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Understanding fraud investigation

• Get the information, verify the information

• Time: the victim's enemy, the con artist's ally

• Best Practices: it's a legal responsibility

• Information is power - but only if skillfully applied

INVESTIGATING FRAUD

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An investigation can and should be undertaken on behalf of or by anyone at legal or financial risk

Get the information, verify the information.

A “fraud investigation” is by definition a general description of a set of specific processes. These processes are determined by the facts of the case, and are focused on information acquisition and verification.

One of the best sources for information should be the victims and their representatives. Unfortunately, for a variety of reasons, victims, their attorneys, accountants and advisors often overlook relevant facts and details. This can hinder or prevent a proper investigation, or skew the results of it.

Time: the victim's enemy, the con artist's ally.

Victims often wait too long before reacting to potential fraud. One of the most frequent causes of this is denial. Another is delusion. In denial, victims, and sometimes their professional representatives, can’t accept that something has gone wrong; that they might have completely misjudged the transaction or the people involved on the other side. They can’t bear the thought that their money might be gone. It can’t be happening to them.

Delusion, which often goes hand in hand with denial, is the process by which the victims convince themselves a transaction gone awry will somehow right itself, that it was all legitimate and viable to begin with and that their money will be coming any day now. Delusion also convinces them that merely by reasoning with the other side they will either recover their funds or have some remedy, or that ultimately they will prevail legally, and get relief that way.

Nothing could be farther from the truth.

For instance, it often fails to occur to victims that by having their own attorney, the one who advised on or drafted the pertinent agreements, conduct an “investigation” they are relying on someone with a serious potential conflict of interest.

Furthermore, having the very same attorney or representative who either got them into trouble or failed to prevent it now try to extricate them from it is not a very wise course of action. Yet victims rely on these very same people time and again.

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Best Practices: it's a legal responsibility

In reality, the time to get experienced investigators involved is before any money is invested or promises are made. This is in the due diligence phase. Due diligence is not only a prudent business practice, it is a cornerstone of what has come to be known as “best practices,” a standard of business behavior that has legal liability implications.

Pursuant to prudent, best practices, whether for a business or an individual, the moment any change occurs in the transaction, especially regarding banking or deliverables (precisely what is expected from the other side), investigators should be brought in. At that point, an investigation can and should be undertaken on behalf of anyone at legal or financial risk to assess the true status of the situation.

This investigation can be overt or covert and should not undermine any legitimate deal. Credible, reputable individuals may be put off by being investigated, but ultimately they will understand and appreciate the value and need of it. If they (and the transaction) are legitimate but have encountered unforeseen difficulties, they will be cleared. If there are more serious problems, the victims are on a fast track to remediation. The longer they wait, the more their chances for a happy resolution are diminished.

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Information is power - but only if skillfully applied

Once the investigation begins, nothing must be withheld from the investigators, no matter how trivial or unrelated it might seem. All names, documents, notes, banking details, corporate details, communications (email and phone), records, etc, should be made known and available. Attorneys and other professionals should be instructed to cooperate with the investigators. Anything less only impedes essential and time-sensitive information acquisition and verification.

Information is power, but even armed with quality information, investigators must be as skillful in how they use it as they are in how they acquire and verify it. A final mistake victims and their representatives often make is in believing they can effectively wield the information they have. This often leads to delays or legal or strategic errors which undermine their cause or render them powerless.

For instance, they may gather their records and send them off to a law enforcement or regulatory agency, thinking this will elicit a quick response….or any response. They wait weeks or months for something to be done.

Meanwhile, funds have been spent or hidden. Then it becomes a question of whether the agency to which they reported the fraud has the interest, time or resources to investigate, and to what extent. Or, they begin “negotiating” with the people whom they believe defrauded them, thinking that threatening further legal or law enforcement action will produce results. This process goes on until the statute of limitations has run out, at which point all options are lost.

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Fraud investigation, like due diligence, is an essential part of the asset recovery process. It should be undertaken at the first rather than last sign of trouble, and should not be left to the victims or the inexperienced. - Henry George, G2LLC.net                                                                       

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Asset Recovery • Due Diligence • Recognizing Investment Fraud

10 Commandments of Investment Contracts