We have rounded up the most popular posts on our site so that you can catch up on anything awesome you might have missed in 2010. There’s a ton of great advice, links and case examples in the archives, so make sure you check out the links we’ve compiled for you!

1“Red Flags” You Should Have Seen – A Look Back at Mouli Cohen

Samuel Mouli Cohen, who allegedly bilked investors out of more than $30 million, was arrested in August 2010.  There were numerous red flags that investors could have identified if they had done some homework prior to investing.  Private Jets, recorded conversations from jail and a “Kosher Billionaire” cookbook…what more could you ask for?
Check out part two: The Ongoing Saga of Samuel “Mouli” Cohen

25 Myths: What a Private Investigator Cannot (Legally) Get

Equally important to understanding what a private investigator can legally obtain, is understanding what they cannot obtain.  Retrieving bank account information, bank records, telephone records, credit reports (without authorization) is not only off-limits, it’s illegal.

3The Anatomy of a Comprehensive Background Investigation [INFOGRAPHIC]

Have you ever wondered what a background check would find out about you?

4How to Avoid a Hedge Fund Fraud – Lessons from Bayou Fund

Bayou Fund is one of the prime examples of a hedge fund fraud that could have been avoided by investors had they conducted a background investigation on Sam Israel.

5Executive Background Check: 9 Things They Don’t Want You to Know

In today’s tough economy, candidates for senior level positions may feel the pressure to falsify credentials or hide things from their past.

6Due Diligence Investigation: Tips to Avoid an Investment Fraud

With the rampant amount of investment fraud, hedge fund fraud and ponzi schemes, doing your due diligence on your potential investment has never been more critical.

7Professional Private Investigator: How an Attorney Can Effectively Use One

Consulting with a private investigator can help attorney’s to leverage their position and find creative and efficient ways to come out ahead of your adversary.

815 Fraud and Investigation News/Blog Sources

Looking for some fraud and investigation trends, news and insight?  Look no further…

95 “Must Read” Fraud and Investigation Books for 2010

This is a collection of some of our favorite fraud and investigation books published in 2010.

10Case Study: Preliminary Public Record Background Check Identifies Criminal Investigations

What if you knew if someone was being investigated by foreign authorities before you hired them? Wouldn’t you want to know?

October 2011 Update: Nicholas Cosmo Sentenced to 25 Years – History Repeats Itself

Nicholas Cosmo’s guilty plea for running for $413 million Agape World ponzi scheme on October 29, 2010 reminded me of how this could have been avoided if investors had hired a professional private investigator to conduct a background investigation.

It’s easy to make such a statement in hindsight, but at least for two investors, they were well aware of Nicholas Cosmo’s dubious past well before the general public became aware of his issues.

In January 2008, I received two calls from two separate investors who had both invested with a Long Island investment manager Nicholas Cosmo of Agape World who was claiming to get substantial “guaranteed” returns in just a few months.

Both investors had already made investments with Cosmo and both had a good level of comfort with him; they had met him personally, played golf with him and were aware his contributions to the local community. Although they both had been receiving checks on investment gains and knew many other investors who had done extremely well, they wanted to conduct some additional background investigation, just to make sure.

The Only “Guarantee” in Life is Death and Taxes

Immediately, I was a bit suspicious. Firstly, the words “guaranteed” and “investments” in the same sentence should immediately raise a red flag (remember the old addage that the only things “guaranteed” in life are death and taxes). Also raising suspicions was calls from two investors on the same day who were claiming that Cosmo was trying to raise some more money.

This was prior to the term “ponzi scheme” becoming a household name (thanks to Bernie Madoff who was arrested in December 2008), but it was one of the first thoughts in my head. The trademark of the ponzi scheme is that earlier investors are paid with new investors money, and when a fund is desperately seeking new funds, it’s a clear warning sign that trouble may be ahead.

Cosmo’s Criminal Record

Needless to say, after a few hours of research, I had determined that Cosmo had served time in federal prison and had been banned by the NASD in 1999. It took about a week before I was able to get a copy of the court records from an federal archive facility, but once I did, it had proved my initial suspicions – Cosmo had been banned by the NASD in 1999 and served federal prison time for a scheme in which he stole more than $150,000 from his clients.

In addition to being banned from any NASD member in any capacity, court records showed that part of his sentence required Cosmo in a “facility that offers an intensive gambling therapy,” which, needless to say, is not a typical part of a sentencing agreement. Of course this information didn’t “prove” that Cosmo was operating a ponzi scheme, but it was enough to inform the two investors of some serious warning flags.

Other Warning Signs

Also suspicious was Agape World’s claim that they had been a “private bridge lender” since 1999, which is during the time that Cosmo was serving jail time (he wasn’t released until August 23, 2000).  And based on information from other sources in the private bridge loan business, I knew that bridge financing was drying up due to the economic downturn and even if it was a legitimate business, there was no way that Agape could keep its pace or its “returns” to investors.

It was later learned that some Agape investors said the favorable Dun & Bradstreet reports along with Agape’s appearance on Entrepreneur Magazine’s “Hot 100” list of fast-growing businesses lent the company “undue credibility.”

It’s important to know that Dun & Bradstreet can be an effective tool for evaluating businesses (not typically investment schemes), but the information in these reports can be limited, most of the report is self-reported and, as in the case of Agape, they obviously did not conduct a criminal check on Mr. Cosmo. As for his appearance in Entreprenuer Magazine’s “Hot 100”, this informaiton is typically self-reported and facts are not always checked properly.

Conclusion

This is just another example of where a little background investigation by a professional private investigator can help you avoid fraudulent investment schemes. This fraud is particularly disturbing because unlike other notorious massive frauds that have victimized the wealthy (Bernie Madoff), the victims in this case were mostly blue collar workers.

And while fraudsters such as Bernie Madoff and Allen Stanford have received national attention for the SEC’s failures, ponzi schemes such as Nicholas Cosmo’s were not overseen by the SEC and even with the new steps in place to investigate and prosecute fraud by the SEC, Cosmo’s Agape World would not fall under their auspices.

So until there is some major financial overhaul, investors need to do their own homework to understand what they are investing in and who they are investing with.

Conducting a preliminary public record background check may uncover issues that may immediately identify “red flags” before a company has fully committed a position to a candidate, potentially averting hiring someone who could damage a company’s business, reputation or shareholder value.

Experience has shown that firms generally consider conducting a background check as one of the final steps in the decision making process in hiring an executive level candidate. However, given the significant investment in time, money and efforts that the company needs to commit a candidate of this caliber, company’s should consider conducting a preliminary public record background check before making a significant investment in the candidate.

The Scenario

Diligentia Group was retained to conduct a background investigation on a native of South American who had spent more than 20 years in the United States working for an international investment bank.  The candidate was being considered for a position at an international financial institution based in the United Kingdom.  The client was in the early stages of conducting their due diligence on the candidate and requested a background investigation.

Given the timing of the negotiations, the client was hesitant to commit a significant amount of time and money to conduct a comprehensive background check in the multiple jurisdictions that the candidate had resided.  However, given the significant financial commitment and potential risk involved to their reputation, the client requested some preliminary background searches on the candidate to identify potential warning signs.  We suggested that client conduct a preliminary public record background check in the United States to determine if their were any potential issues that may exist.

Securities Regulator Records Discloses “Red Flags”

During the course of our initial investigation, a review of selective public records in the United States identified the following information through state securities regulators:

• South American federal officials recently investigated three different investment banking transactions involving the candidate including an ongoing criminal probe by a South American federal prosecutor.
• The candidate was terminated from his prior position at his former investment bank due to a “loss of confidence.”  According to various published reports and information provided by the candidate to the client, the candidate had “retired” from his position at the investment bank.
• The Securities and Exchange Commission and the U.S. Department of Justice had conducted an investigation into the candidate’s trading activities relating to two different investment banking transactions.

The Result

Given the information identified during the course of our preliminary public record background check, the client ultimately decided (to no surprise) not to proceed with hiring the candidate, potentially averting significant damage to the company’s business and reputation.