Intelex investigators follow paper, electronic trails
By Don Dzikowski, Pg. 1
Wary investors have discovered a secret in Intelex Ltd. of Greenwich, a business intelligence and research that performs “due diligence” background checks on officers and companies entering into public or private offerings.
According to Intelex president Matthew J. Cherry, investigations are conducted on behalf of major investment houses, such as Bear Steams, as well as venture capital firms and private investors. Some clients have used Intelex to uncover the history – good and bad – of businesses they are considering acquiring or forming a partnership with, Cherry said.
Using information gleaned from international databases, physical searches of legal documents, and a network of investigators around the globe, Intelex’s profiles routinely document bankruptcies, hidden assets, loan defaults, criminal records and failed business ventures that were not disclosed to potential investors.
Such derogatory information is not uncommon, said Cherry, noting that of 31 public and private offerings inspected by Intelex so far this year, “six were rejected based on the information we found.”
However, Cherry emphasized that clients don’t always reject a potential deal because someone has a blot on his or her past. It can depend on the nature and amount of the prospective investment, Cherry said. For example, disclosure of a lawsuit where a company officer is being sued for $100,000 might not be a major factor where an investor is looking to raise $200 million.
For this reason, entrepreneurs should not be bashful about disclosing past problems, Cherry advised. When the incidents are not serious or are isolated, an investor may take into account the honesty when making a decision.
In addition to Bear Stearns, Intelex’s client list includes Amtrak, Cowen & Co., Smith Barney and the State of Connecticut. The company also operates a satellite office in Los Angeles, Calif. Cherry said the reports may uncover positive information, such as past successes, as well. The end result is a complete picture of an entity’s background, incorporating both good and bad. The data allows an Intelex client to study and forecast the potential of the entity to succeed.
Reports are objective and extremely confidential, said Cherry, adding he does not forward information to regulatory authorities, such as the Securities and Exchange Commission, unless asked to do so by a client.
Intelex investigators have uncovered a number of questionable offer, prompting would-be investors to walk away. For reasons of confidentiality, no names are used in the following cases.
A group of doctors contacted Intelex to check out a venture they were considering investing in the construction of a resort on a tropical island. Intelex found the proposal was a scam. The “island” was really a tiny, remote tract of land, no larger than a football field, off the coast of South America. Most of the site was under water.
The director of a metropolitan area cultural organization was seeking investors to expand the institution. Intelex found the individual had a lavish lifestyle and lived in a mansion. The person also had a history of rarely paying bills and of filing for bankruptcy.
Officers seeking investors for a telecommunications outfit they were proposing had been cited by the attorneys general in 11 states for mail fraud.
Individuals seeking investors for a new scientific invention had a questionable past. Intelex found that the attorney general and the environmental protection agency of a Western state were investigating them for a variety of alleged consumer scams. In addition, the individuals had initialed several “get rich quick” schemes on a local television channel. The promotions resulted in the largest number of complaints in the history of the state’s Better Business Bureau.
Intelex searches encompass a variety of databases, including news wire services, credit reports, civil litigation, tax liens, bankruptcies, voter registration records, land records and criminal arrest reports. Such checks can reveal only so much; Intelex investigations usually entail traveling to courthouses and town halls for more thorough inspections of documents.
Such investigations can track down discreet activities, such as corporate “shell games” where companies create paper entities principally to hide assets, or where officers frequently change their Social Security numbers and addresses to keep ahead of their creditors.
Prior to launching Intelex in 1989, Cherry acquired his detective-like skills while working for various government agencies and a Connecticut-based investigative firm with which he still maintains ties.
Intelex’s staff includes: Frank Galli, an investigator; Charles R. Davis, a former partner of a private investigation firm; Dr. Nancy R. Bord, who has more than 25 years of experience as a management consultant with an international firm specializing in long-term planning; and Donald E. Lema, a former security officer in the U.S. Marine Corps and head of the company’s Los Angeles office.
Cherry said Intelex has developed a niche as “a boutique style” firm concentrating on due diligence searches for the financial investment community. Competitors such as Decision Strategies International Inc. and Kroll Associates, both based in New York
City, cover a wider range of topics, from workers’ compensation fraud and “fidelity checks” on behalf of married spouses, to environmental surveys.
Mike Roer, executive director of the Connecticut Venture Group, a trade association for investors, considers due diligence searches “good for the entire industry,” noting that investors benefit from “a neutral pair of eyes” in making decisions.
Roer said investors cannot be too careful, and referred to media accounts “appearing almost everyday” about investors losing money due to frauds and scams.
Officials with the state Department of Banking and the U.S. Securities and Exchange Commission in Washington, D.C., said their checks of applicants generally are limited to seeing that the forms are filled out properly.
Although applicants are required by law to provide certain background information for private and public offerings, regulatory agencies don’t have the staffs to check the accuracy of every filing. Usually, an investigation isn’t launched until someone complains.
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