Staying on Top of Your Investments

Research & Investigation Report: Learn from our experience

Recently, an investment firm client approached us with what appeared to be a standard due diligence project on a potential investment opportunity. This opportunity involved funding of a medical facility that was looking to expand. In the past, the client’s firm would perform its own due diligence, which primarily involved looking at numbers. But because the firm had suffered several losses due to not understanding the histories of the firms’ they had funded, they decided to ask us to help them. In cases like this, we typically investigate the backgrounds and credentials of the principals of the business, as well as the business itself. We also take a look at any other investors in the venture. 

On the surface, the medical facility was a solid investment opportunity. The chief operating officer (COO),  also served as the lead nurse; she had recently earned her Doctorate of Nursing Practice. The business had been operating for about two years, had solid credit, and a very positive online footprint, with multiple reviews lauding its services on websites like Yelp.  (Though, of course, such reviews are virtually impossible to verify.) The business was also featured in local news reports as a donor to several charities, and its owners had hosted a fundraiser benefitting cystic fibrosis research.

Despite all of the seemingly good news, our investigation turned up information that would give any investor pause. For instance, the business had multiple unpaid state tax liens that were filed against it recently. We also found that several judgments had been entered against it. Finally, it was named as a defendant in a number of ongoing civil suits. 

While it is expected that a medical facility might be sued in the course of its business, the number of cases was surprising given the brief history of the firm. Our review of litigation documents revealed that the medical facility had been sued for making “misleading advertising” claims. We also found a more serious case claiming bodily harm caused to the plaintiff by the medical facility. Interestingly, none of these cases had been reported in the media.

Considering all the risks associated with this company’s history, we asked our client if he would like to take a closer look at any additional investors. He quickly replied that there was no need – he’d seen enough already. Situations like this make it obvious that investment risks are often found beyond the balance sheet.  

 

About the Research & Investigation Report 

This new series provides a monthly report from Andrew J. Collins, Research & Investigation Manager. Collins conducts transnational and domestic due diligence, fraud investigations and competitive intelligence projects. In addition, he works with global organizations to provide compliance services, as well as intellectual property investigations, forensic accounting and litigation support. Recent projects include asset searches in the Ukraine and Russia, pervasive corruption and bribery in China, and discreet patent infringement investigations based in the U.S.