Scherzer Blog

What are “specialty consumer reports?”

“Specialty consumer reports” are compiled by specialty consumer agencies for targeted users such as insurance companies, employers, and landlords. The agencies collect information from a variety of sources and may include civil and criminal records, credit history, bankruptcy filings, driving records, business relationship information with banks or insurance companies, and even medical information.

Most consumers are unaware of the existence of a “specialty consumer report” unless they have been denied a job, insurance, or housing rental. The Fair Credit Reporting Act (FCRA) imposes certain obligations on the specialty reporting agencies, the users of such reports, and those that furnish information for the reports. (See http://www.ftc.gov/bcp/edu/pubs/business/credit/bus33.shtm for more information.) When adverse action is taken based on the information in the report, the FCRA mandates that users of specialty consumer reports provide to the subject an “adverse action notice” along with a free copy of the report. The subject also has the right to dispute inaccurate information.

|Bankruptcy, Educational Series|

Searching for violators of the Social Security Act for program-related fraud and patient abuse?

Try the U.S. Department of Health & Human Services – Office of Inspector General Web site (http://oig.hhs.gov/.)

For many years the Congress of the United States has worked diligently to protect the health and welfare of the nation’s elderly and poor by implementing legislation to prevent certain individuals and businesses from participating in federally-funded health care programs. The OIG, under this congressional mandate, established a program to exclude individuals and entities affected by the various legal authorities, contained in sections 1128 and 1156 of the Social Security Act, and maintains a list of all currently excluded parties called the List of Excluded Individuals/Entities, at http://oig.hhs.gov/fraud/exclusions.asp. Basis for exclusion include convictions for program-related fraud and patient abuse, licensing board actions and default on Health Education Assistance Loans.

|Educational Series, Legislation|

Disciplinary actions filed by the Public Company Accounting Oversight Board (PCAOB)

The PCAOB Web site now maintains records of disciplinary and settlement orders of registered firms and/or their associated persons for violations of any provisions of the Sarbanes-Oxley Act, professional standards, rules of the PCAOB or the SEC, or U.S. securities laws relating to the preparation and issuance of audit reports. These records date back to 2005 and can be found at http://pcaobus.org/Enforcement/Decisions/Pages/default.aspx.

As required by the Sarbanes-Oxley Act, contested Board disciplinary proceedings are confidential and nonpublic, unless and until there is a final decision imposing sanctions. The PCAOB Web site also contains a section for orders granting petitions to terminate bars, at http://pcaobus.org/Enforcement/Petitions/Pages/default.aspx.

|Educational Series|

Resumes That Can Kill: Fraudulent Credentials a Growing Threat, Says Scherzer International

http://www.marketwire.com/press-release/Resumes-That-Can-Kill-Fraudulent-Credentials-Growing-Threat-Says-Scherzer-International-1159501.htm

|Employment Decisions, Press Release|

Alert Regarding Sexual Offender Data

A new California case came out March 23, 2010 that gives a background firm protection when it reports sexual offender data from the Megan’s Law Web site, and also clarifies that the prohibition of using sex offender registration information for employment does not apply when there is a person at risk.
For a quick review of the case, see:
http://www.esrcheck.com/wordpress/1440/california-case-protects-constitutional-right-of-background-screening-firm-to-report-sex-offender-registration.
The actual case can be found at:
http://www.courtinfo.ca.gov/opinions/documents/B214653.PDF

|Educational Series, Legislation|

A career in fraud

A prospective client investigation was ordered on a company and its president, but the preliminary information on the president was enough to reject the subject or any company under his direction from the possible business engagement. Initial court searches uncovered a 2001 criminal misdemeanor conviction for possession of a false identification to be used to defraud. The index did not provide much information and the file was destroyed by the court, so SI’s analyst turned to media sources to dig deeper. Sure enough, one article referenced guilty pleas entered in 2002 by the subject and his business partner for hiring imposters to take the Series 7 securities brokers’ examination for them. Each was sentenced to a year of probation and fined $5,000. Other articles from 2002 reported three civil cases for fraud in locations where the subject appeared to have no residential history, and further disclosed that the subject and his partner had been statutorily disqualified from working for a broker licensed by the National Association of Securities Dealers, ordered to disgorge profits and interest totaling $4,649,125 and each were fined $15,000 in civil penalties in 2006. Articles also linked the subject to a con artist who had admitted to defrauding Jewish organizations and individuals of $80 million during the 1990s. Most recently, the FDIC had executed a written agreement with the subject and (the same) business partner after they allegedly failed to seek FDIC approval before making an investment in an unregistered bank holding company. On the whole, this company president had been engaged in fraudulent behavior for nearly a decade and no amount of legal or regulatory action appeared to change his mode of operation.

|Fraud|

Updating investigations as part of your risk management strategy

As part of its standard risk management program, our client requested background investigations of two individuals in connection with an engagement continuation. SI had conducted investigations of these subjects three years prior when our client initially began its consulting engagement with them. No negative information was located in the previous investigations; however, our client quickly learned the value of conducting periodic updates.

The new investigation revealed recently filed federal indictments charging both subjects with aiding and abetting in the evasion of taxes owed on their salaries between 2006 and 2008, amounting to more than $450,000 each. The government also charged that subject #1 directed his wife to evade income taxes on her salary between 2004 and 2007 by claiming as many as 99 exemptions on her W-4. Additionally, searches of the State Real Estate Board disclosed a pending disciplinary action against subject #2 for “misstating a material fact” that “included fraud.” Both subjects had filed personal Chapter 7 bankruptcies in December 2008 and had been named as debtors in multiple judgments and tax liens for amounts ranging from $35,000 to $2,300,000. The subjects had begun their start-up company three years earlier with clean records, but in short-order they had become a liability to our client.

|Educational Series, Fraud, Taxes|

Background investigation reveals untruth in advertising

SI was engaged to investigate a national company along with two of its principals as part of our client’s risk management program. The company’s ads have appeared almost daily in major newspapers and on the Internet, and the merits of its consumer services (for confidentiality, we can’t say what they are) have been touted in the professionally scripted testimonials of “real” customers. But SI’s investigation found media reports and court documents showing that the claims were not so credible. There is a pending federal class-action lawsuit against the company and its principals alleging several fraudulent business practices, including the misleading advertising of a service guarantee that “is riddled with restrictions, waivers and limitations” and service enrollments without authorization. Six additional lawsuits for similar causes of action are pending in various county-level courts.

Further, SI’s investigation uncovered the checkered backgrounds of the two principals behind the company. Searches of bankruptcy records revealed that both subjects had filed for protection from creditors – and in the co-founder’s case, had filed multiple times. Also missing from the company’s pitch was that the co-founder’s previous career in a similar business culminated in a federal judge’s order barring him from “promoting, offering for sale, performing or distributing any product or service related to

[consumer] services.” Had our client’s decision-makers relied on the company’s presentation of itself and its principals, they would not have been able to realistically assess the risk of engaging in business with the subjects. While a search of media stories might reveal complaints against a potential client, it’s a full in-depth investigation that brings all the pieces together.

|Bankruptcy, Criminal Activity, Fraud|

The Fallacy of a National Criminal Database

Scherzer International is occasionally asked about the availability of a non-law enforcement “national criminal database” as some of our competition offers this service. The fact is that no such database exists.

The FBI maintains the only comprehensive national criminal database and access to it is restricted to law enforcement agency use. The information offered by private vendors as a “national criminal database” is incomplete, unverified and unreliable for any purpose other than as a supplemental tool. The reason that these databases are of such little value lies in the fact that there is no central criminal record database for the United States other than the FBI. Even the FBI records are not totally accurate as they are based on fingerprint data which is not always submitted in a consistent or usable manner.

There are also wide variations in the reporting standards and requirements of individual states as well as local jurisdictions within the states. Thus, although a “hit” may appear in this type of database, it should only be used as an indicator that there may be a criminal record. Further research must be conducted to verify this information. Similarly, if there is no “hit” in a national criminal database, this does not mean that the subject has a clean criminal record as the FBI estimates that less than half of all state criminal records make it into any national database. Based on the variation in record accuracy and reporting it is clear that a “nohit” result in a “national criminal database” is of virtually no value. As a reminder, the Fair Credit Reporting Act (FCRA) requires that Pre-employment investigators always follow all “reasonable procedures to assure maximum possible accuracy” of information we present to the client. (FCRA 607b) FCRA Section 613 (a) (2) also requires “that the information is complete and up to date.” Pre-employment investigators should keep these requirements in mind whenever a Consumer Report is prepared. The requirements of the FCRA do not apply to the Business Background or

Prospective Client Investigations. The Fallacy of a National Criminal Database

|Educational Series, Employment Decisions|

The not-so-good deeds of a charitable organization director…

As part of a business transaction for an accounting firm, SI was engaged to investigate one of the most respected charitable organizations in the US. The organization itself showed many years of humanitarian service, but among its countless good deeds, SI uncovered the not-so-charitable actions of a former chapter director. In 2008, this individual was sentenced to six years in a federal prison following his conviction on 15 counts of fraud, money laundering and interstate transportation of stolen property. The fraud charges involved swindling an Ohio man out of more than $9 million in a bogus investment scheme.

Additionally, in 2006, the Utah Division of Securities had fined the subject $60,000 and obtained a default cease-and-desist order barring him from future acts of securities fraud in an unrelated matter. Court records also revealed that the subject had convictions for grand theft and forgery dating back to the 1980s. By employing a risk management strategy like our client’s, the charity would have avoided its association with a felon, and thus prevented significant expenses and continuing embarrassment.

|Criminal Activity, Fraud|