Investigative tools, procedures, and resources used by private investigators are very similar in the private and public sectors. For property to be seized or restrained, most jurisdictions require evidence of probable cause which demonstrates that the property was acquired through some sort of illegal activity. A couple techniques used for private investigations include search warrants, surveillance, garbage pickups, and internet and public record data searches.
Typically, search warrants are used to obtain evidence or contraband by searching a person and their private property. A court must order the search warrant specifying when and where law enforcement agents may search for specific things. Although, depending on the jurisdiction, different laws may apply to the execution of the search and how the warrant is obtained. Computers, specifically the data and electronic information stored in them, are often seized through search warrants.
Surveillance is used by both public and private investigators to assist them with their cases. It can range from the use of electronic recording devices to a simple drive-by of a property or residence. However, the more invasive the surveillance is the more likely judicial approval will be required. Electronic surveillance, such as the use of listening devices or wireless intercepts, usually requires a court order if the surveillance invades the reasonable expectation of an individual’s privacy and is mostly only available for use by government agents. Surveillance in general is used specifically to observe and record details about an individual’s lifestyle, interactions, and daily activities. For example, an investigator might conduct surveillance to locate bank accounts, real property, brokerage accounts, boats or cars.
Garbage pickups are another procedure used by investigators to obtain information. However, in order for the information to be legally admissible, the process of acquiring the information must be proper in the jurisdiction in which it occurred. Most jurisdictions allow garbage to be collected and examined after it has been abandoned. The general rule for garbage to be examined without a warrant is that once the trash has been placed in a public area for collection it has been abandoned. One issue with abandonment has to do with curtilage, or rather the land within a dwelling or business in which there is an expectation of privacy. For example, the curtilage of a house would be the front, back and side yards. If garbage is placed in cans within this space it is not considered abandoned. But if the cans are placed on the curb an investigator has the right to collect any garbage within it to analyze and use as evidence. However, if a pickup violates the curtilage then lawsuits, trespassing charges, or inadmissible evidence may result from it.
Lastly, the use of internet and public record data searches are used in private and public investigations. Social media specifically has enabled people to access individuals’ personal information in minutes. Today, a simple internet search can provide an individual’s current residence, birthday, phone number, employment information, and the names of family members and other people that said individual has relations with.
Corporate due diligence is taking on a new role in business. Many companies are now doing some type of research, due diligence, or background checking on vendors and business partners to help prevent fraud. Recently, I have seen two different cases relating to this.
First, we came across a situation where a company had been doing business with our client for a long period of time. The company had been buying inventory from our client every month, paying for the allotted amount, and reselling it. Towards the end of a year the company approached our client saying they had a really big order and they needed a bunch of inventory. They asked our client to send it right away and that they would pay. Now, this order represented about eight or nine times the company’s typical order so at first our client was purely excited to fulfill it. The inventory was then sent to the company but our client didn’t received payment for it. Ultimately, the one “really big order” resulted in our client losing more money than they had made from this company’s prior orders combined.
Unfortunately for our client, this loss could have been very easily discovered had some due diligence been performed. If our client had looked into it they would have found that the company they were selling to was having major financial problems. The company was behind on their bills, the owner had filed foreclosure, some of the vendors for this company had reported their inventory being diverted and instantly resold wholesale just to generate capital. Additionally, the company had a lien filed against them 30 days prior by the state sales tax department because they weren’t paying sales tax on what they were selling retail. All of these issues would have been reasons to prevent our client from doing business with the company. Had our client done some due diligence before working with this company, it could have prevented a huge loss for them.
The other situation we’ve come across recently relates to fraud and identity theft. In this particular case, a trucking company had some of their corporate documents, specifically their insurance certificate, copied from a website where they posted they were going to do work. A different trucking agent had one of their trucks and drivers use this other company’s stolen credentials to go pull up to a warehouse, load up inventory, and drive away stealing the cargo. When the inventory didn’t arrive at the other end, the company who shipped the cargo called the name and address on the paperwork only to find out the truck that had taken the inventory had used fraudulent paperwork and stolen their products.
Researching the finances and assets of an individual or company is an important measure to take prior to doing business with them, along with criminal background checks. Don’t just wait for a “really big order” to begin your corporate due diligence. Take a look at your current and prospective vendors, or even other types of business contacts, to make sure that they are legitimate. Be confident that the company or person you’re doing business with will be able to pay, will be able to follow through, and that their prior activities similar to what you’re doing have been handled with integrity. Due diligence may take some time and money initially, but it could potentially save hundreds, thousands, or even millions of dollars in the long run.
As consumers turn more frequently to online reviews to make buying decisions, the role that the sources of these reviews takes on becomes more important. Industry leader Yelp has started taking some steps to prevent these reviews, but it is a moving target for the business model.
Fake or exaggerated reviews can misrepresent the true nature of the business or product either for good or bad. In some cases a competitor or disgruntled customer can post fictitious negative reviews driving down the perceived quality of the company. This causes actual damage to the firm and can be a cause for legal action. A qualified investigation can discover the source of the reviews and provide intel for a lawsuit or other legal action.
On the business side, companies can pay PR firms to post multiple fake positive reviews to boost their companies reputation. Firms such as Glowing Reviews represent that they will post multiple reviews in support of a client company. This business model has come under fire from site hosting the comments. Vehicle data site Edmunds.com recently filed suit against fake review writers claiming that they defraud visitors and violate their terms and conditions.
“The lawsuit was filed in Texas on Tuesday. Among other things, the lawsuit accuses them of fraud and breach of the Edmunds.com membership agreement. Online reviews have become a major factor in consumer decision-making, with businesses failing on negative ratings. Reputation management and public relations firms have popped up to help businesses improve their online identities.”
Casualty insurers are facing a more difficult claims settlement environment as the number of claims with questionable factors is increasing. The National Insurance Crime Bureau is reporting that 2012 saw an increase of 26% in questionable claims. “Suspicious theft/loss (not vehicle)” had the highest increase in volume to 10,680 in 2012 from 7,152 reached in 2011. In 2012, the top five states generating the most questionable claims were: California (21,935), Florida (10,693), Texas (10,368), New York (9,059) and Maryland (4,296).
Our property title search report analysis has seen an increase in the percentage of subject properties with liens, judgments, or other distress factors. This may be leading to insureds creating claims or inflating legitimate claims. We are also discovering that properties with claims submitted are turning out to be not the parcel actually insured on the policy, once the legal description is identified.
In more favorable news, a court in New Jersey ruled that an insured is not entitled to reimbursement for fees paid to a public adjuster to negotiate a more favorable claims outcome. The insured moved to recover attorneys fees and the public adjuster fees, but the court denied the request. “Perley-Halladay’s motion for summary judgment is denied, and its motion for attorney’s fees and costs is denied.”
In the video which follows there are some suggestions on defending settlements from frivolous claims from private adjusters.
Recovery losses in a fraudulent investment case is not a hopeless endeavor. If you are a victim of any type of fraud, or have a valid judgement against a debtor, do not give up on getting back the funds which belong to you. The key to successful recovery is exploiting all available resources.
Do not take the position that your scenario is a “collection” matter. Collection implies that the money belongs to the fraudster and that the efforts are to beg it back or get a debt paid. The mantra of asset recovery is to begin with the belief that the money belongs to the victim/creditor. It is a matter of taking it back aggressively, but legally.
Money does not evaporate. It is spent, invested, hidden or squandered. But it is not erased. Following the flow of funds to wherever they went is the open door to unlimited resources for recovery. Think it can’t happen? In one of the largest ponzi schemes in the past decade, victims in the $1.2 billion Scott Rothstein fraud may see a return of 100% of their assets due to the extraordinary efforts of the receiver in that case.
This and other successful asset recovery missions is achieved with the following 4 point approach:
- Flow of funds – clawback
- Third party liability
- Aggressive negotiations
In the Global Bullion Exchange fraud case, the victims asset recovery team is going after the firms former bank, Wachovia, for not overseeing the fraud accounts properly. “Either they knew what was going on or they weren’t monitoring the accounts the way they should have been,” said the victims attorney.
These are both excellent examples of high level asset recovery methods using all available resources.
Watch the video below and hear more details of how this is approached.
Employee embezzlement can happen at the intersection between trust and reasonable security. People who are valuable parts of an enterprise need to have sufficient latitude to take action and get things done. The CEO or owner cannot do everything personally, so key people are entrusted with important roles including managing money and critical information within the firm.
Reasonable internal controls help protect the company from exposure to loss due to errors or fraud, but the need for personnel to be able to freely perform their duties allows the possibility for problems to occur. One common loss control method is to limit the amount an individual employee can authorize for payment. This can be circumvented as in the recent case at UPS, where an employee authorized multiple payments each for less than his $5000 limit. The employee and his vendor accomplice was able to steal $1.2 million until the fraud was discovered. In this case it appears the fraud was only caught when an outsider from a bank noticed unusual activity. This is a reminder to companies to use more than one method for preventing fraud or loss. For example, in addition to having a transaction limit, payments and invoices can be randomly reviewed. Fraud cases almost always reveal that internal policies are used by the criminal to mask the scheme.
Coincidentally, there was another fraud scheme in Atlanta for about the same amount. An employee at the prestigious Woodruff Arts Center set up a dummy company and billed the non-profit for $1.4 million in fraudulent services. According to the center, they only have 13 vendors in total. Why are these types for frauds able to be committed?
It is a combination of trust and circumstances. Good corporate integrity should not change over time. If controls are in place, they should not change based on an employees tenure. Of course certain executives may be given more latitude as they prove their trust over time. However every transaction and payment should still be subject to audit. Especially those done under a trusted and less scrutinized initial process.
The video below will list 5 reasons why an employee crosses the line of integrity, and 5 ways to prevent fraud.
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