Fantastic Beasts of the Background Check World: the "national criminal search"


Every investigator gets phone calls like this. The tone excited, the tenor demanding. How can you, sir, charge so much money for a background check when other firms offer "national criminal record checks" for $24.95?

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Our response is: Do you want to buy a griffin? A hippogriff (half-horse, half-eagle, 100% fantasy)? Time to review Fantastic Beasts of the background check world.

The national criminal check is a myth. What constitutes a “national criminal check” or “nationwide employment criminal background” as the product is often described? Usually, the firm offering this search is checking a compilation of conviction data--people who actually were sentenced to prison. However, only a very small percentage of people charged with crimes ever do any prison time. National offender databases are misleading: they miss charges that have been pled out, dismissed, not prosecuted (nolle prosequi, the legal term of art meaning the prosecutor is unwilling for some reason to pursue the case).

How do you actually check for Criminal Records?

Everyone is familiar with scenes from movies where a law enforcement agent runs a quick database check and gets an entire criminal history in seconds. In real life, things tend to be a bit more convoluted.

One database used by law enforcement is the National Crime Information Center (NCIC) and it is
typically limited only to law enforcement. While the closest thing to a national criminal records database, even NCIC data is riddled with gaps, with as many as 50% of all criminal cases failing to hit the database. So how do you proceed to check a person for crimes committed across 50 states in the USA?

Convictions data is a start but we always go back to the primary sources of criminal records: the state court system. On the state side, this means searching a higher court (Superior Court) that handles major crimes in a particular county, as well as lower courts with more limited jurisdiction. These courts are called district courts or municipal courts. Don’t make the mistake of skipping this step as district courts can hear cases involving serious criminal matters; for example in Massachusetts, some felony cases are found in district court. And access to the dockets still remains mixed: Massachusetts still keeps criminal records off the internet; you need to look at the index in the court.

And on the federal side, you will be checking for criminal cases in the national PACER system.

So just beware when you are conducting a criminal background check for employment or any other purpose: to do it right, the investigator may need to leave the office and review records ((paper or database) at the courthouse. Be certain that you are buying more than the fantastic beast of a "national criminal check" which is usually just convictions data.

Background Check Myths - The National Criminal Check

Every investigator gets phone calls from this person. The tone excited, the tenor demanding. How can you, dear sir, charge so much when other firms offer "national criminal record checks" for $24.95?

Time to review Fantastic Beasts of Background Myths: what constitutes a “national criminal check” or “nationwide criminal background check” as the product is often described.

The national criminal check is the hippogriff of the industry, a complete myth. Usually, the firm offering this search is checking a compilation of conviction data--people who actually were sentenced to prison. However, only a very small percentage of people charged with crimes ever do any prison time. National offender databases are misleading: they miss charges that have been pled out, dismissed, not prosecuted (Nolle prosequ, the legal term of art meaning the prosecutor is unwilling to pursue the case).

Everyone is familiar with scenes from movies where a law enforcement agent runs a quick database check and gets an entire criminal history in seconds. In real life, things tend to be a bit more convoluted.

One database used by law enforcement is the National Crime Information Center (NCIC) and it is typically limited only to law enforcement. And even NCIC data is riddled with gaps, with as many as 50% of all criminal cases failing to hit the database. So how do you proceed to check a person for crimes committed across 50 states in the USA?

Convictions data is a start but we always go back to the primary sources of criminal records: the state court system. On the state side, this means searching a higher court (Superior Court) that handles major crimes in a particular county, as well as lower courts with more limited jurisdiction. These courts are called district courts or municipal courts. Don’t make the mistake of skipping this step as district courts can hear cases involving serious criminal matters; for example in Massachusetts, some felony cases are found in district court.

And on the federal side, you will be checking for criminal cases in the national PACER system.

So just beware when you are scanning someone for a criminal history: to do it right, the investigator will probably need to leave the office and pull some paper records. A thorough investigation will take more than just a database search.

Offshore firms promised 318% return--in 190 day period

Mass. Sec. of State Securities Division filed a complaint against offshore firms Eagle Trades Ltd. and controlling member Terrance Osberger, as well as Osiris FX and FX Capital Services (and Osiris' Evan Andersen, Glenn Manterfield and Alberto Sciola). All are accused of violating state securities laws and, in some instance, defrauding investors. Eagle Trades claimed return rates between 299% and 318% --in just 190 days. The firm’s promotional literature included remarks like “ . . . we have reengineered the mold regarding HYIPS...think of it as a full-throttle upgrade to the typical HYIP routine you may or may not be familiar with....”

Due diligence by investors would have easily raised red flags: Andersen had been barred for life from the securities industry in Massachusetts after he and Manterfield were charged both by Massachusetts and the Securities and Exchange Commission with defrauding investors in 2007.

Kroll sued for conflict of interest & faulty due diligence

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.”

Background Check Myths

After our recent post about a background check that saved a client millions of dollars , some clients have called to ask how firms can offer "national criminal record checks" for $24.95.

The national criminal check is the unicorn of the industry-- a complete myth. Usually, these firms are checking a compilation of conviction data--people who actually spent time in prison. However, only a very small percentage of people charged with crimes ever do any time. National offender databases are misleading: they miss charges that have been pled out, dismissed, not prosecuted. A bit like taking a photo of someone's nose and selling it as a portrait.

Due diligence pays for Nardizzi client


In the wake of repeated news of SEC investigations of hedge fund and investment management firms, an investment bank credited an early-stage due diligence report by investigative firm Nardizzi & Assoc. for saving clients from multi-million dollar fraud losses.

The Securities and Exchange Commission charged a Pearl River, N.Y., investment management firm Westgate Capital Management, LLC and its managing member, James M. Nicholson with operating a large-scale scheme that defrauded hundreds of investors of millions of dollars. The SEC alleges that Westgate solicited investors with false claims of an almost unbroken eight-year string of monthly investment successes.

In the fall of 2007, a New York investment bank had retained Nardizzi & Assoc. to investigate links between Nicholson, Westgate, and other individuals. The report issued by Nardizzi swayed the investment bank away from investing with Nicholson.

The arrest of Nicholson made waves in tony Palm Beach as well, as reported in the Palm Beach Daily News:

“The vigilance of Madoff-wary investors has helped bring about the arrest of another part-time Palm Beach resident, the manager of an unregistered hedge fund accused of swindling an estimated $900 million from clients since 2004.

The FBI on Wednesday arrested James M. Nicholson, 42, owner of a penthouse in the Dunster House condominium complex, on charges of securities fraud and bank fraud. Also on Wednesday, the Securities and Exchange Commission filed a federal complaint against Nicholson and his company, Westgate Capital Management LLC of Pearl River, N.Y., seeking relief for the fraud and an injunction to stop it.

A telephone call to Nicholson's primary residence in Saddle River, N.J., was not returned by press time. A telephone line listed for Nicholson's multi-million dollar Dunster House penthouse was disconnected.”

The investigation into Nicholson began when Westgate investors reacted to alleged Ponzi mastermind Bernard Madoff's $50 billion scheme. When they began to redeem their own investments in different Westgate hedge funds, nearly $5 million in checks bounced.

The SEC released this statement regarding Westgate Capital Management, LLC and its managing member, James M. Nicholson, who was arrested by the FBI at his New Jersey home.