I was invited to attend Sidoti & Company’s (Wall Street’s largest independent small-cap equity research boutique) Second Annual Business Services Conference on February 2. Hosted by one of their senior equity analysts, David Gold, the day was filled with presentations on topics ranging from litigation trends to the outlook for commercial real estate.
Among the presenters was Patrick Carroll, Securities & Commodities Fraud Supervisory Special Agent for the Federal Bureau of Investigation’s (FBI) New York office. He gave an inside (as inside as the FBI will go) look into how the agency tackles securities fraud in our nation. The crimes they pursue include corporate fraud, Ponzi schemes, market manipulation, insider trading and wire/mail fraud. He’s currently working on the Madoff case, for example.
Interestingly, he talked several times about the role a company’s brand – and media coverage in particular – plays in preventing or prosecuting fraud. The FBI relies on a number of information sources to uncover new cases. High on Agent Carroll’s list was what he called “open sources.” He noted that journalists were very good at uncovering fraud and that broadcast and print coverage often lead to investigations. He also joked that he watches both Fox News and CNN to ensure unbiased research.
Some of the recent trends the FBI is seeing are tied to the subprime crisis, bail-out schemes and alternative investments, such as hedge funds and private equity. He urged attendees (who were largely analysts and investors) to “scrub down” the source of funds before getting involved even if they’ve done business with the individual or company in the past. He suggested they ask themselves, “Is the risk worth the impact on my brand?” One other area of concern is “con men” that target hedge funds and private equity firms. He said they often get away with their schemes because they assume their victims won’t turn them in to authorities. Most organizations don’t want to admit they bought into a con man’s pitch, let alone see their naiveté played out in the media.
Call it a “scrub-down” or call it due diligence, the message was clear: The impact of an investment to your brand should be considered alongside its financial return.