From: Mike Masnick (firstname.lastname@example.org)
Date: Tue Oct 24 2000 - 01:21:05 PDT
I always knew I hung out with the bad crowd... The article claims that
nearly 39% of those studied had "problems" in their pasts.
Dotcom executives 'more likely to have dark pasts'
By Caroline Daniel in London
Published: October 23 2000 20:45GMT | Last Updated: October 24 2000 02:52GMT
Internet executives are four times more likely to have "unsavoury
backgrounds" than executives from other industries, according to an
investigation by Kroll Associates, the corporate security company.
The research findings are likely to add to concerns about the dotcom sector
which has been hit by doubts about its viability.
It also underlines how far the rapid pace of internet investing - which has
eroded traditional business practices, such as background checks on
employees and close financial scrutiny - have helped create an amenable
climate for potential fraudsters.
Over the past six months Kroll carried out 70 due diligence background
investigations of internet executives and board members. About 39 per cent
- or 27 people - were found to have problems. Kroll typically expects
problems in 10 per cent of cases.
The problems unearthed in the worldwide investigation included: violations
of Securities and Exchange Commission rules, insurance fraud, undisclosed
bankruptcies, frauds committed overseas and even links to organised crime.
Ernie Brod, executive managing director of Kroll's New York office, said:
"The whole effort has been to move at internet speed, which has meant not
stopping to do careful checks on employees, or putting in place internal
auditing or security. This is ready-made for those who know how to take
advantage of these things."
One of the most extreme cases concerned a dotcom company in the US which
had received an unsolicited investment offer and wanted to know more about
the two potential backers.
"Then the people who offered to invest were murdered. In the course of the
law enforcement investigation they found the two were connected to penny
stocks promotional scams and with organised crime," Mr Brod said.
Kroll says it is not surprised by the findings of its investigation. Many
dotcoms have not formally appointed finance directors or embraced
traditional forms of corporate governance, such as holding regular board
meetings to monitor decisions and the flow of money.
Kroll, the world's best known business intelligence agency, decided to
conduct the investigation earlier this year after picking up anecdotal
evidence from its consultants that a high proportion of cases of misconduct
were at dotcoms.
Most of the cases Kroll identified did not concern inexperienced young
management teams, who frequently run dotcoms. "Many are too young to have
much of an unsavoury background or any kind of background," said Mr Brod.
Instead there were more problems with "grey beards" - older executives
brought in to add stature to the company.
"I refer to these people as vampire investors. Maybe they put a couple of
bucks in, then they lick their lips at the opportunity and suck exorbitant
consulting fees out of them, or put their relatives on the payroll," said
Mr Brod. Kroll said more clients were now requesting checks on employees.
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