Unlike personal assets, business assets offer so many opportunities for locating property, accounts, sub-contracts, and maybe even off-shore dollars. Few companies are too small or unsophisticated to figure out how to move money outside the U.S. or how to hide money in unspecified columns in their own accounting paperwork. Keeping money in-country but hidden isn’t that complicated either.
In this 7-part series, we get into the nitty gritty of how Hg conducts business asset investigations for our clients. Last week, we discussed how investigators can aid in collecting on a judgment. This week, we discuss locating a project’s funding party or mysterious new investor.
Investigators are often hired to track down the money behind an entity, the silent party in a business deal, or the real owner of a company. The silent partner in a business is the lead investor in the company. Sometimes this is as simple as a family member getting a second mortgage to assist a budding idea. However, this also can be large, hedge-funds investors, private money from overseas investors, or fronts for shell companies.
From the Archives: An Hg Case Study
A software company in a very specific transportation niche kept hearing the buzz about a new competitor on the market. As the market-share leader, the software company was used to small competitors, but this new development firm seemed to have come out of nowhere and was quickly generating a lot of talk. The software company hired me to find out who was behind the mysterious new company.
I located the website for the new company and discovered that it was partnering with other competitors, but it was unclear who the owner was. The corporate reports were all registered with the seemingly legitimate new officers. Did the officers come from another industry and decide to create transportation software?
Just as I was about to do a deep dive into the officers’ history, it dawned on me to check one other source.
Using the URL of the competitor company, I visited Network Solutions and ran the web address through its WHOIS search. WHOIS gave me the registration information for the competitor’s website. It turned out that the site was registered to a former employee of my client’s software company. The mysterious competition was a former employee recreating my client’s software. My client immediately sent a cease-and-desist letter indicating that the former employee was in violation of a signed non-compete clause.
Checking the competition’s asset—a website—led to the identity of the competitor. However, the real asset in this story was the theft of intellectual property, and my task was asset protection.
Small Companies, Big Ideas & Borrowed Money
A common trait of new companies is to try and make themselves look bigger than they really are to convince potential clients they are established and prepared to take on new business. Setting up an office requires space, supplies, marketing materials, staff sometimes, advertisements, and technology. In other words, money! A new company must rely on initial capital that can come from personal funds, private equity, and/or another company.
Sometimes these “big” companies are really just business fronts in rented, temporary offices. As investigators, it’s important for us to get a sense of how long the company has been at their given location. We would want to see if the company’s nameplate is listed in the building directory by conducting a site visit. It would also be important to crosscheck the office address on Google to see if there are any matches to temporary offices, virtual offices, or by-the-hour offices.
From the Archives: An Hg Case Study
A man called me on a Tuesday afternoon, and I could tell by his voice he was excited. He had just returned from a promising meeting with musical producers in their Manhattan office. Their professional demeanor and Broadway knowledge made him feel comfortable investing in their musical production company. In addition, the man was impressed with the gold albums covering the walls in their posh space, which had fantastic views of Central Park. While he felt they were legit, he wanted me to conduct some basic due diligence on the producers before dotting i’s and crossing t’s on this multi-million-dollar venture.
At the outset of my investigation, I searched online for the producers’ business address and found that the suite my client had been wowed by was, in fact, a temporary office. The phone and fax numbers went to an office-rental company, not the producers’ office. I called their phone number and talked to a “floor receptionist.” When I asked about the producers, she said they were no longer renting. Then I asked how long they had been renting the space, and she informed me that it had only been for one day. They had been asked to leave, because they had damaged the walls when they hung their gold albums.
The producers were part of a shell scam, set up for a day’s worth of meetings to worm money out of unsuspecting investors.
Investigating further, I contacted the furniture office-rental company and inquired about the producers’ identities and their method of payment for the suite. Normally, a company would be hesitant to share this information. But, in this case, the rental company was interested in filing legal claims against the producers for damaging the walls. The suite was secured with a credit card by a woman who was not one of the producers. It became apparent that she was the sister of one of the supposed producers and had put up the money behind the scam. She and the “producers” were reported to the police for fraudulent behavior.
In following the money trail, there was obviously a lack of real funds behind the fraudulent producers, as the real money came from the sister’s credit card.
This story is all too familiar. Many companies set up shell corporations to hide their identities and their assets. They also set up companies with liabilities in mind and may transfer assets or liabilities to a new company and then sell it. A due diligence investigation can help potential investors from being duped by gold records and panoramic views of a shell company.
Cynthia Hetherington, MLS, MSM, CFE, CII is the founder and president of Hetherington Group, a consulting, publishing, and training firm that leads in due diligence, corporate intelligence, and cyber investigations by keeping pace with the latest security threats and assessments. She has authored three books on how to conduct investigations, is the publisher of the newsletter, Data2know: Internet and Online Intelligence, and annually trains thousands of investigators, security professionals, attorneys, accountants, auditors, military intelligence professionals, and federal, state, and local agencies on best practices in the public and private sectors.