Kroll sued for conflict of interest & faulty due diligence
Aug.12.2009
Kroll, a risk consultancy firm (which is what private investigation firms morph into when they have office space in New York City), has been accused of “gross negligence” and of misleading investors via a “clean report” on Sir R. Allen Stanford. Kroll has fired its Latin American office chief Tom Cash over the incident.
Federal lawsuits allege Kroll engaged in a conflict of interest when it vetted Stanford for a trade group looking to protect its investments after the firm had previously worked for the Texas billionaire’s companies.
In a pair of lawsuits filed in May, the National Electrical Contractor’s Association reached out to Kroll in October 2006 to determine if it should continue buying high-interest certificates of deposit from Stanford International Bank. The association ended up losing all of its $2.5 million investment in what is believed to be a $8 billion Ponzi scheme.
NECA had paid Kroll $15,000 to perform due diligence on Stanford in April 2007. The contract had a stamped signature for Tom Cash, who took the money even though he and Kroll had been retained by Stanford in a prior case. “Kroll never disclosed Mr. Cash’s connection with Mr. Stanford and the obvious conflict that this relationship presented,” the NECA lawsuit states. NECA said Kroll’s due diligence report failed to reveal what industry experts have called “major, major, major red flags,” including:
~ The National Association of Securities Dealers levied a $20,000 penalty on Stanford
~ The U.S. Treasury Department issued an advisory in 1999 warning U.S. banks to scrutinize transactions involving Antigua due to corrupt regulation of offshore banks. The British Treasury issued a similar warning.
~ Kroll never highlighted the small size and unsophisticated nature of Stanford’s auditor, Antigua-based C.A.S. Hewlett.
The lawsuits also quotes one of Kroll’s own investigators, William Brittain-Catlan. “I’m amazed by the way people were taken in by ‘Sir Allen.’ There’s so much stuff out there that anyone who wanted to do a cursory check would have seen. Various allegations have been flying around for years,” said Brittain-Catlin, author of “Offshore: The Dark Side of the Global Economy.”
Federal lawsuits allege Kroll engaged in a conflict of interest when it vetted Stanford for a trade group looking to protect its investments after the firm had previously worked for the Texas billionaire’s companies.
In a pair of lawsuits filed in May, the National Electrical Contractor’s Association reached out to Kroll in October 2006 to determine if it should continue buying high-interest certificates of deposit from Stanford International Bank. The association ended up losing all of its $2.5 million investment in what is believed to be a $8 billion Ponzi scheme.
NECA had paid Kroll $15,000 to perform due diligence on Stanford in April 2007. The contract had a stamped signature for Tom Cash, who took the money even though he and Kroll had been retained by Stanford in a prior case. “Kroll never disclosed Mr. Cash’s connection with Mr. Stanford and the obvious conflict that this relationship presented,” the NECA lawsuit states. NECA said Kroll’s due diligence report failed to reveal what industry experts have called “major, major, major red flags,” including:
~ The National Association of Securities Dealers levied a $20,000 penalty on Stanford
~ The U.S. Treasury Department issued an advisory in 1999 warning U.S. banks to scrutinize transactions involving Antigua due to corrupt regulation of offshore banks. The British Treasury issued a similar warning.
~ Kroll never highlighted the small size and unsophisticated nature of Stanford’s auditor, Antigua-based C.A.S. Hewlett.
The lawsuits also quotes one of Kroll’s own investigators, William Brittain-Catlan. “I’m amazed by the way people were taken in by ‘Sir Allen.’ There’s so much stuff out there that anyone who wanted to do a cursory check would have seen. Various allegations have been flying around for years,” said Brittain-Catlin, author of “Offshore: The Dark Side of the Global Economy.”