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A holding company’s claim that it “had the funds and network to take the action necessary to complete business deals” was put to the test in an SI background investigation. Searches of civil records located a lawsuit filed in 2008 in which the holding company sued the United States of America, the Drug Enforcement Agency, and Internal Revenue Service for return of approximately $24.5 million seized from bank accounts in Florida. The government’s response to the holding company’s claim disclosed that there was an ongoing criminal investigation in Arizona involving drug trafficking and related international money laundering enterprises. The seizure of the funds resulted from evidence gathered during the investigation.

In addition to the foregoing, the government stated that it was still investigating whether there were any victims of fraud because the investigation made it apparent that many of the entities associated with the seized accounts had no legitimate business activity, are shell companies, and have failed to comply with reporting requirements in Florida regarding their purported operational activities. The government specifically noted that the holding company’s Web site appears to promote an investment scheme with unrealistically large interest returns which typically is consistent with a fraudulent investment operation and, in fact, agents have received statements from individuals reporting that they have invested in a program that promised incredibly high rates of return. The government’s investigation led it to conclude that the holding company failed to establish it is an entity of substance and not composed of a series of shell companies simply moving money around in a money laundering exercise to conceal the ownership, source, and control over the funds.

A pharmaceutical company already engaged in a long-term business relationship with an accounting firm, as part of its rebranding, brought on several new executives, including a chief financial officer. After learning that this client had not performed background investigations on these individuals, the accounting firm ordered due diligence investigations from SI.

Everything looked great with the chief financial officer: an MBA degree from a prestigious university was confirmed, as well as employment history in financial positions with large companies.

However, in digging deeper, SI’s investigation discovered that the subject, in his capacity of chief financial officer at a previous employer, had been named as a defendant in several federal lawsuits, including a civil complaint filed by the Securities and Exchange Commission which alleged that the subject falsified financial documents. The subject paid $50,000 in fines to the SEC without admitting or denying the charges and agreed to a permanent injunction. His CPA license was revoked, and he was expelled from the AICPA. The former employer was forced to restate its earnings which, in turn, resulted in a shareholders’ class-action lawsuit against the subject and the company. Unrelated to the securities matters, an open federal tax lien filed in 2008 for $469,500 against the subject was located in searches of his previous jurisdiction of residence.