Archive for the 'Due Diligence' Category

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Professional Licencing Verification

The Council on Licensure, Enforcement and Regulation (CLEAR) listings of online license verification databases maintained by state agencies/provincial regulatory bodies provides links to sites where you can verify a professional license.

Madoff and Due Diligence

The following post is an excellent example of how a disciplined due diligence process saved an investor from ruin.

If You’re So Smart, Why Aren’t You Rich?

Actually, the formulation of that headline that I prefer these days is the famous inversion by the Nobel economist Paul Samuelson: “If you’re so rich how come you’re so dumb?”

And yes, that brings us promptly to the Bernard Madoff scandal.

But this week Barron’s brings us one: “Living to Tell About Madoff,” an interview with James Hedges (not, I assume, a stage name, although in the circumstances it ought to be), “president and founder of LJH Global Investments in Naples, Fla., who has invested billions in hedge funds and private equity since 1990 through relationships with numerous hedge funds.”

Eleven years ago, Hedges spent two hours meeting with Madoff in his New York office planning to invest a few billion dollars of his clients’ money. He walked out without a deal.

Here are some of the reasons why…

PI Finds Madoff’s Company a Sham

Fool me once…

New York money manager Bernie Madoff was essentially running a $50 billion Ponzi scheme…

Not everyone was fooled. According to a story in the Wall Street Journal one hedge fund adviser actually hired a private investigator to look into Madoff’s accountants. He found that the firm had only three employees, one of whom was a 78-year-old accountant who lived in Florida and another who was a secretary.

Litigation & Competitive Intelligence

Litigation may tell you what the target company doesn’t want you to know.

Here are five things to look for when reviewing a company’s legal entanglements:

  • Is the company the target of large scale mass tort actions?
  • Is the company facing class action claims for faulty products and/or services?
  • Is the company facing lawsuits claiming shoddy or unfair business practices?
  • Have employees sued for wrongful dismissal?
  • Are shareholders claiming the company knew about material facts that depressed their stock price and failed to disclose them?

Copyright as an Asset – Canada

In Canada, one does not have to register your copyright to have protection, but when you register with the Copyright Office, you receive a certificate which can be used to your advantage in the event that your work is infringed. Formal registration of a work is not required. An author or the author’s employer usually enjoys copyright protection automatically on creation of the work.

Registration of a copyright is done by completing an application and sending it to the Copyright Office. A copy of the work is not sent along with application. Under the Library and Archives of Canada Act, two copies of every book published in Canada, and one copy of every sound recording manufactured in Canada that has some Canadian content must be sent to the National Library and Archives within one week of publication.

Library and Archives Canada
Legal Deposit
395 Wellington Street
Ottawa ON  K1A 0N4
Tel.: 819-997-9565
Fax: 819-953-8508

When a publication is deposited, a brief description is entered in AMICUS, Library and Archives Canada’s database. They are also catalogued and listed in Canadiana, the national bibliography, which began in 1950 and is widely circulated in Canada.

Due Diligence and Decison-making Behaviour

Due Diligence (DD) research provides more than protection from criminal behaviour. It helps you understand how the other party makes decisions and behaves in a variety of situations.

For example, if you find the other party has been sued, you will want to know how they responded. If the other party was a judgement debtor, then you need to know how they dealt with the judgement — did they pay, appeal, negotiate a settlement, or avoid paying through procrastination or deceit?

DD research also helps you understand the key decision-makers. You will know their employment history and educational background. You will know how the key stakeholders view their behaviour. If they have published articles and other writings you will have read what they have written. Learning these things may change your opinion about the other party’s ability to perform what they undertake.

If you find a lot of derogatory data that your fact checking proves erroneous, then you must ask what steps to correct this data has the other party taken. If they didn’t know about the erroneous data, then they must not value their reputation, and perhaps they care even less for yours.

Copyright as an Asset – UK

A copyright may represent a substantial asset for a person or company. The UK does not have a formal copyright registration process as in the U.S.A. — in the UK, creating the work creates the copyright.

The British National Bibliography (BNB) is the single most comprehensive listing of UK titles. UK and Irish publishers are obliged by law to send a copy of all new publications, including serial titles, to the Legal Deposit Office of the British Library; hence, the BNB is a list of copyright registrations. The British National Bibliography, was originally a weekly catalog which which became a  reference for book selection, cataloging, and for retrieval.

A Free BNB Web service to be launched in January 2009 will make the BNB available through the British Library Integrated Catalogue web pages. At that time, the CD-ROM version of BNB will be withdrawn. The current consolidated catalogues available on the BL website certainly correspond to a large part to the BNB. The British Library Automated Information Service (BLAISE), allowed a BNB search back to 1950, but I do not know if those catalogue records were transferred to the current BL website’s Integrated Catalogue, but it appears that the the new Web service will include these records.

Corporate Filing Searches on the British Islands

Competitive Intelligence, Investigations, & Due Diligence

Starting a competitive intelligence research project, an investigation, or due diligence research usually entails a detailed look at the corporate filings, share structure, and accounts of the target or subject company.

Great Britain

On the island of Great Britain, there are two separate registries, one for England and Wales, and another for Scotland. Both of these are operated by Companies House. The accounts and filings for England, Wales, Scotland and Northern Ireland take the same format.

Ireland

On the island of Ireland, the Northern Ireland Department of Enterprise, Trade and Investment of the Northern Ireland Government, (DETINI) houses the corporate filings and accounts. Corporate filings in the Republic of Ireland may be obtained online from the Companies Registration Office.

Channel Islands

On the Channel Islands of Jersey and Guernsey the corporate filings are handled at the Jersey Financial Services Commission and the Guernsey Registry.  Jersey and Guernsey are tax havens, and companies incorporated there do not normally file accounts.

Isle of Man

The Isle of Man is a tax haven, and companies incorporated there do not normally file accounts. The Companies Registry holds corporate filings, and is part of the Financial Supervision Commission. Continue reading ‘Corporate Filing Searches on the British Islands’

Don’t be Sloppy with Metadata or You’ll Get This

Kroll’s sleuths are more Clouseau than Columbo

Inspector Clouseau is alive and well, and he works for Kroll Associates, the corporate spies who are supposed to specialise in finding, and keeping, company secrets.

…in fact, it is so boring that after downloading it I took to reading the ‘metadata’ concealed with the electronic document that tells you who wrote the report, why and when.The results were considerably more interesting than you might imagine. The report’s ‘properties’ field listed three Texas-based oil and gas exploration companies and the names of seven men – none of which has anything to do with the North Carolina Highway Patrol. What is more, the subject line mentioned the term ‘due diligence investigation’, which is corporatespeak for the type of inquiry often carried out by firms like Kroll when a company is considering a takeover.

Inter-Corporate Onwership Searching III

The Inter-Corporate Ownership data produced by Statistics Canada contains information on the structures of Canadian enterprises. It provides the names of all holding and held companies (both domestic and foreign) in Canada and their respective ownership percentages.

The information is collected by Statistics Canada under the Corporations and Labour Unions Returns Act (CALURA) and is supplemented with information from international publications. In 1998 the act was amended to remove the labour unions component (Part II), leaving Part I of the Act unchanged. The revised Act, named the Corporations Returns Act, is equivalent to CALURA part I.

All the reporting companies must have gross revenues of at least 15 million dollars or assets exceeding 10 million dollars.

The updated data is reported quarterly. This data is the most accurate, timely, and complete data on inter-corporate ownership in Canada. It also provides detailed information of multi-national enterprises that have some component in Canada.


Inter-Corporate Ownership Searching II

Corporate Affiliations

The Corporate Affiliations database appears on LexisNexis and Dialog. It can also be purchased as directories and on CD. According to the Dialog Bluesheet, it covers about 184,000 U.S. and non-U.S. companies. This includes private and public companies, both parents and their subsidiaries and major divisions. All major U.S. domestic and international stock exchange listed companies are included. U.S. privately held companies must have reported annual sales in excess of $10 million and foreign privately held companies must have reported annual sales in excess of $50 million to be included in the database. Each record includes the executive names, director names, corporate family hierarchy. Net worth, total assets, and total liabilities sometimes appear in the record.

I have never found this resource particularly useful because it has a high threshold for inclusion of companies. It is also US-centric. It shines for researching large enterprises with a large component in the U.S.A..

Inter-Corporate Ownership Searching I

Finding how your subject company fits into a large enterprise structure may turn into an avocation with some companies, but I’ll tell you how to get started.

Begin by understanding the terminology, then in the case of Canada, realize that you will have difficulty recognising interlocking boards as you may not search corporate filings by director name. This leaves you with the immediate subject company as your starting point.

Typically, I start with Dun & Bradstreet Canadian Market Identifiers (DMI). The advantages of the DMI databases (there are several DMI databases) are the number of companies in the database (over 1.2 million), and no sales or asset threshold for inclusion in the database.

The most useful fields in this database are the Dun’s Numbers for the company and its Parent and Ultimate Domestic Parent. This identifies three levels of the overall enterprise to explore in one record. You will have the information on the subject company, and further searches will identify its immediate parent and the ultimate domestic parent.

I then search the D&B Who Owns Whom database for the Ultimate Domestic Parent to identify the foreign parent if one exists. If I find an Ultimate Global Parent, then I determine what my record cost will be by listing the companies in the family tree. Usually, I end up paying the lowest amount as there will be 25 or fewer companies in the family tree. I have never had to pay the full record cost because I have never come across an enterprise family with over 200 member companies.

Stupid Private Investigator Stereotype

Over at the Daily Caveat, Michael Thomas criticizes the use of worn-out stereotypes of Private Investigators in a Wall Street Journal article that focuses on the use of Private Investigators by Venture Capitalists to conduct due diligence research.

Virtual Office Scams

Regulators: ‘Fund Manager’ Was a Fraud
By Matthew Goldstein, Thursday May 1, 01:28 PM

[Robert J. ] Sucarato and other potential scam artists are using so-called virtual offices [BusinessWeek, 3/27/08] to make their operations appear larger and more established than they really are. A virtual office is a more elaborate version of an old-fashioned post office box, in which tenants — for as little as $100 a month — get access to a telephone answering service, a reception area, and conference rooms for meetings, along with a mailing address. Sucarato used a virtual office on Wall Street in New York and in Chicago to allegedly induce investors into giving him money.

This is a classic example of poor due diligence by investors. We specifically search addresses, telephone numbers, and fax numbers to help identify this type of problem. If what I find is the least bit suspicious, then I call the neighbouring businesses and the building management to get more details about the type of office the subject company maintains.

I once found a fax number used by 47 different businesses and 18 businesses using the same suite number. You have to ask if such a situation is appropriate for the type of business you think you are dealing with.