Easy, Free Due Diligence on Potential Service Providers, Clients, Employees

If you are a “glass half-full” person.  Read this carefully.  Dishonest people can be charming, or evasive, or manipulative, but all of them will waste your time or money.  “Trust but verify.”

If you are a “glass half-empty” person, you know to check out potential employees, service providers, investors, clients.  (I've even had friends who are utilizing dating websites ask me to check out people before they get too involved.)  The following list of liars and sources will save you time and reinforce what you naturally do to protect your business and wallet.    

                         

Below are two lists.  One is a list of lies learned from less than three hours due diligence of potential service providers, clients, investors and employees.  The other is a list of free or low cost public websites you can check to save you time, money, and “face.”  If you get a business card, a resume and take notes during conversations, you can ascertain a great deal in less than 3 hours of research, otherwise wasted by “big talkers.”   Some have been shameless liars who have, presumably, gotten away with this before, indicating that a lot of people DON’T do background checks. Think how much time you can save by learning this information early on. 

Preliminary due diligence is like a game.  The goal is to look for anything the person has told you (verbally or in writing, such as a resume) that is invalidated or contradicted in public sources.  If the person lied about something so easily discovered, what else might s/he lie about?  Red flag.  By asking for background information, the message you convey to the person is that it is “time to get serious.”   This can cut time wasted with big talkers.  Your time is worth money.

·         Degrees from schools that don’t exist

·         Degrees from on-line “degree mills”

·         Degrees from real school s that the people never earned

·         Titles and experience from companies that have no Internet validation.  (If they say the companies were their own, see if they were ever even registered in the state and wonder if a company with such a low profile could really have accomplished all the person claimed). 

·         Puffed up resumes and dates/duties/companies that contradict other documents

·         “Cease and desist” order from the state securities board and/or from the SEC for fraud (One guy was actually a case study for a law school!.  Two others were banned from the securities industry).

·         Citations on blogs against management for various things, from indignations to litigation to losing investors’ money.

·         Felony records and indictments with cases pending (white collar crimes, for people seeking investors!).

·         FBI reports

·         BBB complaints

·         A confusing variety of inter-related companies and sweetheart supplier deals that compromise the integrity of what potential investors would be investing in (possible shell game).

·         Prior employers who fired the person for cause, and were willing to say so verbally when we made due diligence calls, but not in public disclosure documents

·         References that were dead ends – no company, person, or recollection.  

·         Investors, entrepreneurs, and finance professionals who were behind in their taxes, had filed bankruptcy, had been foreclosed upon, had liens against them or their companies or assets.  (Why would you trust them with your money or handling money for others?)

·         Litigation pending, for debt, breach of contract, fraud, etc.

·         References that indicate no relevant past experience to back up assertions, such as people whose real jobs were very junior at a company, or were in an unrelated department, or whose spouse was the only one in the family with relevant experience  

·         No SEC filings indicative of the private placement (or public) deals he/she claimed

·         Entrepreneur whose “use of funds” statement raises questions in light of a series of prior public filings (of pink sheet/OTC companies) indicating inflated salaries and overhead for companies that never turned a profit.

·         Press releases by prior companies that sounded like things had transpired (not validated anywhere else) or that promised imminent actions that never occurred

·         OTC or pink sheet company history that keeps changing names (to avoid a sustained history of poor performance?) Very common.

·         Public filings with “going concern” statements by accountants, or worse, no audited financials for a year or more or continued delays in public filings.

·         Broker Check disclosures of licenses that don’t match experience described, sanctions, questionable outside businesses, repeated short stints at Broker Dealers, long stints at BDs that have been sanctioned or closed for alarming, repeat behaviors.

·         Entrepreneurs who have previously hired Broker Dealers with a public record for skirting rules or financiers whose resumes indicate a preference for such companies.

·         Alleged investors  (and middlemen) whose references for investment don’t check out

·         People who cite “doing business with” references who turn out to be personal references only

·         Companies and individuals listed on various “walls of shame” such as the SEC’s “PAUSE” page, and public enforcement reports by FINRA and state fraud investigation department websites

Easy and Free Internet  Resources for Preliminary Due Diligence

PHONE ADDRESS VERIFICATION:
www.whitepages.com

            Check name and reverse check for phone and address to see if they coincide, or if another name/address connection is revealed.  The website often lists “others in household” such as a spouse and children, and ages. Does this information fit what you know?   If someone has no record for an address and phone number, does that  indicate an intention to maintain a very low profile.  Is that fine or a question mark?  Look for other properties in his/her name.  Relevant?  

EDUCATION VERIFICATION:

From job applicants, we request a background check authorization. The information provided enables me to verify degrees earned through www.degreeverify.org.  Short of that personal information, you can ask friends who have attended a school to look the person up through the alumni directory.  If the name appears, you have confirmation.  If the name does not appear, the person may not have signed up with the alumni network or may not have attended.  Go to the school’s website.  Does it offer the degree cited on resumes?  Does the location make sense?  Does the school exist?

TAX RECORDS:

Visit the county property tax accounting website to ascertain whether the person owns his/her home, office, or other property and the value and has/hasn’t paid taxes on time.  You don’t want an investor or entrepreneur or other client who hasn’t even paid taxes! To find out the name of the county, Google city name, state + county.   In Harris County, TX, the website is www.hcad.org.  You can usually search by name or by address.  Some states, like FL have searchable public lists of people listing the amounts and dates of liens and judgments by government and companies.   CA has higher barriers to entry for personal information than many states. 

COUNTY COURTS:

Visit the county clerk’s office and search the data base of civil (or criminal) court cases.  You can enter the person’s and the company name as either/or plaintiff/defendant.  Do you see debt cases?  Foreclosure?  Breach of contract?  Recently?  Frequently?  Should you be leery of taking a client with a history of litigiousness?  Websites vary greatly, and states vary, too, in the amount of private information they will disclose.  CA is pretty oblique.  TX and AK are pretty open with their court and tax records.   

SEC and Edgar SEARCHES FOR PUBLIC COMPANIES/PRESS RELEASES/SANCTIONS:

Visit www.sec.gov.  Someone affiliated with a public company is easy to check out.  On this website or any Edgar filings in any financial website, one can search by company name and person’s name in various sections, such as company filings and enforcement (in SEC).  Be meticulous in your search strings of “all these words” or “exact phrase” and how a legal name might be entered (with or without middle initial or Jr, for example).  You may have to try a variety of terms.   Was the person an officer, director, or investor, insider?  Were there sweetheart deals with any of his or her other companies? Was the company in the black or the red?  Did the accountants issue a “going concern” statement? How much did your contact get paid?  Is the person affiliated with other securities in the past?  What’s the track record? Are private placements registered?   Do you ascertain any lies in information the person recorded in documents filed with the SEC?  Serious problem.

STATE SECURITIES BOARDS:

Find this by Googling state + website + Securities.  You can search to see if someone is a registered investment advisor (more info than on Broker Check, like percent of business with individuals vs institutions) or Broker-Dealer, and whether there are any enforcement actions against him/her, his/her company.  You can review the state’s definition of “securities” – useful if a potential financial service provider or entrepreneur says “I don’t need a Broker-Dealer for this.”  In Texas, the website is:   http://www.ssb.state.tx.us.  Similar listing with another state’s abbreviation might give a useful starting point for other state securities boards. 

STATE CORPORATIONS:

Visit the secretary of state website to see if the company has been incorporated, if it is in good standing, and if the contact person you know is listed as the registered agent (of this and any other companies).  If the person has registered a surprising number of companies particularly with similar names, does that raise a question?  Could there be any sort of “shell game” with funds?  What’s the status of the prior ones?  Cross reference with company website searches. The website for Texas is: http://www.sos.state.tx.us

AGGREGATION SITES:

www.zoominfo.com can be helpful because it compiles a list of links to public info about a person or company, for free, and isn’t changeable by the person (compared to Linked In).

FACEBOOK etc:

www.linkedin.com, www.facebook.com, etc.  and other self-written sites are useful for seeing what the person says about himself.  How does that compare to a resume or other sources of information?  Some people regard their Linked In Profile as less official than a resume and update it less often, so the differences can be revealing.  Some websites list a number of contacts visible to other members.  Are there any that you know, whom you could contact regarding the person?  Do you expect to find a Facebook or Linked in account but do not?  For example, why might someone who says he is well connected in sales NOT appear on any of the public networking sites you check?

FINRA:

www.finra.org Broker Check.  The website includes profiles of people who have been registered within the last ten years and “bad guys” with arbitration and enforcement sanctions who may have left FINRA/NASD even before that.  When reviewing someone’s profile, first check to see if he/she has any disclosures (at the end of the report).  Some of those are no brainer deal closers, like misuse of funds.  Others may simply warrant a conversation for clarification. Then note duration at prior Broker-Dealers (BD), licenses, and state registrations.  Did s/he have an insurance license but told you s/he knows private placements?  Does s/he have a 24 license (supervisory level)?  Check the records of the prior BDs.  Do they have eye opening disclosures for egregious financial shenanigans or poor supervision of wild card employees?  Do you see a series of short stints at numerous BDs?  How successful could the person have been if he kept being let go? Once someone actually applies to our firm, we can run a background check for more information not publicly disclosed, but before that, this public information can increase or decrease our enthusiasm.

COMPANIES:

Visit the websites of companies on the resume.  Do they exist?  If you don’t find the website, Google the company name to see if there is any record of it in the past.  If a search reveals the company name only associated with your contact’s reference and no other, s/he may have made it up.  It is pretty hard for a business to have NO Internet record, post 1995. Red flag.   

INTERNET SEARCHES:

General information Google searches:

The person’s name + City, or + County or + industry, or + SEC or + FINRA, or + companies, or + school, or + suit (as in law suit) or + fraud or scam.  Try logical variations like Jim or James.   Sometimes, you will find confirmation, such as a member of a professional organization, or a relevant speech given.  Other times, we have found out location, education or personal information about people from references in a marathon or neighborhood list, or an alumni organization.  If people keep a low profile on the Internet, and claim achievements in a city or industry, see if you know anyone in those cities or industries likely to be in a position to know them, and if they don't, consider what that may mean.  Sometimes we got an earful and sometimes the prospect was entirely unknown.  Check out www.sec.gov’s PAUSE section of bad guys in finance, read websites like www.ripoffreport.org.  Check out lawyers and accountants with their professional organizations.  Look for red flags.

In summary:  One to three hours early on can help you assess your opportunity costs with a potential client, employee, service provider or investor.  Ask better questions in order to shed the time wasters and liars in order to allocate more time to fruitful people who may actually reward your time with lucrative contracts.  Learn to discern between the two.   After the first few checks, the process will become easier and your sense of people will become better honed for evasions or over-promises.   

(I welcome your comments and additional suggestions through the comment field,  Laura )