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& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | SEPTEMBER 24, 2003
The High Cost of Penny-Ante Scams Former prosecutor Robert Silbering explains why small-business owners are some of the easiest marks for con men and embezzlers They come into his office and break down in tears -- small-business owners who have lost everything to scammers and crooked employees. Their stories differ, says Robert H. Silbering, president of New York City-based Forensic Investigative Associates (FIA), but all made the same mistake: None investigated that seemingly stellar investment opportunity or merger proposal with the diligence it deserved. Same with employees, whose sparkling resumes may be tissues of lies concealing all manner of dark secrets, from past firings to convictions for fraud. In all those cases, Silbering says, an the ounce of prevention -- be it a little checking or taking the time to validate references -- would have saved a ton of heartache. Silbering, whose firm specializes in corporate fraud, asset-tracing and recovery, due diligence, and global intelligence, was formerly a special narcotics prosecutor in New York City. He spoke recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow: Q: You've been a special prosecutor for the New York District Attorney's office, investigated narcotics crimes. and done asset-tracking for international law enforcement agencies. How many small-business owners does your company deal with? A: We are hired by government entities, law firms, corporations, and financial institutions, but we also deal with small- and mmidsize-businesses owners all the time. It seems like a new one comes in every day, and most of them have the same story: They have limited amounts of assets, they're reluctant to spend money on anything that isn't generating revenue, and so they don't do the proper due diligence before they make deals and hire people. Unfortunately, they get burned quite often. Q: How are they burned? A: They get taken in business deals, they get defrauded in scams, and they get into business with people they never should have gotten involved with. For instance, we had a guy come to us who had taken on a partner in his business. He had some reluctance, but he went ahead with it anyway. After they started working together, he got more and more suspicious of this guy and finally he came to us. We looked into it and it turns out his new business partner is connected to one of the organized crime families here in New York City. Q: And he didn't realize this ahead of time? A: No. It's amazing how much people don't realize. I had a frantic call the other day from a small-business owner in the metals industry. He noticed that some paperwork from the bank didn't match what he thought was the amount of his deposit. The next day, his bookkeeper/secretary did not come to work and she couldn't be found at her address. We checked it out and found that the $3,000 bank deposit was just a drop in the bucket: Over the past three or four months she had stolen about $300,000 from him. Q: What other kinds of security concerns do small-business owners face today? A: There are all kinds of things entrepreneurs should be aware of. We've been working with a small company where some intellectual property was stolen, we think by a former employee. We brought in a computer expert to discern exactly who took it, what was stolen, and who it was given to. It looks like this guy went to work for a competitor and brought his former boss's client list and other proprietary information with him. Q: Are small companies particularly at risk for fraud and embezzlement? A: Oftentimes, they are. They don't have inhouse departments set up to prevent it, and they don't have the funds to hire the Big Four accounting firms to do audits and make sure that money isn't disappearing. Unfortunately, they're also reluctant to spend even a small percentage of a $10,000 deal, even a $100,000 deal, to make sure they're doing business with the right people. They do mergers, acquisitions, make investments in other companies -- and they haven't done their homework and their money is just taken.
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