A Simple Taste of Business Fraud

[Matthew Jones]

Just a few months ago, my firm was hired by a CEO of a contracting company to conduct a diligence research invesitgation on a potential new partner- which was one of my clients competitors. When asked what he was looking for in the report, he simply told me that he was looking for any possible dirt or business malpractices he could use as liability, and or finalize his decision.

 

I had to reply to him like I reply to most of my clients with a simple" Ok, I will do my best." In my line of work there are never any forsure answers to a problem. I try to explain this to clients who want everything I have to offer, yet sometimes it seems they come up empty handed. This was one of my bigger clients and I was hoping to keep him coming back, so I called him one night from my office with some basic questions about what he might be looking for in his report. When I told him I could give him the companies SEC filings, annual finacial reports, and a list of every employee that has been convicted of a crime ( that worked for his potential aquasistion) he almost started laughing because he did not believe me. His words were " I will believe it when I see it in the report." I replied back with an " Ok, give me a week."

 

Throughout that week I pulled public reports from the SEC and begain analyzing the growth of the company over the past two years. I found one thing that didn't make any sense, and that was they were worth more on paper than they had made the previous year. The only possible explanation I could think of was maybe they had been recently purchased by another company, or that they were not being truthful. I compared their SEC reports with their annual profit reports, then looked at their tax reports- they were barely paying taxes for the amount of money they were making, so I searched a little deeper and found three different non-profit organizations under the owner and his family. Yes this was legal- but they were the main source of donations, which was making them apear bigger than they really were, and a tremendous tax write off. It didn't make sense to me why they were doing this just for tax reasons though- So after conducting a search and background check on the CEO of the company, I found that he had been convicted of finacial fraud two years prior to opening his contracting business. His conviction was tax fraud, and tampering with client forms. The sad thing is, this goes on all the time right under our noses. This is the main focus of my firm, and after seeing it consistantly I begin to wonder how people are getting away with it. The thing is people are becoming smarter, and our goverment is becoming lazy. I encourge all people to keep a close eye on hiring new employees who consistantly want to shake your hand, or say thank for the job more than a few times. This might sound stupid, but these are just a few signs to look for when people are being dishonest. There has to be reform to stop this, with the economy struggling like it is, it will only get worse.

 

 

Needless to say, my client did not follow up on his potential business partner, which could have saved him a great amount of money. Just a heads up when sometimes it is hard to see the grass on the other side.

 

 

[Alex Mitrofanov]

Really good job done! Respect!

[Arik Johnson]

How interesting! Most decision-makers aren't as skeptical as they need to be when doing deals as you describe (which is where all those pesky mistakes come from) but your cautionary tale is a great lesson, thanks for sharing! Apparently wishful thinking remains a poor substitute for actual thinking in matters such as these.

[Matthew Jones]

I agree, we all have been caught up in somthing from time to time- when sometimes we are not thinking clearly. It is also hard to run a business or manage an office while trying to make sure all bases are covered when making a business decision.

Thanks guys!

[monica nixon]

awesome work Matt, you rock!