David Mandl on 25 Oct 2000 15:13:43 -0000

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<nettime> Do Dot-Coms Have More Shady Characters?

The Standard
October 24, 2000, 2:31 PM PDT

Do Dot-Coms Have More Shady Characters?

Managers at Net companies are 4 times as likely to have tarnished
backgrounds than offline counterparts, a security firm says.

By Dan Goodin

Managers at Internet companies are four times as likely to have shady
backgrounds than their counterparts in the economy as a whole, according
to an unscientific survey released by a firm that provides investigative
services to corporations.

The findings by Kroll Associates come five months after the founder of
Pixelon, who raised $30 million for the media-streaming startup, was
revealed as a convicted embezzler on the run from authorities.  While the
Pixelon saga was more dramatic than most dot-com frauds, the study
suggests that it was far from unique.

Of the 70 background checks Kroll conducted on Internet companies, 27, or
39 percent, uncovered an executive, director or consultant with ties to
organized crime, securities violations, undisclosed bankruptcies or
histories of fraud. Kroll says its investigations usually turn up
"unsavory backgrounds" only 10 percent of the time.

"There seemed to be more problem-people coming up in the dot-com area,
mainly due to the headlong rush to get things done and move things along,"
says Ernest Brod, executive managing director at Kroll. In their haste, he
said, dot-coms fail to establish routine steps for filtering out
fraudulent managers. "When you don't have a historical approach of
checking people out, and you don't have the type of people who are going
to ask questions, then those steps get skipped and that happens at your
peril," he says.

Despite the flood of young talent in the Internet pool, many managers with
checkered pasts appeared to be older "vampire investors" with a long
history of fraud and appeared to be taking advantage of the spending
frenzy gripping the Internet sector. "In many of these circumstances, it
would not have required a significant amount of digging to get to the
information that we're talking about," he says.

In one case, an Internet company that had recently received an unsolicited
investment offer asked Kroll to look into the potential business
associate. While Kroll was conducting the investigation, a local newspaper
reported the individual to have been murdered; a history of penny-stock
fraud and ties to organized crime also were reported.

Although few dispute that background checks are more lax among Internet
companies, news stories about the online world fail to reflect the
findings of the Kroll study.  Brod acknowledges that the survey did not
study a wide enough group to be scientifically valid, but he says it
nonetheless helps to quantify what he and many others have been hearing
anecdotally for some time.

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