Joseph Santovasco

When making important business decisions, it is critical to undertake a proper due diligence investigation. Due diligence is defined as, “the care a reasonable person exercises to avoid harm to other persons or their property.” Investigative due diligence refers to the research and analysis of an individual or organization done in preparation for a business transaction. Concealed or misrepresented facts can leave companies vulnerable to fraud. Due diligence investigations help mitigate risk and deliver peace of mind. They can potentially save clients from substantial monetary losses, reputational damage or lawsuits. Investigative due diligence is necessary for determining the practicality of an investment, merger, acquisition, joint partnership or other business relationship.  


Due diligence investigations can be conducted on individuals as well as entities. The initial investigation focuses on obtaining information through public records and proprietary databases. An analysis of the subject’s biographical information can help determine where the subject has been employed, resided, and conducted business.


Individuals may misrepresent qualifications on a resume or application, or in listing biographical information, which makes the verification of credentials and employment history imperative. Professional licenses should also be confirmed, making note of potential sanction or disciplinary histories associated with the license. A subject’s business affiliations can indicate ownership interest in a company that has had financial difficulties, an affiliation that may have been involved in fraudulent behavior, or potential conflicts of interest. A review of IRS filings concerning charitable giving/foundations can expose misappropriation of funds and identify concerning red flags. Investigative research can also identify contributions made by an individual to a political candidate, committee or party as recorded by the Federal Election Committee.


Criminal searches will be conducted to identify if there is any mention in a criminal action or a checkered past. These searches should be performed at the federal, state and county levels where the individual has resided and conducted business. Before agreeing upon any potential deal, it is important to confirm whether a party has been tried or convicted of a criminal offense. Civil litigation searches are one of the most important aspects of due diligence investigations. Much like criminal searches, civil litigation searches should be performed at the federal, state and county levels where the party has resided or conducted business. Being the subject of a lawsuit may not be adverse by itself, but it is of utmost importance to determine the types of cases in which the subject is involved. Discovery of a litigious history involving matters such as embezzlement, tax evasion, fraud or other financial crimes can potentially save an individual or entity from a failed investment or potential lawsuit.


It is imperative to paint a picture of an individual or entity’s financial background before a business relationship has commenced. A search must be performed of bankruptcy records, judgments, tax and Uniform Commercial Code (“UCC”) liens in which the individual or entity is named as a debtor. A UCC lien results when an entity lends money to a debtor and the debtor pledges collateral to the lender in exchange for the loan. Matters found in these searches could indicate that the subject of the investigation is in a poor financial position and is not adept at handling finances. This could have a negative impact on a potential investment or partnership. In addition, regulatory searches can help determine if an individual or entity has been the subject of an investigation or been sanctioned by an authority such as FINRA or the SEC.


A search of published media is a critical component in a due diligence investigation. A comprehensive evaluation of full-text publications (including international, national and local newspapers, magazines, trade and industry journals, websites, broadcast transcripts and wire reports) conducted through subscriptions with multiple database providers should be targeted to identify derogatory or adverse press or news articles. Media research can provide insight on an individual or entity, especially in business dealings, that did not result in civil litigation. Social media research is another tool investigators use to identify additional information about the associates, activities and the history of a subject.   


Failure to conduct investigative due diligence can have a lasting impact on any organization. Every decision needs to be carefully examined in order to wisely mitigate risk. Proper vetting of a potential business partner is an essential step that must be taken to avoid loss of income and damage to a business’s reputation. Investigative due diligence is an invaluable tool to ensure a client makes the right investment decision.



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