[Nettime-bold] Do Dot-Coms Have More Shady Characters?

[David Mandl <dmandl@panix.com>]

The Standard
October 24, 2000, 2:31 PM PDT

Do Dot-Coms Have More Shady Characters?

Managers at Net companies are 4 times as likely to have tarnished
backgrounds than offline counterparts, a security firm says.

By Dan Goodin

Managers at Internet companies are four times as likely to have shady
backgrounds than their counterparts in the economy as a whole,
according to an unscientific survey released by a firm that provides
investigative services to corporations.

The findings by Kroll Associates come five months after the founder of
Pixelon, who raised $30 million for the media-streaming startup, was
revealed as a convicted embezzler on the run from authorities.  While
the Pixelon saga was more dramatic than most dot-com frauds, the study
suggests that it was far from unique.

Of the 70 background checks Kroll conducted on Internet companies, 27,
or 39 percent, uncovered an executive, director or consultant with
ties to organized crime, securities violations, undisclosed
bankruptcies or histories of fraud. Kroll says its investigations
usually turn up "unsavory backgrounds" only 10 percent of the time.

"There seemed to be more problem-people coming up in the dot-com area,
mainly due to the headlong rush to get things done and move things
along," says Ernest Brod, executive managing director at Kroll. In
their haste, he said, dot-coms fail to establish routine steps for
filtering out fraudulent managers. "When you don't have a historical
approach of checking people out, and you don't have the type of people
who are going to ask questions, then those steps get skipped and that
happens at your peril," he says.

Despite the flood of young talent in the Internet pool, many managers
with checkered pasts appeared to be older "vampire investors" with a
long history of fraud and appeared to be taking advantage of the
spending frenzy gripping the Internet sector. "In many of these
circumstances, it would not have required a significant amount of
digging to get to the information that we're talking about," he says.

In one case, an Internet company that had recently received an
unsolicited investment offer asked Kroll to look into the potential
business associate. While Kroll was conducting the investigation, a
local newspaper reported the individual to have been murdered; a
history of penny-stock fraud and ties to organized crime also were
reported.

Although few dispute that background checks are more lax among
Internet companies, news stories about the online world fail to
reflect the findings of the Kroll study.  Brod acknowledges that the
survey did not study a wide enough group to be scientifically valid,
but he says it nonetheless helps to quantify what he and many others
have been hearing anecdotally for some time.


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