to show the investors, and he did not have the cash, inventory and contracts that he said he had. He faces up to 20 years in jail should he be convicted, after serving approximately 9 years for the prior offenses.

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Peter Barakett, President

Due Diligence Consulting LLC

DDC Investigations LLC

Hedge Funds, Interesting Findings..., Investment Due Diligence, Private Equity, Public Companies

Director falsifies bio

DDC’s research recently found that a director of several public companies had stated in some of his professional bios that he was a CPA when in fact he never had a CPA, nor a degree in accounting. He did have a law degree but never practiced law.

Peter Barakett, President

DDC – Due Diligence Consulting LLC

DDC Investigations LLC

Private Equity, Public Companies, Resume fraud

CEO resume fraud

DDC recently determined that the CEO of a public company had made multiple false statements in different versions of his corporate bios as well as in regulatory filings.  In one instance, the CEO attempts to cover up a false statement by creating a new entry in one a website bio.  What is interesting is that this person is highly accomplished and there appears to be no reason to have made any of the false statements.

Peter Barakett, President

DDC – Due Diligence Consulting LLC

DDC Investigations LLC

Investment Due Diligence, Private Companies, Private Equity

A bio of errors

DDC recently conducted a thorough background check of a private company executive as part of our client’s pre-investment due diligence.  DDC found that every line of the executives bio had an issue.  He listed some employers, with incorrect dates, or incorrect titles, or both.  He misrepresented his titles, and/or his duties and responsibilities.  He claimed to have a degree that he did not have, from a school that he did not attend.  He omitted some employment from his work history. Each one of his credentials, licenses, and affiliations was incorrect. The only thing that was right was the spelling of his name.

Peter Barakett, President

DDC – Due Diligence Consulting LLC

DDC Investigations LLC