Our client, a commercial lender, requested background investigations of a consumer products company and its two principals in connection with their application for working capital financing. The loan officer was familiar with the subjects, and was astonished by the information that SI quickly uncovered. Searches of federal court records revealed a 2008 action filed against the subjects under the Federal Trade Commission Act for falsely advertising that using their electronic exercise belt caused weight and inch loss without exercise. The action was resolved by stipulated orders as part of a global settlement of both the FTC’s lawsuit and related actions brought by county and city prosecutors. The subjects and certain retailers collectively were ordered to pay over $2 million. The FTC and state orders further barred the defendants from making false advertising claims for the product or any similar device, and provided other injunctive relief to prevent future deceptive practices. And the subjects’ nefarious acts did not stop here. Both principals had several unpaid tax liens and judgments ranging in amounts from $48,000 to $650,000, and both were convicted within the last two years of driving under the influence of alcohol.
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.
