Kenneth Springer, has written an article in The Deal, discussing the need for background checks as intelligence instruments to help avoid involvement with fraudulent business entities and individuals. Springer is a certified fraud examiner and a former special agent with the Federal Bureau of Investigation (FBI). He is also President and Founder of Corporate Resolutions. It is fair to say Springer is extremely well informed and knows about what he writes. His advice should be well heeded by the business community.
Springer writes–“Sometimes you learn an individual has been sanctioned by the Financial Industry Regulatory Authority, or Finra, for various types of bad behavior that was not previously disclosed. Other times a background check will alert you to a blatant lie (an executive who claims to have an Ivy League degree that doesn’t exist) or a minor exaggeration (a CFO who really didn’t have 10 years’ experience). Whether the information causes investors to leverage their position or run, the key is in the knowledge.”
And again–“Conflicts of interest and nondisclosure of material information are the two red flags we see most often when conducting background checks for investors. While the two have some common ground, the conflicts of interest we routinely identify include an individual’s involvement in a pattern of lawsuits or being sued by investors, business interests that distract an executive’s attention and rumors of impropriety.”
As the Co-Founder of Corra Group, we conduct employment screening, corporate research, and financial vetting. Too often, business owners come to us after the fact, asking what remedies are available, after they have discovered their client is failing to pay invoices or their alleged new partner has committed to untoward or illegal business practices. In otherwise, they may have been scammed.
We have some remedies, but the best solution is to conduct background checks before getting involved in any business ventures, be it with individuals or business entities. We advise at the minimum running business credit reports, as well as corporate, county, state, and federal public records on the principals as well as the business itself. Doing so is most cost effective and can save a lot of expense and grief. Reference interviews and business research may yield conflicts of interest or histories of fraudulent or at least suspicious behavior.
The thing is if you enter a business proposition and are suddenly blindsided, if your are swindled, or discover your client or new venture partner may either not pay you or fulfill its share of the bargain, you may have little recourse. Sure, you can sue, but when you discover, as many have, that your venture partner has multiple judgments against it already, then your chances of recovery are slim. There more than a few businesses who lament their enthusiasm and otherwise engage another company without first performing the requisite background checks. It can prove a big mistake.
Kenneth Springer’s article is concise and articulate. But frankly, anecdotes and samples notwithstanding, in this day and age this is a subject that may warrant volumes. Apparently, he wrote one himself, “Digging for Disclosure: Tactics for Protecting Your Firm’s Assets from Swindlers, Scammers, and Imposters.” I for one have put it on my reading list.
