Executive Due Diligence Investigations

Know Your Executive Team TM

Infortal specializes in Finding Bad Actors™ and rogue players to reduce your business risks.  This is particularly important when hiring new executives and during Mergers and Acquisitions (M&A) activities.  These are the times when your company may be at risk from bad actors. Executive due diligence will reveal far more information than a simple background check which is typically very limited in scope.

In this era of increasing scrutiny of executives and boards of directors, thorough and extensive analysis of executive candidates is a must.  Screening executive hires has become an essential tool to help a company’s corporate governance and protect it’s Board of Directors from unethical and illegal activities, which may also cause reputational harm to the company.

What we do

Infortal specializes in Best Practices Executive Due Diligence; we look at the profile of candidates from many angles, learning about a candidate’s reputation and behavioral history, seeking out both embellishment of education and work accomplishments, in addition to their criminal history and civil litigation issues, including SEC violations, breach of contract issues as well as bribery and corruption issues.  Additionally, falsification of information and hidden alias names or other identities, which in turn may hide criminal activities, sanctioned business relationships, and regulatory violations. If the company you choose to invest in, or to acquire, includes executives with serious issues in their history, these may cause your company serious reputation damage, or regulatory fines and penalties, and potentially shareholder lawsuits, and may ultimately negate the benefits envisioned when they were acquired.  These situations are easily avoided when effective executive due diligence is conducted.

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What is Executive Due Diligence?

You may already be familiar with the concept of executive due diligence. While most companies do conduct legal and financial due diligence, this will not uncover the human side of these issues which can only be found through executive due diligence. Finding Bad Actors™ is not typically part of legal or financial due diligence.  Often this is done through routine background checks which will reveal less than 1% of serious issues as compared to 20% of serious issues found when due diligence investigations are conducted.

Infortal specifically handles executive and corporate due diligence in regards to hiring corporate executives, merging or acquiring another business (M&A), and vetting third party vendors and business partners (TPRM Third Party Risk Management) for FCPA regulatory compliance purposes.

Executive Due Diligence

Executive due diligence provides organizations and companies with the information they need to make low-risk hiring decisions for C-suite or executive management positions. More specifically, executive due diligence is far more extensive and comprehensive than a typical background check performed for potential new hires. During this process, we conduct investigative analysis of both public records and also conduct a deep, dark and historical OSINT (Open Source Intelligence) investigation looking for anything that could cause potential embarrassment or serious risk exposures to your company. It’s an extensive vetting process that ensures candidates do not have a history of criminal activity, civil litigation issues, regulatory sanctions, important business conflicts, ownership in other entities, hidden and undisclosed information, or other compromising behaviors that cannot be revealed during basic background checks.

Typically, this type of vetting is only needed for high-level executives. Infortal’s due diligence investigations provide an extra layer of fiduciary protection to board members, key insights into candidates, and informing the company’s risk management and legal teams of potential issues to protect the company, its shareholders, and employees.

Business Due Diligence

Corporate due diligence involves the investigation, audit, or review of a business to confirm facts or details prior to finalizing an M&A acquisition or other business transaction. In many situations, corporate due diligence includes an examination of financial records, beneficial ownership information, corporate compliance and taxes, reputational history, negative media and social media publicity, and other types of data,  before a company proceeds with any new business transaction.

A corporate due diligence investigation is necessary for all companies and organizations that are engaged in international trade for compliance with the Foreign Corrupt Practices Act (FCPA), Mergers and Acquisitions, and other business relationships. The goal of these investigations is to uncover any instances of business risk such as non-payment of corporate taxes, non-existent facilities, and cases of criminality (including money laundering, bribery, and corruption), negligence, outstanding lawsuits, conflicts of interest, the company’s board and executives, and other potential risks that could affect a merger, acquisition, or business transaction.  It is important to first identify potential risks so that these risks can be effectively mitigated and managed for optimal outcomes. Including improved profitability, reduced regulatory fines and penalties, and informed strategic business decisions.

Executive Due Diligence Investigations

While due diligence investigations do look for and prioritize any findings of a criminal nature, there are many other factors that can pose a risk. Potential civil litigation can be a concern because the behavior of high-profile executives can negatively reflect on the business. When we uncover court records and other concerns, we provide your legal team with all of the information available to determine whether the risk involved is within the company’s risk tolerance or needs additional review before proceeding.

For example, if a senior executive has a history of breach of contract matters, there may be a trend involved which could prevent serious harm and/or financial implications to your business or major contracts that are under consideration.  Similarly if an executive has had long-standing relationships with sanctioned foreign governments, this would be vital to know before onboarding them into your organization or if they are on the executive team of a potential M&A deal this would have serious implications for your risk management strategy.  Context is also important.  A CFO that was named in a case involving SEC violations, could have serious implications for any business that hired the individual. For example, the executive could have been brought in to resolve the violation issues. Consequently, they were simply named because of their role as the new CFO at the company. Learning this context is vital to the decision-making process, and it’s why you need a due diligence partner who does deep dive due diligence and is willing to go beyond a basic public records search.

The ultimate purpose of our due diligence investigation is to provide as much relevant information to your company’s risk managers and/or legal team as possible to make informed business decisions and to prevent harm to your company. From there, you can determine what actions to take based on this risk assessment information.  In our experience 20% of executives have serious issues, and 35% of third parties have bribery or corruption-related issues.  It is not surprising to see that major FCPA violations mostly (more than 90%) involve third party businesses in corporate supply chains.

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Why Executive Due Diligence is Important

In many instances, executive due diligence is a legal requirement. In almost every instance, a board needs more than the standard background check to confidently make an informed hiring decision for C-suite level positions. A typical, low-level background check is very limited and simply will not return a full, comprehensive history of a candidate, their past, and the risk they could present.

“What do we find? 20 percent of executives have serious issues that you cannot find in a background check and 35 percent of global third party business partners have corruption related issues.” – Candice Tal CEO and Founder, Infortal Worldwide

Infortal’s data collected over 25 years show that 20% of executives have serious issues of concern in their history. That is 1 in every 5!

This may include a broad spectrum of issues for example serious conflicts of interest, SEC violations, forged degrees, criminal convictions such as felony fraud, IP Theft, working with sanctioned governments, money laundering, racketeering, trafficking, manslaughter, and even murder.

We may also find business ownership in undisclosed companies or conflict situations, important civil lawsuits, including breach of contract, sexual harassment, SEC violations, in addition to interstate bankruptcies, corporate espionage, con artist behaviors, and a host of other issues which are likely to be of concern.

Due diligence investigations on executives provide 5 significant benefits to a corporation. See below:

1. Protects the interests of the corporation, employees, and stakeholders
2. Adds fiduciary protections for the Board of Directors, particularly for publicly traded companies.
3. Minimizes liability exposures for the company from future inappropriate activities & crime
4. Benefits corporate governance
5. Provides FCPA & Sarbanes Oxley (SOX) compliance

Another recent example of a company that conducted insufficient due diligence on an executive hire is Moderna, which recently paid $700,000 after the new CFO was employed for only one day.

A Rule Of Thumb: if you have not personally known an executive for at least 10 years then you do not know the person well, and if something is being hidden from you, you may never know of it.

Most of the laws that govern companies and how they conduct business both in the US and internationally require businesses to have conducted their own due diligence themselves prior to entering into relationships with third-party suppliers, vendors, agents, and distributors.

Many regulations also require “adequate levels of due diligence” to be performed before bringing new executives onboard.  Conducting a routine background check and reference interviews is no longer considered a sufficient level of due diligence according to federal regulators.

What is Executive Due Diligence Used For?

Numerous companies in recent times have experienced adverse publicity related to executives involved in personal scandals, corruption, and even easy-to-avoid issues such as not having their claimed credentials including educational degrees.  Your business reputation and bottom-line profits may be at serious risk if your executives are not who they say they are, if they over-promise your capabilities to major accounts because they want to achieve quotas, or because they have unethical business practices, or are planted by a competitor.

Additionally, Executives are under increasing pressure to perform successfully in Year 1. Hiring the right person with the skill sets you need is only part of the picture; they need a support structure that enables optimal performance; this is key information for you to know about.  Infortal searches for problems, issues, trends and themes in their history, not just the basic facts. People that want to hide their issues will often do so brazenly.

Taking action after the fact may be too late for your business.

We sometimes hear from clients that they are not worried because the executive has signed a legal document. Unfortunately, this does not help if the executive’s activity is exposed by a national media publication. Also, how will you know whether there is important undisclosed information? Deliberately hidden issues and unresolved problems that the executive does not want to reveal to you often remain undetected through traditional executive recruiting efforts, where often only a few references are checked along with a minimalist background check even for an executive hire.

An executive’s signature on a legal document only protects you after the fact and does not ensure that they are disclosing the entire truth to you.

Compliance Strategy & Alignment

Infortal designs and implements due diligence of executives and businesses which are strategically-aligned to your company goals.  These should also be aligned to your Third Party Risk Management (TPRM) programs and anti-bribery programs for on-boarding new suppliers globally and for new mergers and acquisitions.

These due diligence reviews help your corporation to hire and retain the best executives and business partners globally. We help your organization develop Best In Class compliance programs, reducing legal exposure for the corporation and helping to protect the board from unnecessary litigation issues, personal liability, and activist shareholder lawsuits.

We help you to minimize corporate liability exposure and stay out of headline news.

Read more on Executive Due Diligence Investigations best practices.

“Keeping your company out of the headlines”

What do our Reports include?

You will receive thoroughly researched information on your high level candidates through Infortal’s Best Practices Executive Due Diligence Reports.

Deep Level Due Diligence™ Executive Due Diligence searches typically include detailed evaluation of the following information:

  • History of business criminal & civil lawsuits
  • Executive Background Check Due Diligence
  • Undisclosed personal information
  • Involvement in other businesses
  • State/County Criminal Records (all counties of residence)
  • State/County Civil Records (all counties of residence)
  • Federal Criminal Records
  • Federal Civil Records
  • Social Security Number/Address Verification Search
  • Employment Verification
  • Education & License Verification
  • Credit History with analysis
  • Financial Assets
  • Bankruptcy history
  • Confirm prior business sales (successes/failures)
  • Business Reputation & associated issues
  • Misrepresentations in their background
  • SEC violations
  • Confirmation of Educational degrees
  • Confirmation of Employment history
  • Client /supplier relationships
  • Civil lawsuit involvement
  • Political influence issues & relationships
  • Employment issues (sexual harassment, other work-related concerns)
  • Lifestyle issues (Restraining Orders, Sexual predator/pedophile issues)
  • Ties to organized crime
  • Known family connections to various groups (org crime, politicians, activist groups)
  • Department of Corporations Search
  • Suits, Liens, Judgments & Bankruptcies (by State)
  • Financial Assets Search
  • SEC Filings
  • UCC Filings
  • Real Estate Search
  • Internet Search (basic search for other corporate involvement)
  • Media Search (including deep internet searches)
  • Summary of all Identified Business/Corporate Officer Involvement
  • Extensive Reference Interviews (in-depth, customized interviews)
  • FCPA GlobalWatch 1,100+ databases of Sanctions, AML & KYC

A detailed report is provided with Executive Summary, conclusions, recommendations and complete attachments. Updates are provided: Two levels of Executive Due Diligence are available, depending on the number of components searched.

Multiple Key Executive checks may be priced at a discounted rate depending on the number of executives included, and whether international components are involved.

Please contact us for more information and pricing.

Key Areas in Due Diligence Investigations

Our executive due diligence investigations include detailed evaluations of multiple public sources of information. While we will gather all of this information into a report for you to review, we do focus on a number of key areas:

There are many stories about high-level executives who falsified or misrepresented their credentials prior to being hired. Well-known instances range from Scott Thompson, former CEO of Yahoo! to David Edmondson, former CEO of RadioShack, to Kenneth Lonchar, once the Executive Vice President and CFO of Veritas Software Corp.

These instances have far-reaching consequences that go beyond whatever damage to the individual’s reputation occurs. They often impact the company because they show that the board and other leaders didn’t do their due diligence before hiring the person. The Lonchar-Veritas scandal, for example, unfortunately, resulted in the company’s stock plummeting 15 percent following the exposure of Lonchar’s fraudulent claims of having received an MBA from Stanford University.

Issues such as drunk driving arrests and other prior criminal arrests or indictments can disqualify otherwise competent candidates for C-suite positions. If voluntarily disclosed by the candidates themselves, circumstances might allow for boards to overlook or disregard such issues. However, many candidates do not disclose these incidents for fear of being removed from consideration.

Such a failure to disclose or intentionally obscuring past criminal activity or history could be viewed as a critical liability. It shows the individual has no qualms about hiding the truth and can raise questions about what else they may be failing to disclose. While it’s possible these litigious issues were personal in nature and not related to the work they have done, hiring individuals with criminal records can still reflect poorly on the business.

Personal matters that may concern employers can range from being named in civil lawsuits to be associated with groups or organizations of disreputable character. In today’s online age, they can also be disconcerting or possibly damaging social media posts, podcast recordings, and online videos.

Organizations must be aware of any issues that may reflect negatively on their brand, company, and stakeholders. While a single poorly-worded social media post or a minor role in a civil case may not be sufficient to disqualify a candidate, the context of any incident is as critical as the incident itself. We make certain you have that context so you can make an informed decision. There may also be serious issues such as working with sanctioned governments, or with organized crime syndicates.

These areas of concern can include litigious issues, breaches of contract, and undisclosed affiliation with real or potential shell corporations that an executive candidate or even their relatives established. The latter can lead to issues of potential conflict of interest or even fraud.

Individuals who have been professionally licensed or certified with local, state, or federal regulatory agencies may have been sanctioned for professional misconduct at some point. They may also attempt to falsify licenses or claim they have certifications that they do not hold. Individuals with a record of violating regulations also need to be flagged as potential risks.

There are many stories in the news media about high-level executives who falsified or misrepresented their credentials prior to being hired, or who defrauded or conned their boards of directors with fake company information. Well-known instances range from Scott Thompson, former CEO of Yahoo! to David Edmondson, former CEO of RadioShack, to Kenneth Lonchar, once the Executive Vice President and CFO of Veritas Software Corp.  The Lonchar-Veritas scandal, for example, unfortunately, resulted in the company’s stock plummeting 15 percent following the exposure of Lonchar’s fraudulent claims of having received an MBA from Stanford University.  More recently Elizabeth Holmes CEO of Theranos, and Sam Bankman Fried of FTX crypto. Theranos no longer exists and FTX is currently in bankruptcy.

These instances have far-reaching consequences that go beyond whatever damage to the individual’s reputation occurs. They often impact the company because they show that the board and other leaders didn’t conduct adequate levels of due diligence before hiring or working with the executive(s).  In lesser cases there may be significant reputation damage, whereas in other more serious cases the company may become bankrupt or even cease to exist

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