The Ethical Investigator

Investigators are often asked to track people down—for instance, we are sometimes asked to find former employees of a company who might be witnesses in litigation.  In some cases, we don’t know who we’re looking for exactly, but we know where they worked, or we have an old address.  These assignments can be time-consuming, but clients are often sympathetic because they realize the challenges involved in tracking down a person whose name remains unknown. 

But even having a person’s name does not guarantee smooth sailing.  For instance, tracking down a man with a common name like Bob Smith is far from easy. Sure, it helps if we know more information—like that Mr. Smith lived in Atlanta between 2005-2007, and that he worked as an auto mechanic. But that still requires a bit of effort to find just the right person and not someone else who, coincidentally, has the same name and the same personal details. The world is really far smaller than we often realize.

A good investigation begins with the information the client has provided, but it certainly does not end there. In cases where an investigation fails to yield any viable results, among the first steps is to challenge the information given.  After all, as we said in our article for InsideCounsel, "5 Tips When Searching for Assets," you don’t know what you don’t know. 

For a person search, this might mean questioning the name provided.  There are enough variations in names to allow for numerous other search terms that might be more fruitful. Sure, Mr. Smith may be known as Bob to his friends, but what if he appears as Robert M. Smith in database records? What if his last name is actually spelled Smyth? What if Bob is short for his middle name, and his legal name is actually Thomas Roberto Smith?

Below are a few suggestions for alternative search terms when investigating an individual by name:

•  First name:
  • Is it a nickname? What is the formal name?
  • Is the first name spelled properly? Are there alternative spellings? Is it a name that is frequently misspelled or mistaken for another?
  • Could the name used as a first name actually be a middle name?
• Middle name:
  • Is there one? Is it used as a first name?
  • Was the full name searched with and without middle initial?
• Last name:
  • Is it spelled properly? Search variations of the spelling, including phonetic spellings.
  • Sometimes database entries inverse names, especially if the last name is also sometimes used as a first name (so Thomas Connor could be entered as Connor Thomas). This is especially true for Asian names. In those cases, search with the first name last and the last name first.  
  • For married men and women, search using their maiden name and their spouse’s last name as well, whether it was legally changed after marriage or not. Don’t assume this is only relevant for women—we recently had a client with a federal lien against him but he hadn’t been properly notified because the documents were under his estranged wife’s maiden name and he was erroneously believed to have the same last name as her.
  • If the last name is hyphenated or if there are two last names, run searches with each name separately, and with both names together.  Also, searches with the names inverted and with and without hyphens. 

Some of these searches might seem redundant, but remember that databases are quirky: A slight tweak can make the difference between the hit you need or no hit at all. 

If there are still no hits, you can start combining some of these variations for the different names with each other and see if that helps.

• For example, for Bob Smith, search for Robert Smyth, or for Bob Smyth.  If he has a middle initial M, run a search for Bob M. Smith and Bob M. Smyth, as well as Robert M. Smith, and Robert M. Smyth. Also consider searching for Robby Smith/Smyth and Roberto Smith/Smyth with and with the M. middle initial.

What does it really mean when an investigator says that they are going to do a background search on a person and track down all the relevant documents “on the public record”? Well, let’s start with what it doesn’t mean: bank documents and cell phone records are not public record.  Any investigator who tells you he can track these down for you is ostensibly promising to break more than a couple of laws to get you that information.  In addition, given that he’s acting as your agent, odds are it could get you in a heap of trouble as well.

So what can you expect instead?  Below is a list of the various public documents that you should expect from your investigator when investigating a person.  Future blog posts will detail similar lists for background research on companies and for asset searches.

For due diligence on an individual:

• College or university enrollment and graduation information: Colleges and universities will often confirm if someone did or did not graduate from their institution.

• Professional licenses and affiliations: If someone’s job requires a license (think doctor, accountant, attorney), public records will indicate if they are licensed and whether or not they are still in good standing with the licensing authority.  Similarly, any professional sanctions against someone whose work is licensed are often publically available.
• Criminal behavior: Despite what cheap background search companies will tell you, there is no way to do a quick and easy nationwide criminal background search.  No central database compiles this information from the federal, state and local governments for anyone outside of law enforcement.  However, it is possible to do searches of federal records and of individual state and local records to confirm whether someone has ever been tried or convicted of a crime, or been the subject of a restraining order. Done right, this is done state by state or county by county.
• Civil litigation: Public records will confirm whether someone has ever sued or been sued, although copies of the court documents are usually not available unless you go to the proper storage locations in person or hire a subcontractor to do that on your behalf.  Usually the most important documents are the complaint, answer and disposition of the case, as well as any judgment or notice that the case settled.  The complaint and the answer are especially helpful—they get to the heart of the case and often provide a summary of facts that can help fill in any gaps about the person’s involvement in the matter.
• Corporate affiliations: Corporation records, filed with the Secretary of State in the state in which the company is doing business and where the company was originally incorporated, can help link a person to a private company.
• Securities and Exchange Commission filings: Publically held companies are required to file information with the SEC, and these documents may link a person to a public company or provide information about their salary and any bonuses or stock options awarded. They are useful for turning up new addresses too.
• Property records: Deeds and to land are publically available.  Furthermore, mortgaging information and liens against a property are as well.  Records of loans outstanding on other property, including cars, motorcycles, aircraft and watercraft are also available to the public.
• Liens and judgments:  A search of litigation records and public-records databases will help determine whether someone has a judgment against them or has been subject to a state or federal tax lien.
• UCC filings: If an individual has entered into a secured borrowing transaction with another individual or a company, then they should  have filed a Uniform Commercial Code (UCC) record detailing the transaction, including what items or equipment have been put up for collateral.  UCCs are available on the state and local level.
• Bankruptcy records: Some clients are surprised to learn that bankruptcy records are not sealed.  You can determine whether someone has filed for bankruptcy using general database searches, and can usually obtain copies of the documents filed by paying only a small copying fee.
• Media mentions: If something has been published in the press about a person, or posted online, then it’s definitely worth tracking down. Not all publications are on line, however. As with courthouses, your investigator may need to get out of the office to find what you need.
• Driving record: The public record will provide information on driving violations. 
• Voter registration records: Public records will detail where someone registered to vote and whether they are affiliated with any political party.
• Political contributions: Every time someone gives money to a politician as an individual and not through a corporate entity, their name, the amount given and to whom will be made publically available.
• Security/terrorism sanctions: This may seem unlikely, but it is worth doing a name search on the U.S. Treasury’s Office of Foreign Assets Control list, as well as Interpol, the International Financial Action Task Force and UN Sanctions lists.

We have had a number of recent cases involving foreign companies who entered into large-scale sale agreements with American-based corporations.  These companies are run by sophisticated, experienced executives. In most instances, the agreements were for millions of dollars’ worth of merchandise. 

Both sides hired attorneys who scrutinized the proposed contracts.  They carefully considered payment and delivery plans, including letters of credit.  They haggled over details, negotiated changes and agreed upon final terms. Soon after, they signed and executed the contracts. 

Yet, despite all these efforts, the Americans swindled the foreign companies. 

Those letters of credit that were supposed to provide so much protection and peace of mind? Well, they were useless. 

It turns out the Americans conned the banks as well.  The foreigners had to sue for payment or the return of goods, sometimes both in their home country and in the United States.  Despite prevailing in court, their wins were cold comfort.  As litigators know all too well, having a judgment and collecting on a judgment are two very different things.  The U.S. courts agreed that they had been deceived, but these foreign companies were unable to collect the money or merchandise that was rightfully theirs.  In more than one instance, the Americans declared bankruptcy and the foreign company found itself in the unenviable position of trying to recover from a bankrupt debtor.

This is where we were brought in.  The foreign company’s American lawyers retained us to assist in those collection efforts. In some cases we were asked to uncover any hidden assets. In the cases where the Americans had declared bankruptcy, we were asked to help determine if the foreign companies could build a case of fraudulent conveyance against the debtor.

What we discovered stunned us. 

A cursory review of the public record on these American business partners pulled up a number of red flags. Not just little warning signs or judgment calls, but big, flaming, impossible to deny red flags. 

It was a greatest hits of warning signs:

• Bankruptcies;
• Houses in foreclosure;
• State and federal tax liens;
• Numerous dummy corporations;
• Litigation. Lots and lots of litigation.

This litigation was the most damning.  These businesses had repeatedly been sued for defaulting on contracts. 

And our clients knew nothing about these lawsuits, or anything else that was easily accessible in the public record, before they brokered their deals.  It is unclear to us exactly what due diligence practices they’d initially had in place, if any.  Maybe these foreign companies did a thorough public records search in their own country while failing to take into consideration any charges that might be pending in the company’s home country.  Maybe they were satisfied by the personal assurances of their peers that these foreign businesses were safe and reliable.  Maybe they figured the letters of credit provided enough protection.  

Whatever they had done, it had not been enough. 

A cursory investigation of the American records alone would have justified refusing to enter into any agreements whatsoever. These American companies clearly couldn’t be trusted to sell a stick of gum, never mind millions of dollars’ worth of merchandise. 

We’ve seen it before.  Businesses take the time and money to hire sharp lawyers to craft tightly-worded contracts.  They hire tough litigators and investigators to help sue swindlers and try to collect on judgments.  But the most important step of all—due diligence before the transaction—is woefully inadequate.  And this simply can’t be fixed after the fact. 

Do it right the first time or suffer the consequences. 

When brokering a business deal, be it with a domestic or a foreign company, thorough due diligence is a must: 

• Public Records: Look at the public records of the countries in which the company is based as well as where it does most of its business; 
• Other Companies: See what other companies the executives are affiliated with;
• Litigation: Investigate who they have sued or been sued by;
• More Litigation: Obtain copies of the litigation documents to get all the necessary details. 

Clients may balk at the time and money this requires, but this is about more than peace of mind. This is good business sense:  It is far easier to prevent a bad business deal than it is to get a con artist to pay you what is rightfully yours.

Adam Davidson recently wrote "Making Choices in the Age of Information Overload," for the New York Times magazine where he explained how consumer choices have changed in the Information Age.  With so much data about a potential purchase—from price comparisons to reviews by ostensibly objective consumers—we are drowning in a sea of information.  Consumers often feel overwhelmed by the mounds of data they have to sift through. This would be the proverbial “information overload” we assume is unique to our information age, but which media historians point out has been a constant throughout media revolutions. 

Does all this information help shape our choices? Well, not really. 

Davidson explains that in order to make a decision, consumers routinely tune out all this noise and instead rely on “signals”—cues that companies use to indicate their market prowess—to make their decisions.  For example, endorsements by high-profile celebrities send the subconscious signal that the product must be in high demand because otherwise the company wouldn’t be able to pay the celebrity’s hefty endorsement fee. 

As business Professor Hemant Bhargava explains in the article, if you don’t have the time to research a product or just can’t make heads or tails of all the information you can find out about it online, then you can set all that aside and trust the product’s signals instead.  

In other words, consumers aren’t drowning in information overload because they’ve found a way of effectively and efficiently filtering out the information they don’t need.  As media analyst Brian Solis of Altimeter Group recently explained in his blog, information overload is a fallacy.  That feeling of being overwhelmed by information is nothing more than a failure to filter, an unwillingness to really focus on what’s important. We all have the ability to filter out the information we don’t need and instead focus on what’s most significant to us before making a decision.  

This is certainly the case in fact investigation.  The odds are that if a client has hired an investigator, then the information they need is not readily available, or there is too much information and they don't have the time or expertise to sift through it all.  Sometimes our searches lead us to scores of facts that we then have to analyze. Sometimes the facts don’t provide us with what we need, but they get us close. Other times we uncover information we weren’t expecting, but that after more digging turns out to be useful to our client nonetheless.  The process is not linear, and it’s often more time-consuming than our client anticipated.  

We have an obligation to work as efficiently as possible, and the right filters ensure maximum efficiency. 

For example, we recently did an asset search on a man who had declared bankruptcy but who we had reason to believe might have hidden assets.  At first glance, there weren’t that many facts to sort through:  The man had been savvy enough to avoid hiding assets in his name or via the various corporations he ran.  But there was no shortage of people associated with him.  This man had a number of relatives and associates he’d been in business with throughout the years.  Might he be hiding any assets through them?  Investigations of his family and his most recent business partners were fruitless.  So then we investigated the spouses of his ex-partners.  Sure enough, the wife of his most recent partner had incorporated a business less than a month after the partners had shut down their latest venture.  And our guy was linked to the business via a trademark application filed by the new company.  In this instance, filtering through the dozens of people linked to this man had yielded just the sort of information our client was looking for.

The next time you feel like you’re drowning in a sea of data, remember, there is no information overload.  As an investigator it’s all about coming up with the right filter.  Take a step back and make sure you have the correct filters in place.  With creativity, experience, and trial and error, it’s possible to dig out from underneath all that data and find the information your client needs.

Whether one spouse hides money from the other during a portion of their marriage (and the Wall Street Journal reported this week in Veronica Dagher's article, "Hiding Money From Your Spouse Has Gotten a Lot Harder," that 58% of spouses say they do), the serious attempt to track it down will almost always come in the time leading up to a divorce.

Divorces can be long and painful journeys, and despite the marvel of the internet, so can asset searches – especially when the other side knows you’ll be looking.

Clicking your way to assets becomes a little easier when you get to the stage of electronic discovery, as the article claims. Proper (legal) access to a computer, smartphone or Facebook account can work wonders. But the idea that a spouse or her accountant can dispense with paper records, do a little Googling and come up with major assets a lot of the time is just plain wrong.

Sometimes, you can get lucky. An accountant uncovered real estate owned by a the other side by using Google, according to the article, and the web also yielded information that the husband had sold his supposedly valueless company for millions.

We’ve written before about the limits of Google in our "Fact Finding Test for Lawyers," where we point out that if you Google yourself, you will probably find less than one percent of the information that you know about yourself. Why should your spouse’s secrets tumble onto the Google results screen when yours and those of most people you know will not?

Google is also deficient as a main search tool because “good” results for Google may not be good results for you. Google is a business, not a non-profit catalogue of the world’s information. If an obscure financial asset held by a brand new limited liability company controlled by your husband is like gold for you, Google may not get excited enough to tell you about it before page 10 or page 100 because nobody’s linked to it yet and it contains no lucrative terms to sell in Adwords. We went into this and other Google matters in "Google is Not a Substitute for Thinking."

The sad truth for people hunting for assets is that it’s often hard work that involves looking through paper. Of course, as the article mentions, there are all kinds of ways to tap into computers, phone lines and bank accounts. The trouble is, a lot of that kind of thing is illegal. Go into court with illegally-obtained evidence, and you often come out a loser.

The main reason electronic searches won’t be enough to uncover assets? Those assets are recorded only on paper. At best, in most of the more than 3,000 counties in this country, you can find abstracts of deeds, mortgages, court documents and security agreements on line, but to read them you need to retrieve paper in physical form.

What kind of thing is on paper that’s not on the web? For starters:

• Co-defendants. Your husband is sued in Pennsylvania, but not on the electronic abstract are the names of his co-defendants. One of those could be his LLC through which he owns property you don’t know about.
• Collateral. When you borrow money in a securitized loan, the collateral gets recorded in writing. Sometimes you can see these UCC Article 9 security agreements on line, and sometimes you can’t.
• Other adversaries who could help you. Looking at other people who have tangled with your spouse can help with information gathering because those people may know more about his business than you do.  

Finally, one critical tool is missing from the article on the electronic tool kit investigators now carry: it saves tremendous time, lets you conduct research from your office the way computers do, and even allows for lightning-quick follow-up. It’s called the telephone.

We don’t recommend using it until you’ve done all your research (lest you tip off your spouse that you’re getting close and give him the chance to move the assets). However, used properly, the phone can be the asset-hunter’s best friend. 

It’s always nice to be able to know who has loaned people money. It helps in asset searches, of course, but we also like to call bankers in after-fraud investigations. Now getting to the identity of those lenders is about to get harder.

Secured creditors have to put their customers on the public record. Such lending on real estate is called a mortgage, and on other kinds of property a “UCC-9” security agreement (known long ago as a chattel mortgage).

Who’s loaned money to whom is useful information if you’re a lender’s competitor, but it’s also great information in an asset search. You often need to contact other creditors to swap information, or else in litigation to figure out whether the person you are investigating may have perpetrated a fraud. What they told their lenders can be critically important.

Lenders have in the past tried to file under trade names (also known as DBA’s, for “doing business as,”) but those are also a matter of public record if not always findable on line. You can make up a name on a financing statement, but that gets awkward when it’s time to go to court and enforce a security interest.

The Company Corporation in Delaware thinks it has come up with a good solution that it’s recently started marketing: under UCC Article 9, lenders can submit the name of an authorized representative and have them listed in place of the lender, just the way people forming Delaware corporations can hide their identity by hiring an incorporator and registered agent. CSC offers that kind of service for Delaware corporations, and now says it’s the first to go into cloaking the identities of UCC creditors.

Now, instead of looking up who loaned money to a debtor, fact finders may have to determine who the representative of the lender is and then send in questions via that representative to uncover the identity of the lender. Who will answer? It could be the lender, but the lender won’t be under any obligation to respond. Or, depending on the agreement between the representative and the lender, you could be forced to deal with an intermediary representative instead of going right to the bank or finance company in question.

Just one more reason that data dumps by computer – never enough in conducting any kind of thorough investigation – fall short of the mark. Now even a search for a lender that used to be findable by computer or by an entry-level clerk may need the hand of someone experienced enough to be able to ask the right questions in the right way just to get the right person to come to the phone. 

An enraging story by the Associated Press spells it out: computers used by background checkers mix up two people with the same name. Blameless woman gets tagged with a criminal record that isn’t hers, can’t get work and ends up homeless.

We’ve written about the danger in relying on the “intelligence” of computers here, and the limitations of Google here. The message in these as well as the AP story about the ruined lives of background checks gone wrong are the same: there is no substitute for having an intelligent person conduct your research.

We saw such a problem earlier this year: a client called and said he wanted to hire (let’s call him) Robert M. Johnson for a high-paying job. Robert M. Johnson is an accomplished professional with a great resume and wonderful references. How then to explain the criminal record for fraud turned up by one of the databases? Robert M. Johnson the candidate said, “I’ve never been convicted of any crime. You’ve got the wrong person.”

Turned out he was right and the database was wrong. How could we tell?

1. We looked up the criminal case in question. While the AP story is correct that more and more criminal records are on line, the cases themselves – the critical documents – often are not and in any case need careful reading. We looked at the sentencing report in this case and found that the criminal Robert M. Johnson was sentenced to serve his time in a particular southern state to be close to “home and family.”

2. We then found that the Robert M. Johnson up for the job had no ties whatsoever to this southern state. His parents didn’t live there, he had never lived there, his Social Security number was not issued there, and he was working in Connecticut while the criminal Robert Johnson was committing his crimes down south.

This seems like simple work, but the databases were incapable of making the mundane connections that distinguished two very different men with the same common name. Why would this be?

To start with, not all databases come up with the same information. One may know where a person has worked for the last ten years, while another will have no information about employment. Still, the employment-light database will do a great job associating a person with companies he may own or on whose boards he serves. Both kinds of information are vital, but no machine can yet put them together to draw a complete picture.

Complete pictures come when the human mind gets involved, and even then, databases can only take you so far. We’ve written here about that too, and how interviewing is sometimes the only way to get the information you’re looking for.

But interviews or not, automated searching is like letting a robot build a car and then having another robot inspect the thing. The robots are certainly useful and lower the cost of the vehicle, but would you drive that car before a person had looked it over? 

The world is getting smaller in many ways, including for fact finders looking to get information about companies.

Sometimes, the company across the street will file more information about itself halfway around the world than it will in its own jurisdiction. With a computer or a good person on the ground far away, the information can be yours in a matter of minutes or hours.

Most people know the way this usually works: a company from a country with rotten disclosure wants to raise money in the U.S., and so is subject to the rigorous reporting requirements by the Securities and Exchange Commission. Foreign companies can be forced to disclose executive pay packages, and that can sometimes give you the name of a private company the executive gets his pay sent to. Great stuff, and only available because the government forces the information out of the company.

But what about the other direction? Companies from the U.S. or other jurisdictions that have great disclosure, which nonetheless turn over more information overseas than they might at home?

Two cases in point:

Last month the EU unveiled legislation to require “transparency” from “extractive companies,” which means companies that dig or pump stuff out of the ground or chop down trees. Even private companies that ordinarily would have no major reporting requirements to non-shareholders would have to disclose payments they made country-by-country.

A time-honored gift to U.S. investigators is Companies House in the United Kingdom. Private companies from anywhere in the world that want a presence in the U.K. have to register. You get names of directors, addresses, shareholder information and financials.

So the next time you have to look up information on a company, ask not only where the company is incorporated. Ask also: “where does it do business?”

We’ve written before here and here about the limitations of Google. So much of what we think we can find on Google is not there because it was never on the internet, or can disappear from Google’s results from one hour to the next.

Now comes a study conducted at Columbia University and reported in The Washington Post that says people are less likely to remember things they think they can recover via Google or other search engines.

Given the disconnect between what we think we can get off Google and what we often fail to find, that’s a disconcerting finding.

Broadly speaking, Google is fine for recalling things you used to look up in the World Almanac: What is Poland’s GDP? When did Groucho Marx die? Who is the junior senator from Wyoming?*

But unless you are extremely famous, Google is rotten at getting you information about yourself or most people you know. Court records, professional licenses, deeds and mortgages – all the pieces of our lives that help to write our life stories – these are rarely on Google. Google yourself and see if more than five percent of your whole life appears.

Our feedback indicates that our most useful tip about how to get the most out of Google is when we talk about “meta searching.” In brief, this is looking on Google for a way to find something that will lead you to the answer you want. If you’re searching for a particular ship, you may not find it on Google. But you probably will find indexes of ships (that may not be on line), or else names of agents you could call to track a ship down.

In this way, Google makes finding things faster, but you still have to use your head. You may also need a telephone and some energy to go somewhere to look things up in books or in databases not connected to the internet.

One last tip: before you head out to the library, write down the address. It may not be on Google either and even if it turns out to be, scientists say you may forget it before you arrive.

*$430 billion (2009); 1977; John Barrasso.

One thing we always tell new clients: there is no such thing as a “local” investigation. A Russian guy in L.A. means you could be dealing with a Nevada corporation in addition to Russia and California. An apartment in Miami may be owned by a British Virgin Islands company.

That’s a good thing to remember when dealing with Greece, and especially if you’re counting on the solvency or liquid assets of a business partner. Your business could be in Greece, but your partner’s collateral could be sitting in HSBC in Switzerland, or in Cyprus. While cracking a Swiss bank account isn’t as hard as it once was, it’s no piece of cake even with a subpoena. Cyprus may be part of the European Union, but it’s not a member of the Financial Action Task Force, the OECD’s umbrella group that fights money laundering. We’ve had experience trying to find assets in Cyprus, and our clients don’t find it fun.

As Greece’s new restructuring plan (which The Economist says is doomed to fail) includes plans to sell state-owned assets, it’s easy to envision foreign investors going into partnership with locals to buy up cheap assets. The local participation may be to get around Greece’s legendary bureaucracy, and local partners sometimes put up cash or guarantees. Given what’s been going on in Greece of late, bank balances in euros held in Greek banks don’t seem to be the most secure kind of backing an investor could be looking at.

The Bank of Greece’s own statistics make for sobering reading. In April, Greece’s net capital flows veered into negative territory. The numbers would have been much worse this year but for large injections of money from the EU.

As long as a year ago The Financial Times was reporting that Greeks were shoveling their bank deposits out of the country to Switzerland, Cyprus and other international points. With the teargas and the fragile plans being discussed this week, no asset search of a Greek person of any means should be complete without looking beyond the country’s borders.

Some other tips before concluding a deal with anyone in Greece or any other jurisdiction with risk of capital flight:

• As part of your standard due diligence, find out whether this person has ever been sued in the places he or she does business, such as the U.S. or the U.K. Previous business partners will have come to know this person and will probably have included associated companies along with the person in their lawsuit. Those companies could contain assets worth going after either as part of a guarantee or to attempt to attach later on.
• Do a basic verification of the person’s alleged contacts in the home country. We have seen many people boast that they are “very close” to a key minister or other connected official, when in fact no particular bond exists. In countries where relationships matter most, it’s the quality of those relationships that is critical. Such things are seldom written down, but are rather determined by quietly interviewing knowledgeable people in the country in question.
• Insist on adjudication of disputes outside the country in question, whether you are looking for arbitration or traditional legal remedies. According to Transparency International Greece’s public corruption problem is worse than Romania’s and almost as bad as the rating achieved by India.