Due Diligence 101: Not Even a G.D.’d Google Search?


Third Wire Editorial


Due Diligence 101: Not Even a G.D.’d Google Search?

It’s usually the first thing people do when they’re researching a new pair of shoes or a new restaurant or something. How, then, can someone not even do a basic Google search on the key principals of a fund or investment platform they’re considering investing in or partnering with?

  • Felony convictions, 
  • D.U.I.’s, 
  • Inconsistencies or convenient omissions in education and employment histories,
  • A history of workplace disputes or loss of professional licenses or certifications, 
  • Publicly shared content that conflicts with professional values or demonstrates a lack of integrity and poor judgment, 
  • Undisclosed and questionable business affiliations, 
  • Involvement with or associations with high-profile frauds and Ponzi schemes, regulatory investigations, dubious foreign actors, 
  • And the list goes on.

Seriously, we’re not making this stuff up.

Of all the elements that go into a rigorous, thorough due diligence process, background checks might be the easiest. But for some reason, even many supposedly seasoned investment professionals don’t seem to take it seriously. They’re like, “Yeah, I talk to them all the time. I trust them.” Depending solely on intuition and self-perceived ability to assess character has often unwittingly paved the way for unscrupulous individuals to exploit numerous unsuspecting victims.    

Ever wonder where all those involved in infamous frauds like the Madoff scandal or the myriad of feeder funds ended up? Even the minor players. Did they just vanish into thin air, or are they still lurking in the corners of the investment world? This is a question that begs scrutiny.

Take the Madoff scandal, for instance. Bernie Madoff’s Ponzi scheme, one of the largest in history, didn’t operate in a vacuum. It involved numerous feeder funds and associates who funneled investor money into his fraudulent operations. Post-scandal, a natural query arises: what happened to these actors? Surprisingly (or maybe not), many still operate within the financial sector. They’ve dusted off their resumes, conveniently omitted the incriminating bits from their bio, and slid back into roles where they continue to wield influence in close proximity to client assets—too close, in our humble opinion.

This trend isn’t isolated to just Madoff. History is replete with examples where individuals associated with financial misconduct manage to resurface within the industry, often finding others with similarly checkered pasts, forming new alliances as if drawn together by a shared history of crossing ethical lines.

We’re not saying people can’t change—that they can’t learn life lessons and move past it, that they shouldn’t be able to earn a living. However, we are saying this is a massive red flag and most likely should bar them from coming anywhere near your clients’ hard-earned wealth.

In today’s world, where technology offers solutions at our fingertips, there’s really no excuse for firms to fail to conduct thorough background checks. There are specialized organizations that provide comprehensive background investigations. Services that delve deep into a person’s history, uncovering details that a simple online search might miss.

Not everything these firms dig up immediately disqualifies a person from investment—that’s where judgment comes in—but at least you know about it, can address the issue with the person, and make an educated decision about whether or not they deserve your trust. 

Some might hesitate at the cost of these services. However, when it comes to client assets and your reputation as stewards of their financial futures, can you really put a price on diligence and safety? The expense of a detailed background check pales in comparison to the potential risks and damage to your reputation from fraud, mismanagement, or financial loss that could arise from inadequate vetting.

Contact us to learn more about our due diligence process and how we can help you navigate the alternative investment industry successfully.


This article is for informational and educational purposes only and should not be construed as providing tax or legal advice. It does not take into account the specific investment objectives, financial situation, or particular needs of any reader. Readers should consult with their own tax, legal, and financial advisors to determine the appropriateness of any investment strategy or approach mentioned herein.