ScherzerBlog | Scherzer International

In today’s world just about every company knows that an effective employment screening program is invaluable for hiring qualified individuals, reducing turnover, deterring fraud and other criminal actions, and avoiding or mitigating litigation.

Recognizing that a “bad” hire is a threat to the bottom line, many companies, from investment bankers to law firms, are taking a risk-focused approach to background investigations and deciding what is appropriate or how much should be done to ensure organizational success. For example, obtaining a credit report or checking civil records for an entry-level applicant with low risk responsibilities may be of limited use, while reviewing such record histories for someone who will handle money or have access to sensitive information may be imperative in assessing his/her suitability for a position of trust.

Best practices in both the government and in the private sector indicate that a risk designation should be determined for every position, based on its description of duties and responsibilities. The risk grade should be commensurate with the employee’s assigned trust level, financial accountability, access to sensitive and confidential information and critical data systems, autonomy, discretionary authority, and potential opportunity for misconduct.

To be effective and non-discriminatory, employment screening policies need to specify a uniform set of background investigation elements for all position/assignment levels, including new hires, temporary workers, interns, transferred and promoted employees, contractors and volunteers.

SI has a full suite of employment background investigation products. Please visit our website at http://www.scherzer.com/ to learn more or order an investigation.

Media sources reported that among several wrongful death lawsuits filed by the Jackson family, is a September 2010 action against event production company AEG Live and others alleging that they are responsible for the singer’s death because his “This Is It” tour contract with AEG created a legal duty to keep him healthy.

In its complaint, among other causes, the Jackson family accuses AEG of “negligent hiring” and retention of Dr. Conrad Murray to care for Jackson instead of his usual doctor. Earlier this year, prosecutors charged Murray with involuntary manslaughter, to which he pleaded not guilty. The doctor is accused of administering the drug Propofol to Jackson without the necessary resuscitation equipment or nursing support, and subsequently causing his death. The ‘Negligent Hiring’ cause of action in the complaint filed in Los Angeles County states:

“In undertaking to hire Murray, AEG performed absolutely no diligence in investigating or checking into Murray’s background, specialties, ability, or even whether he was insured, which it had a duty to do. In choosing to hire and employ a physician to treat Jackson, AEG undertook to act, and it needed to do so reasonably. AEG did not act reasonably and breached its duty.”

“During the course of Murray’s treatment, it became clear to AEG that Jackson was not doing well at all. AEG did nothing to terminate Murray and instead negligently retained him as an employee, and in so doing violated its duty of care. AEG insisted that Jackson continue treatment with Murray and receive no treatment from other physicians, a further breach of its duty of supervision.”

Along with negligent hiring, training and supervision, the complaint calls for unspecified damages for breach of contract, fraud, and negligent infliction of emotional distress. And in the most recent case filed November 30, 2010 in the Los Angeles County Superior Court, Joe Jackson is also claiming negligent hiring, training and supervision and negligence by the Murray-affiliated clinics and negligence against the pharmacy (and Murray.) A similar suit filed this past June did not include the pharmacy, and was dismissed.

Shortly after Michael Jackson’s death, ABC News reported that Murray was arrested on domestic violence charges in 1994 after an incident with his then-girlfriend. The doctor was tried and acquitted. When a company fails to conduct a background check, the employer can be held legally liable for a worker, independent contractor or volunteer who causes injury to a customer, co-worker or the general public. Whether the individual was acting within the capacity of the job for which he/she was hired does not matter. The legal theory is that even if an employer did not possess direct knowledge of the liability posed by an employee, the company is legally responsible because the employer should have known about the threat presented by the individual. Currently, fewer than 50% of the states uphold the doctrine of negligent hiring, and the criteria for determining negligent hiring differ from state to state.

A global consulting group ordered a risk management investigation of a commodities trading firm and its principals. Media searches revealed that among the subject firm’s investors was Galleon Group founder Raj Rajaratnam, a hedge fund manager alleged by the U.S. Department of Justice to have received over $35 million in ill-gotten profits as a result of a sophisticated insider trading scheme. Media outlets also reported that Rajaratnam made a $5 million contribution to a Sri Lankan charity identified as under the control of the terrorist group, The Tamil Tigers; however, Rajaratnam’s name did not appear in the subject firm’s filings with the Securities and Exchange Commission or in Secretary of State records. In the wake of Rajaratnam’s 2009 arrest, a partner in the subject firm acquired stakes in a foreign bank. Among the investors in the bank was an individual who had also partnered with Rajaratnam in 2006 to form a hedge fund management company. By canvassing media stories from several years, SI’s analyst pieced together this complicated web, with Rajaratnam at its center. In addition to these dubious business connections, public record searches uncovered state and federal tax liens in excess of $15 million against two of the subject company’s executives. Additionally, the National Futures Association (NFA) indicated the company had withdrawn its membership, even though the firm’s Web site claimed membership in the NFA.

SI was engaged to investigate a national company along with two of its principals as part of our client’s risk management program. The company’s ads have appeared almost daily in major newspapers and on the Internet, and the merits of its consumer services (for confidentiality, we can’t say what they are) have been touted in the professionally scripted testimonials of “real” customers. But SI’s investigation found media reports and court documents showing that the claims were not so credible. There is a pending federal class-action lawsuit against the company and its principals alleging several fraudulent business practices, including the misleading advertising of a service guarantee that “is riddled with restrictions, waivers and limitations” and service enrollments without authorization. Six additional lawsuits for similar causes of action are pending in various county-level courts.

Further, SI’s investigation uncovered the checkered backgrounds of the two principals behind the company. Searches of bankruptcy records revealed that both subjects had filed for protection from creditors – and in the co-founder’s case, had filed multiple times. Also missing from the company’s pitch was that the co-founder’s previous career in a similar business culminated in a federal judge’s order barring him from “promoting, offering for sale, performing or distributing any product or service related to [consumer] services.”  Had our client’s decision-makers relied on the company’s presentation of itself and its principals, they would not have been able to realistically assess the risk of engaging in business with the subjects. While a search of media stories might reveal complaints against a potential client, it’s a full in-depth investigation that brings all the pieces together.

The past few months have witnessed appalling stories of con artists who bilked billions of dollars out of people, business, and charitable foundations. These white collar thieves were not just in banking and on Wall Street; they were in health care, retail, oil and refining, military supplies and other fields. In short, the effects of these cons have been felt on every street in America and beyond.

Do these stories indicate that business crime has increased in recent years, or are we simply more effective in catching the perpetrators? Perhaps it is a combination of both, but these cases point to the importance of internal controls through due diligence and risk management.

Scherzer International (SI) has a proven reputation for accuracy, expertise, quality and speed in risk management. As part of a Risk Management Program we provide background reports with search strategies designed for each client’s risk level. Our highly trained research analysts review and summarize public records for both individuals and companies and deliver a comprehensive, easy-to-read report targeted on the client’s purpose of investigation.

SI’s trusted reputation was proven once again recently in two highly publicized cases involving fraud, money laundering and drug related crimes. Years before news broke on the cases; SI identified these individuals as a potential risk for two of our clients. Based on our reports, our clients (one a financial services firm and one an accounting firm) made the informed decision not to engage in business with these individuals. In one case, the subject of our investigation was arrested and convicted of drug related crimes, money laundering and involvement in organized crime. In the other case, the federal government charged the subject with illegal financial dealings, investments that could not be traced and altering financial records.

It is difficult to quantify just how much SI’s background report saved these companies in what could have been very costly and damaging decisions. What we can say is that our clients feel confident that we are an integral part of their Risk Management Program.

Your Risk Management Partner … Because Integrity Matters

Members of the Financial Community
FM: Larry Scherzer, President, Scherzer International
RE: Background Investigations in the Current Economic Environment

Ladies and Gentlemen,

As a part of its Risk Management Program, one of our financial services clients asked us to conduct a Prospective Client Background Investigation. This is a well-accepted best practice for protecting the firm’s reputation and minimizing legal liabilities.

SI’s investigation in 2006 revealed that the subject company and its principal were involved in dubious business practices. As you may have guessed, based on this initial discovery, our client declined the engagement.

Recent headlines have now verified, years after our investigation, that the prospective client had, in fact, been running what can best be described as a long-standing Ponzi scheme.

This experience demonstrates the benefits of obtaining background investigations that provide comprehensively researched and analyzed information as a key element in your Risk Management Program.

Please visit www.scherzer.com or telephone 800-SC-FACTS to find out more about managing business risk for pennies on the dollar… because we never take integrity for granted

Sincerely,

Larry S. Scherzer