A due diligence background check on potential investments can help your family office preserve wealth and protect assets for generations to come.

Frauds, Ponzi Schemes and Financial Fraudsters

The news is filled with stories of some of the most sophisticated investors in the world being duped by investment frauds, Ponzi schemes and financial fraudsters.

While institutional investors have been splashed across the news for their lack of due diligence and background checks, in truth, it is the smaller family offices and wealthy individual investors who have been most affected. For institutional investors, losses can be more easily absorbed, but any losses sustained by a family office from an investment fraud can affect generations of family wealth.

A recent poll by Rothstein Kass Family Office Group found that 85% of single-family office operations are currently invested in hedge funds.

The fact of the matter is that fraudsters prey on wealthy individuals, family offices, endowments and even nonprofit organizations because they know that they do not have the same due diligence resources as institutional investors and are less likely to perform a due diligence investigation. As financial frauds have become prominent, so too have the services of professional investigative firms to uncover potential issues and minimize investment risk.

What your family office could have avoided with a due diligence background check:

  • Sam Israel (Bayou Fund) – In 2005, Sam Israel was charged with losing more than $400 million from investors in the Bayou Fund and was sentenced to 25 years in prison in 2008. A due diligence background check on Israel and the Bayou Fund would have identified multiple red flags, including embellished employment credentials, an accounting firm that had ties to Bayou’s own chief financial officer, and DUI and criminal possession of a controlled substance charges against Israel.
  • Samuel “Mouli” Cohen – In August 2010, federal prosecutors in California unsealed a criminal indictment accusing local businessman Samuel “Mouli” Cohen of defrauding more than 55 investors, including actor Danny Glover, out of more than $30 million. An investigation into Mouli Cohen would have identified previous failed business ventures, prior allegations of fraud and nearly $500,000 in back taxes owed to the government.
  • Danny Pang (PEM Group) – In 2009, Danny Pang, the principal of a $4 billion international investment firm, was accused of defrauding investors of hundreds of millions of dollars. A background check would have revealed that Pang was misrepresenting his education credentials, his property was in foreclosure five years prior to charges being brought against him, and multiple civil lawsuits including harassment charges were filed against him.

Final Thought

Don’t become another statistic. Due diligence background checks can help you minimize your risks, protect your assets, make more informed decisions about your investments and protect assets for generations to come.

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