Highlighting the Need for Improved Due Diligence investigations
In 1897, Cassie Chadwick, known as the “Queen” of Ohio, initiated a remarkably lucrative and daring scheme. Despite being denied the right to vote or obtain bank loans in an era where such privileges were withheld from women, she managed to deceive banks into believing she was Andrew Carnegie’s granddaughter, securing fraudulent loans totaling up to $20,000,000. Elizabeth Holmes, likened to “the next Steve Jobs” by critics in the early 2000s, similarly employed deception. She persuaded venture capitalists, C-suite executives, government officials, and other prominent figures to invest millions of dollars into Theranos. Incorporating Due Diligence Background Checks is crucial in preventing such fraudulent endeavors.
The company, at one time, had a valuation of over $9 billion. The board she had was called the “most illustrious in U.S. Corporate History.” Holmes was set to revolutionize medical technology with biotechnology, which purportedly could test blood from a finger prick. The only problem, the technology didn’t work. Holmes was lying. Chadwick may have fooled a group of industry professionals who were highly educated, but the scenario shows that everyone can be a victim.
One’s sense of surety that they can never fall for a con, is the very reason they do. Humans need to believe. This is why one of the basic ways companies can protect themselves from “bad actors” is by leveraging the expertise of external due diligence investigative firms with worldwide reach.
Soft skills are required to play the “confidence game” (the con). Maria Konnikova writes in the New York Times Bestseller The Confidence Game: Why We Fall For It…Every time trust, sympathy, and persuasion are key elements. George Shultz, a former secretary of state, was one of Theranos’ board members. Tyler, his grandson, worked for the company. Tyler was there as a research scientist. He had earned a biology degree from Stanford. Together with Erika Cheung, Tyler discovered that Theranos was removing outliers from their data, which led to inaccurate results.
The two also found that Theranos Edison Machines were not being used in the secret lab, but rather commercial machines. Tyer’s concern was not taken well by Holmes when he brought it to his attention. Tyler went to his grandfather George Shultz and told him what happened. But George did not believe Tyler. In his book Bad Blood, John Carreyrou quotes George telling Tyler: “They are trying to convince you that you are stupid.” You can’t make me believe that you are stupid. You can convince me you are wrong, and I believe you to be wrong in this instance.
The people wanted to be convinced by Holmes. Her goal was to improve people’s quality of life, and even save some lives. She appealed to the charitable instincts of people and, of course, tailored her behavior on a more personal level to convince them of what they wanted to believe. The people want to be trusted. Konnikova writes in her book that “the irony is unavoidable.” What can make you successful can also leave you vulnerable to the swindler’s goods… Those who have more trust do better. “Those who are more trusting become…the perfect marks.”
The easiest thing to do is deceive yourself. Demosthenes
Over-reliance on technology can be dangerous for businesses and people. Frank Abagnale was the star of “Catch Me if You Can” and is known for his years of conniving people under several different personas. He was asked if the “ever-growing sophistication of today’s technology would make it more difficult to achieve what he did. Konnikova reported his response as “What I was able to accomplish fifty years ago as a teenager is now four thousand times easier because of technology.” The technology breeds criminality. “It always has, and it always will.”
When hiring executives, many companies rely on background checks. They are usually insufficient for protecting a business from “bad actors”. The first step is to do a deeper background screening. Partnering with an investigative company with extensive experience in enhanced diligence is the best way to reduce risk. They can conduct open-source intelligence investigations as well as enhanced due diligence, allowing them to get a fuller picture of a person and his or her background. Not all investigation firms are created equal. USIS was found to have a culture of malfeasance in 2014.
The contractor, which at one point supplied two-thirds of the security clearances to the Intelligence Community had been discovered to be a company with a bad reputation. Konnikova points out that, according to the Department of Justice DOJ, USIS “faked over half a million background checks from 2008 to 2012, or 40 percent.” Integrity begins at the top and individuals who have a poor moral code can cause problems for the entire company. USIS was disbanded as a business after these problems.
Most people believe they can detect a lie. Many people believe that certain body language or facial expressions can indicate discomfort. However, studies have shown otherwise. Paul Ekman who studied the ability to detect a lie, found “the success rate in detecting honesty was approximately 55%,” despite the type of lie. Con artists are skilled craftsmen who want to earn your trust, so you don’t check out their background.
The age of the victim is also not a factor. It’s usually the con type or approach that makes the difference.
Due diligence investigations, which are crucial when conducting executive screening or as a part of an effective compliance program, are essential because it’s so easy to deceive people, both by our psychology and those with bad intentions. The research is not the only thing that a skilled investigator firm can do. They also help interpret it and give suggestions on how you should apply this information to your specific business, industry, and risk tolerance. They will also have investigators who are highly trained and can perform searches on both the data as well as be aware of any missing information.
Andrew Carnegie was present at the trial that Cassie Chadwick underwent. Chadwick was sentenced to 14 years in prison and $70,000 by a Cleveland court for conspiring to bankrupt Citizen’s National Bank, and also conspiracy against the Federal Government. Elizabeth Holmes, who was accused of four counts of fraud against investors back in January this year, is now seeking a new trial. She has set her sights on Adam Rosendorff, formerly the lab director at Theranos. Holmes has now asked for a new court trial, focusing on Dr. Adam Rosendorff who used to be the former director of Theranos’ lab. Rosendorff is standing by his testimony during the trial and his wellness.
Investors in Theranos lost more than $ 144 million. If due diligence had been done on these two individuals, the outcome could have been very different for those who were taken in. The confidence man is the origin of the word “con man”. The term was first used in 1849 by William Thomas, who asked people if they had the confidence to give him their watch for the day. Many fell for this and he never returned the watch. These individuals trusted the wrong people because they had been successful in other places. This highlights the importance of determining trust based on facts found through thorough due diligence investigation; do not rely solely on your gut feeling. Why take the chance?
