Financial crime is not limited to bank robbers and charlatans. Today’s criminal may be found sitting behind a glossy boardroom table or on the Internet. As a due diligence investigator, I am hired by clients who suspect financial malfeasance from within their company or from their competitors. There are varying levels of intensity in due diligence investigations. On one hand, you can check out someone’s Facebook page orLinkedIn profile and get a sense of who they portray themselves to be. On the other hand, you can spend tens of thousands of dollars on a battalion of investigators to ferret out every last bit of information available.

After twenty years of conducting both types of investigations, Hg has developed the Phased Approach—a systematic process that enables us to explain to our clients the various types of due diligence investigations. The benefit of a phased approach for the client is their understanding of what is supposed to happen when and the costs involved. Much of our work is concluded after Phase 1, because we are able to answer the client’s key questions through online research. Phase 2 is needed in the event there are outstanding questions that require boots-on-the-ground work.

In this 5-part series, we examine the most common types of financial fraud—Ponzi Schemes & Manipulation, Backdating Stocks, Insider Trading, Short Selling, and Pump and Dump Schemes—and how due diligence investigators can protect your company’s assets and investments by tracking down fraudsters.

Ponzi Schemes

“With little risk, comes little gain,” comes to mind when discussing Ponzi schemes. Charles Ponzi popularized this fraudulent investment scheme in the 1990’s. Essentially, initial investors are guaranteed very high returns with little risk. The risk is quite high, however, as was discovered when Bernard Madoff’s house of cards collapsed around him. His multi-billion dollar investment scheme was predicated on the idea of paying high returns with money directly funded by new investors, who in turn saw high returns from even newer investors. The scheme can go on and on—decades as was the case for Madoff Investment Securities—until the number of investors runs out, and the whole scam falls apart. Individuals, family trusts, and non-profits were among many who lost their present and future financial security.

After Madoff pled guilty on March 12, 2009 to 11 felony counts, the Securities Investor Protection Corporation (SIPC) hired me to investigate the backgrounds of Madoff’s claimants, who were terribly scammed and lost millions. Because some were living off of the fraudulent returns Madoff kept sending, they needed to make quick claims against the funds the SIPC had set aside. Our task was to aide in getting them funds as quickly as possible by validating they had no outstanding tax liens, warrants, or government sponsored loans to pay off before receiving SIPC funds.


“Manipulation is the intentional conduct designed to deceive investors by controlling or artificially affecting the market for security.”

~U.S. Securities Exchange Commission

The SEC monitors financial transactions to protect the investor from modern day thieves who manage to steal millions through stocks and securities. Company executives like Martha Stewart (Martha Stewart Omnimedia Publications) and Kenneth Lay (Enron) professed their innocence throughout their trials, claiming they were conducting legitimate stock maneuvers and taking advantage of loopholes. Since these cases, the SEC has created an oversight commission and has supported compliance laws in order to protect investors from those committing crimes connected to securities.

Manipulation of the stock market is the deliberate attempt to affect the supply of or demand of a given stock by rigging quotes or spreading misleading information, among others. As a cyber investigator, I comb through investment message boards, such as those found on, to uncover potential rumors about a client’s company. These rumors can give the impression that the company is in trouble, which leads real investors to sell their shares, thereby deflating the security and driving the price of the security down.

In service to our clients, we scan social media, investment and message boards, and the Dark Web daily for notices debunking their products or reputation; posts can be from competitors, angry customers, or even bots. In this tech era, social media is heeded much faster than fact-check news. One maligned post is enough to spur a conversation and start cementing false realities into the minds of investors and consumers. It’s manipulation, pure and simple. Our advice: When your neighbor says, “They say snow is in the forecast,” you should respond by asking “Did you get that from Facebook or the Weather Channel?”


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.