Due diligence on contractors and partners prevents fraud

In the course of everyday life and business dealings decisions are made to engage with contractors, business partners, vendors and clients. Each instance of doing business represents an opportunity to be vulnerable to outside risks. Appropriate private investigation of relationships protects against liability and damages.

A family in Palm Beach had enlisted the assistance of domestic staff which included housekeeping. One of the housekeepers devised a scheme to blackmail the family. By having such close access to the household, the housekeeper was able to obtain private letters containing information about alcoholism and other family secrets. The housekeepers daughter contacted the family and threatened to release the information if they were not paid $3 million. The plot was defeated, but with great expense. There have been other cases of housekeeping staff stealing valuables or embezzling from bank accounts.

In many cases, doing an initial investigation on domestic staff, and then doing regular updates to trusted contacts is a valuable means to protect against fraud. The updates are important since a person with a previously “clean” background can resort to fraud when life conditions change, such as divorce, financial issues, or narcotics use.

The lack of due diligence on a corporation may also have contributed to the loss of millions by government due to a bankruptcy. When the firm Digital Domain was courted by Palm Beach County and the State of Florida to build a headquarter location with FSU, they did not know that the firms president was already being sued for breach of contract. Several years and millions of dollars later, the county had lost millions in incentives to the company without results. Coincidentally the firm was investigated by an attorney from Greenberg Traurig, who was the firm suing Digital Domain CEO Textor in the first place. Greenber Traurig itself has been a target of claims in the Scott Rothstein fraud case, with reports that it did not disclose documents relating to its representation of TD Bank in the matter.

The fraud investigation in that case was headed up by attorney David Mandel, who pursued the investigation of TD Bank. The success of that investigation was that in January 2012, a Miami federal jury awarded Coquina $32 million in compensatory and $35 million in punitive damages. The verdict was the first-ever based on the legal theory that a financial institution had “aided and abetted fraud” and money laundering by one of its customers.

 

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