A fool & his money...A case study of business scams
There is a saying you may have heard, “a fool and their money are soon parted”. What follows is a short case study which proves that this saying is as true now as it was then. The setting of this case is during the period where COVID was alive and well and medical supplies were hot property. At the time we were approached by an individual (investor A) who was looking to invest with 2 others known to them (investors B & C) to buy approximately 1 million dollars of medical supplies which included latex gloves and face masks from another company (Company Z) who claimed they had the ability to source and deliver these items at a very low price.
From the outset Investor A stated investors B&C wanted some due diligence done on the investment which investor A had come across. It should be noted that investor A was very concerned about the cost of our service and felt our Due Diligence service was unwarranted. None the less we met with the three investors and discussed the investment. During the meeting our team understood why investor B & C were ill at ease with the investment opportunity and the people involved. From the outset the “deal” didn’t sound right. But our job is to find the evidence to allow them as investors to be able to decide on the validity and the risk involved in the investment they were considering.
As our team began to dig into the history of the company our clients were dealing with we found a number of red flags. These included but were not limited to;
- The listed office when attended was leased and used by another company with no knowledge of Company Z.
- The identity of one of the three directors of company Z could not be established. This director was somehow never available virtually or in person and only available via SMS. (We still believe there was no third director and was in fact one of the other two directors using other phone numbers.)
- The primary director of Company Z was offering a personal guarantee but had no property or assets to back up this guarantee should the deal go wrong.
- The primary director had been a director of 7 companies in 3 years
- The primary director spelled his last name with at least 2 variations thus making it more difficult to prove who was a party to any contract and confirm their true identity.
- The second director who claimed to be a well-known member of the finance industry was suffering from liquidity issues and had no assets to his own name.
- Companies the directors claimed to be apart of overseas had been struck off
- The credit rating of Company Z showed it to have low risk but this was based on a history of only 12 months of operation under that name.
- Enquiries at locations overseas stated to be the suppliers to Company Z also found the manufacturing locations were in congruent with the statements made by the directors of Company Z.
- They could provide no trading references from previous clients
Overall as the team reviewed the company and the claims of the company’s capabilities they found on the surface everything looked to be in order but with a little digging in the right areas Company Z was more like a card board cut out of a company.
Armed with our findings we went back to the client and gave them our report. And whilst our job is not to tell people what to do we strongly suggested they move cautiously if they chose to continue.
As you might imagine we often give our reports to clients and we don’t hear what our clients choose to do with that information. But in this instance, we felt relatively certain they would not continue with their investment.
Some months later one of our Directors was attending a meeting and came across investor B. In polite conversation the discussion turned to that investment opportunity. Client B explained whilst he and client C took our advice and walked away from the opportunity Client A, who was concerned about spending a small amount on our services, invested a quarter of a million dollars, which was promptly lost! Whilst unfortunate, its is evidence of just how powerful the deception by con artists can be.
We are asked often how people get pulled into a scam. The truth is con artists use a range of tactics to get you to hand over your money but here we saw some of their most common tactics which include;
- The potential dollar return on the “investment seems to be worth the risk –offenders know to play on the victims greed.
- They create a façade of legitimacy giving people confidence.
- They make promises and offer securities and protections to draw in their victim without any intention to honour them but knowing this makes their victims feel like there is more safety in their transaction.
- Finally they rely on people not doing their own Due Diligence and relying on what the offender says alone to make their decision. After all most people make a decision to enter into a transaction based on marketing material and the sales pitch alone.
Our advice is always, when you are looking to invest, ensure you perform due diligence and background checks. At Precision Integrity we have the expertise, we will keep you safe. Our decades of investigative experience is dedicated to your business success.
