Those of us who investigate fraud understandably focus our attention on the files we’re working on. We can have a tendency to look primarily outward and, as a result, sometimes pay less attention to our own practice. I know of examples where the investigator became the target of a fraudster who, perhaps intuitively, sensed that the victims never imagined the tables would be turned on them. Consequently, they didn’t perform the degree of due diligence they preached to their clients.
What would you do if you were offered a lucrative and large file at a time, say when business was slow, even if the person offering it raised some red flags? Would you take it or walk away? The following (disguised) example explores that scenario.
Too Vague to Be True
A mid-career forensic accountant at a prominent medium-sized Ottawa firm received a curious email via his firm’s general mailbox in early 2011. It came from a Michael Dombrowski (names and some details have been disguised for privacy reasons) who said he wanted to retain the forensic accountant for an ongoing and lucrative due diligence assignment. It asked the CPA to call a given number, which turned out to be a private cell if he was interested.
The forensic accountant, Eugene Sadler, was interested. Several attractive files he had bid on had gone to competitors for reasons beyond his control. His firm was also adding pressure, having experienced a reduction in clients in the past few years due to the economy and had endless problems with existing clients, some of whom were slow to pay, if at all.
Sadler made the call and, after a few opening niceties, asked Dombrowski why he had sent the email.
“I found you on the Internet,” Dombrowski replied. “I liked your profile and experience.”
The answer had a ring of believability to it. Sadler worked hard at his online profile. He had attended a conference at which an online expert had said you don’t exist if you’re not on the Internet. Sadler had taken this advice to heart and joined as many social media sites as he could. He also started a blog on fraud and sent out e-blasts to clients as often as he felt appropriate.
“What do you want me to do for you?” Sadler asked.
Dombrowski said he was a silent partner in an international firm that focused on the acquisition of well-known food chains. It was registered in a Caribbean country for tax purposes but had offices in Canada, the UK and Switzerland.
“We intend to be very active as far as acquisitions go for many years to come,” he told Sadler. “We need as much financial and other forms of due diligence as possible on our targets. KYC (know your customer) you call it, right? I anticipate annual fees for whoever does this will be in the $1-million range or more.”
By the end of the brief conversation Sadler, whose interest was now very much piqued, had arranged to meet with Dombrowski. “I’ll come to you,” the caller offered.
Dombrowski arrived at the meeting precisely on time. About 50 years old and in decent shape, he was impeccably dressed. He found a way to mention that he was wearing a bespoke suit and shirt, the latter having monogrammed French cuffs adorned with gleaming silver cufflinks.
In response to Sadler’s request for a brief biography, Dombrowski said he was born in Canada to Polish parents who had fled the Communist regime in the ’50s. He was a self-taught and self-made man who had amassed a considerable fortune on the stock market. “I am a multimillionaire,” he told Sadler.
Listen More Than Speak
Sadler listened without interrupting. He had found it to be a beneficial skill. Years prior, he had read a quote from then TV interviewer Larry King: “I remind myself every morning that nothing I say this day will teach me anything. So, if I’m going to learn, I must do it by listening.” The advice had resonated with Sadler, and he’d tried to practice it.
The more he listened, the more he realized just how much people liked to talk, especially if they were the subject of the conversation. When he lectured on fraud investigations, he made listening to his No. 1 piece of advice. “Get them talking. Listen with every molecule of your being. You’ll be amazed how much most people will reveal,” he told his audiences.
When Dombrowski had concluded his biographical presentation, Sadler leaned in toward him, another interviewing technique, and said quietly, “You seem to have an interesting background, Michael. But one thing I need to know is why I found nothing about you on the Internet.”
Dombrowski acknowledged this to be a fair and understandable question but said there was an equally reasonable answer. “For many years we lived in the Middle East,” he said, “my wife and I and our son. About ten years ago, he was kidnapped at age 18. Thanks to God, we were able to get him back. Unhurt. Physically that is.”
At this point, he began to cry. As he wept, he apologized profusely for his lack of composure.
Since that horrible event, he explained, he and his wife had kept as low a profile as possible. They stopped driving ostentatious cars. They rarely socialized. And they went out of their way to avoid any visibility on the Internet.
“I assume you visited our corporate website,” he said, “and that your next question will be about me not being named as a company executive.”
Sadler nodded.
“Now, you know why.”
Sadler proffered a few appropriate words of care and concern regarding what had befallen the family. Still, he said, due diligence would have to be conducted. “Surely you would want us to. Imagine retaining a due diligence firm that doesn’t practice what it charges for?”
Dombrowski laughed. “Of course. Why don’t you talk to my law firm?” he suggested. He named one of the biggest firms in Canada and the partner he’d been working with for several months, a senior member of the firm’s commercial real estate group. “Please call him. You have my full permission to discuss anything you want about me or my company.”
This was an impressive card to play. Sadler decided to hold back on any other questions until he had spoken to the lawyer. They shook hands and agreed to meet again after Sadler had contacted the lawyer.
After Dombrowski left, Sadler briefed the firm’s managing partner on what had transpired. “Everything he said could be true,” Sadler said, “but I have a bad feeling about this. Some things don’t add up. For example, why would someone this wealthy and connected have found me through an Internet search? Does that make sense?”
He added another troubling piece of information. “I went on the Wayback Machine website, the one that shows you previous incarnations of websites. Dombrowski’s company, a few years ago, was some vague consulting firm. I couldn’t figure out what it was selling.” He volunteered that it was not unusual for a company to have a poor website in the early days of the Internet. But, again, there was no mention of Dombrowski on the site.
The managing partner thoughtfully responded to Sadler’s concern. “That’s a nice fee to have coming in on an annual basis. However, I’m not willing to compromise our integrity for a fee. Proceed cautiously.”
Do the Due
Sadler called in an experienced due diligence practitioner, a woman he knew to have excellent research skills. “See if you can dig up anything on this guy, his company, family, whatever,” he said after sketching out what he knew about Dombrowski. “I need you to find something. Good or bad.”
Sadler then arranged to meet with the law firm’s partner. He turned out to be an elderly man of Polish origin. His practice seemed to be doing very well. His credentials were excellent. He had a good reputation in his field of expertise.
The lawyer confirmed everything Dombrowski had told Sadler. “Did you check him out?” Sadler asked. The man seemed unprepared for the question. “His company seemed very established. He himself was impressive. And, he gave us a large retainer.”
“A check?”
The partner nodded.
“Do you mind if I ask if it’s been cashed?”
“Quite some time ago. Went through clean as a whistle.”
There’s nothing like a large retainer to reduce the impetus for due diligence, Sadler thought even more so if your billables are down.
He wondered, too, about the lawyer being Polish. Of all the many lawyers in Ottawa who could handle this work, Dombrowski chose one who had the same ethnic background. A quick Google search revealed the law partner was very active in the Polish community. Had Dombrowski sensed this man might look at him more favorably, and with less scrutiny, because of this connection?
When Sadler returned to his office, the research practitioner dropped by to go over her findings. “You’re not going to like this,” she said. She had found information about a “Micheal” Dombrowski, who had been named in a U.S. TV investigative program as the mastermind of an investment fraud about ten years earlier. “I know it’s not a Michael, but it’s damn close. The age seems right. None of the other details match, though. No kidnapping or anything like that.”
Any photograph, Sadler asked?
She showed him a poor reproduction from the Internet. The man identified as Micheal Dombrowski had a moustache, unlike the man Sadler was dealing with. It was impossible to say if the two were the same person or not, but with a finger placed over the moustache, it certainly looked more possible.
The man had never been convicted of fraud, the woman said. The local authorities maybe didn’t have the resources to pursue him.
She also said the show reported that he had been charged with assault after a loud argument that might have turned a little physical with his daughter’s soccer coach. The details were sketchy. But nothing seemed to come of it.
Dombrowski told Sadler he had a master’s degree in financial economics from the American University of Beirut. But according to the TV show, there was no record of him having obtained a master’s anywhere.
The red flags were piling up. None, however, was indisputable.
Know When to Walk
Sadler’s instincts were to walk away from the file. There were simply too many potential problems. He called the lawyer and shared the information he had on Dombrowski. “I’d value your thoughts on all this,” he said. The lawyer told him he’d review the information and would call him in a few days.
Not long after, Dombrowski called. He asked, politely and professionally, for an immediate decision as to whether Sadler would take him on. “I’ll have an answer in a couple of days,” Sadler said, “if that’s all right.”
Dombrowski reluctantly agreed, noting that there were other forensic accountants he was considering approaching. Sadler went again to his managing partner. “He’s putting us on the clock,” he said. “I don’t like being pressured. That’s another bad sign.” The managing partner seemed even more concerned. “Look, how can we accept him as a client when we are not even sure who he is? Even if we get a retainer, bill on a timely basis and stop work if there’s no payment, I am not sure this is the kind of client we want.”
Sadler agreed that he and the firm could indeed get hurt. And badly. “If Dombrowski’s up to anything illegal or fraudulent and we did his due diligence, we could get really burned,” he said. “My reputation is all I have at the end of the day. If that goes, I’m through. Same for the firm.”
“Have you shared your new concerns with the law firm?” the managing partner asked. Sadler said he had.
“If they drop him, so will we,” the managing partner said.
A few days later, the lawyer called, telling Sadler his firm was going to continue its relationship with Dombrowski. “Most of what you told us was vague and not necessarily connected to Michael. We see no reason to withdraw.”
But Sadler could not bring himself to take on the file. He mulled over his decision and then told his managing partner he was walking away from the data. While disappointing, the news was well-received.
Sadler sent Dombrowski an email explaining his decision. A few minutes later, he received a polite, professional and short response: “Thank you.”
Although it was hard to decline a potentially lucrative engagement, Sadler knew he and his firm had made done the right thing.. They had conducted their due diligence and made a decision based on their findings. Just as they would have advised a client.
From Uncovering Fraud: True Stories About Fraud, Fraudsters & How They Got Caught by David Malamed, edited by Paul McLaughlin. This column was first published in January/February 2013.