INVESTIGATIVE DUE DILIGENCE
Welcome to our newsroom. This is where you’ll
find links to:
- First Advantage’s media mentions and appearances
- Articles by company founder and investigative due diligence expert Randy Shain
- Randy Shain's pioneering book on hedge fund due diligence and related products
Just click on one of the above links or scroll down the page.
Media mentions and appearances
- 2/05/14 -
SEC Sounds Alarm on Alts Due Diligence
Many institutional investors are not aware that their consultants or advisors may not be carrying out this due diligence, and need to ask for more information, warns Randy Shain, founder of hedge fund due diligence firm BackTrack Reports. "They need to ask what due diligence is being done, if operational and financial checks are being done, how they do that, and are they doing background reports? They then need to ask to see the report…that will tell you exactly what is being done," he adds
- 1/08/14 -
The Wolf of Wall Street' Exposes Danger of Penny Stocks
"'The Wolf of Wall Street' takes a man who bilked investors large and small out of millions and turns him into hero, a type of modern day Robin Hood," said Randy Shain, a private investigator with First Advantage BackTrack Reports. "Glamourizing white collar crime only leads to more of it."
- 11/07/13 -
Think you can spot the next Twitter? Think twice before pitching in
If you think you have it handled, you might want to reconsider, suggests Randy Shain, founder of BackTrack Reports. Clients of his 20-year-old firm pay a few thousand dollars for the kind of detailed background investigation that he believes is necessary before investing in any startup. “That’s going to cost more than most crowdfunded investments.”
- 10/29/13 -
BackTrack Reports’ Randy Shain: JOBS ACT For Small Businesses Could Lead To Big Fraud
A new SEC initiative that will pave the way for individual investors to participate in crowdfunding – Internet-based fundraising for young companies – may also expose investors to potential frauds, according to Randy Shain, founder of BackTrack Reports and an expert in investigative due diligence for the investment community.
- 08/26/13 -
How to Spot a Hedge Fund Fraudster
Randy Shain, founder of the New York firm First Advantage BackTrack Reports, which conducts investigations of financial services firms for clients, says that wealthy individuals - even highly successful entrepreneurs - also frequently lack the skills to evaluate hedge fund managers.
Institutional Investors alpha
By Amanda Cantrell
- 07/26/13 -
Hedge funds: from rock stars to fallen stars?
Randy Shain, founder of BackTrack Reports, which investigates hedge funds for investors, thinks the industry is getting too much of a bad rap — and he thinks it was too lauded before the financial crisis. "Five or six years ago, they could do no wrong," Shain said. "Now all of a sudden people look at them and think they stink ... Neither is true."
By Christina Rexrode
- 07/23/13 -
More Advisor Oversight Now Needed on Hedge Funds
By Charles Paikert
- 07/13/13 -
Surprise! Not Every Hedgie Loves the Lifted Ad Ban
By Joyce Hanson
- 1/10/13 - Hedge Fund Private Eyes
By Christiana Cefalu
- 12/20/12 - BackTrack Reports' Randy Shain: Conducting Private Equity Due Diligence Overseas Presents Challenges
- 10/09/12 - "Randy Shain, executive vice president of First Advantage and founder of BackTrack Reports, says background checks should be viewed more as a way to prevent losses at companies. They should not just confirm biographical information, but also show where else biographical assertions have been made and find out whether these are accurate."
- 06/26/12 - BackTrack expands emerging markets team
BackTrack Reports, provider of background searches on hedge fund and private equity managers, has taken steps to strengthen its due diligence capabilities in China and Brazil by hiring researchers fluent in Mandarin, Cantonese and Portuguese.
- 05/21/12 - Randy Shain, founder of BackTrack Reports said that while institutional investors were likely to do their due diligence, individual investors were in a danger of seeing legislation as a replacement for this.
- 05/14/12 - Be Smart! Don't Invest With Fraudsters
- 05/14/12 - ¡§The Association of Executive Search Consultants (AESC) has formed a partnership with BackTrack Reports (part of First Advantage Litigation Consulting, LLC) to provide its members with due diligence services.¡¨
- 02/3/12 - Randy Shain, founder of the investigative firm, The BackTrack Report, says it can be difficult sieving through investment opportunities - whether it involves a new venture or a great stock tip.
High net worth investors are prime targets if their money came from outside the world of finance. For athletes, actors or small business owners who strike it rich, Shain says the danger is that a shrewd fraudster will know how to play them.
"It's a lot easier to fool someone who made their money doing something else; that's why they are the targets," he says. "It's not random."
By Mitch Lipka
- 02/3/12 - US regulators step up hedge fund investigations
By Kris Devasabai
- 01/18/12 - Awkward Questions You Need to Ask Your Financial Adviser
By Rachel Koning Beals
- 01/05/12 - Ex-Pro Athlete Accused of White Collar Crime
By Ed Beeson/The Star-Ledger
- 10/26/11 -
The Turnaround Men
By Mariah Blake
- 03/15/11 -
How to Size Up the Risk of Fraud in Hedge Funds
By Rob Curran
- 02/03/11 -
New launches signal a revival of fortunes
- 11/15/10 - The Buy Side Interviews: Randy Shain
By Fred Gehm, HedgeWorld Correspondent
- 08/03/10 - The SEC's FOIA exemption won't matter. It's not protecting investors anyway
By Randy Shain
- 06/23/10 - Fix the SEC, or abolish it!
By Randy Shain
- 05/19/10 -How Stanford is worse than Madoff
How Stanford is worse than Madoff (Spanish translation PDF)
By Randy Shain
- 03/24/10 - Short Sellers Do Work of Cops on Doughnut Break
"Randy Shain, executive vice president at New York’s First Advantage Investigative Services, says he has been getting business from types of customers he’d never signed up before."
- 2009 -
Moneytrack: Season 3, Episode 306
“Infamous Hedge Fund Fraud”
- 11/13/09 -
Hedgies Unhinged. Hedge funders, the Ayn Randian rock stars of the financial boom, fall to Earth. Hard.
“As Randy Shain pointed out in Hedge Fund Due Diligence, the biggest variable in evaluating a hedge fund is figuring out the character of the manager.”
- 10/19/09 –
Background Checks on Managers Comes Under the Spotlight
Randy Shain, executive vice president at First Advantage, said “...to play with the big boys...the phrase ‘I can’t afford it’ has turned around to ‘I can’t afford not to’.”
- 9/09 – Trust Me (How Tom Petters Fooled Us)
“It was frankly astonishing from the outside looking in how anyone could think this was what it purported to be,” [Shain] said.
- 8/24/09 – Managers Face Increase in Background Checks
fundfire.com >> Registration Required
“And instead of just checking on the portfolio manager at the investment management firm in question, the background checks are often extending to the CFO and COO as well,” says Randy Shain, Executive V.P. at First Advantage.
- 8/20/09 – Winding Down Funds Part Two – Budgeting a Fund Closure
opalesque.com >> Registration Required
Randy Shain, Vice President at First Advantage, on uncovering lawsuits during background checks of managers that evolved from the closing of a prior business: “As with other lawsuits, the analysis by our clientele, we suspect, revolves around several key issues: how many suits were filed, what exactly were the nature of the claims made, how were these suits resolved, and how forthright the managers were in disclosing these actions.”
- 8/5/09 – SEC Training On Fraud Detection
U.S. Securities and Exchange Commission
Randy Shain of FADV BackTrack speaks to SEC, CFTC, CBOE and other government-employed fraud examiners about the latest techniques and insights for discovering frauds, especially early in the fraud life cycle. Contact us if you’re interested in receiving a DVD of Mr. Shain’s SEC talk.
- 8/2/09 – Funds Hire Gumshoes to Vet for Next Madoff
New York Post
Randy Shain, of First Advantage Investigative Services, is also seeing lots of new players asking for help following the onslaught of scandals. “There's been an increase in interest from smaller entities, typically endowments, foundations or smaller funds of funds.” In some cases, said Shain, the demand is being driven as much by a desire to avoid getting sued for negligence as the desire to avoid another Ponzi scheme.
- 7/8/09 – Talking Points: Randy Shain
II Magazine >> Registration Required
“What do clients ask you to look for? What kind of litigation is in a hedge fund manager’s history. They may want work history: So-and-so worked here and he worked here, but there’s an eight-month gap – they want to know why. Sometimes that can be a measure of whether someone’s telling the truth about their past. They want to know everything in the public record.”
- 5/22/09 – New Hedge Funds: Smaller and Thriftier
"The apex was near when everyone and their brother could become a hedge-fund manager. It was a time of easy money and few barriers to entry, but many of those managers probably weren't going to succeed," says Shain.
- 5/20/09 – Checking Out Your Financial Advisor
"If you don't have the money to do proper due diligence, then you don't have the money to invest in that hedge fund," says First Advantage Executive Vice President Randy Shain.
- 4/22/09 – Roots of $3 Billion Fraud Case Lie in DVD Players, Not CDOs
Wall Street Journal >> Registration Required
Randy Shain, who does background checks, says he researched Mr. Petters for clients around 2002 and was struck by the volume of litigation against him. “For 15 solid years, there were one to two lawsuits a year for not paying for something or not paying for products purchased,” says Mr. Shain, of First Advantage Investigative Services in New York.
- 4/3/09 – News Analysis: G20 Initiatives Yield Resigned Acceptance
efinancialnews.com >> Registration Required
Commenting on the impact of G20 proposed hedge fund regulation, Randy Shain commented: “I feel strongly that regulation in this industry has not done what people think it will do. In and of itself it’s a good idea but it's not a panacea.”
- 3/25/09 – Hedge-Fund Investors Hire Private Eyes to Avoid New Madoffs
“It’s a case of turning over the stones and finding what’s underneath,” said Shain.
- 3/24/09 – Para Evitar Nuevos Madoff, los Inversores Toman Mayores Recaudos
Randy Shain at First Advantage Investigative Services LLC reports an increase in requests for background checks on hedge fund managers as a result of the fraud allegations involving Bernard Madoff, Arthur Nadel and R. Allen Stanford – all accused of defrauding clients for a combined total of approximately $73 billion dollars.
- 3/19/09 – Westridge Capital’s Unexpected Lockups
II Magazine >> Registration Required
Commenting on the research his firm completed in 2006 that uncovered fines levied by the Chicago Board Options Exchange against a broker-dealer operated by Paul Greenwood and Stephen Walsh, founders of Westridge Capital, Shain said, “Some of these issues were serious.”
- 3/18/09 - Hedge Fund Due Diligence in the Global Financial Crisis Era
Randy Shain of FADV BackTrack speaks to the Japan Society about hedge fund investigative due diligence, and how it has changed in the wake of the 2008/2009 financial scandals.
- 3/8/09 – Stanford CIO´s Fast Path to Top a Red Flag
"While this might not be a typical educational path for a CIO of a large institution, I think most investors would want to know more before they judged whether a person like this was capable of handling that job well," said Randy Shain a private investigator.
- 2/27/09 – Hedge Fund Background Checks Essential; Talking to the Manager of a U.S. Company that Specializes in Them (Link Unavailable)
In response to a question as to whether stricter SEC regulations of hedge funds would lead to less need for background investigations, Randy Shain responded: “The SEC is not structured to uncover fraud before it happens. In the case of Madoff, even an accuser providing all that detailed information didn’t lead to exposure. I don’t think that tightening regulations will lead to less fraud either. Broker–dealers have been the most tightly regulated financial institutions and yet there is no end of things like boiler room operations. As a result of the financial crisis, it’s been made clear to the investment community that money that seems easy to be made is easily lost as well. Your due diligence efforts are more necessary now than ever.”
- 2/13/09 – Ex–Employees at Heart of Stanford Financial Probe
It's not clear if De Maria is one of the former employees that regulators have interviewed. But due diligence expert Randy Shain says De Maria's lawsuit was one of the many red flags to turn up during an investigation of Stanford's bank that he did on behalf of a client.
- 2/5/09 – Alternative Market Briefing: Markopolos Testimony
opalesque.com >> Registration Required
"We have certainly noticed an increased level of scrutiny stemming from the very public blow-up situations occurring seemingly every week." Shain said. "Interestingly, we are seeing the fear of getting caught in one of these situations translate to calls from smaller and smaller firms - the types of firms that in years past may have thought they couldn't afford strenuous due diligence, but who now realize they can't afford not to have it."
- 12/8/08 – A Plague on All Their Houses
"Petters had every warning flag you can think of, tons of civil litigation," says Randy Shain, who runs First Advantage Investigative Services and checked out Petters for potential hedge fund investors.
- 11/20/08 – Volatile Markets May Tempt Hedge-Fund Fraud
If staff suddenly leave a hedge fund, investors should pay attention. "If anything improper is going on, the person most likely to know is someone who just left," said Randy Shain, a private investigator who works with hedge funds at First Advantage Investigative Services.
- 11/14/08 – Minn. Businessman Tom Petters Star Rose Quickly, Fell Faster (PDF)
Shain said he found plenty of red flags: lots of lawsuits against Petters for failing to repay money, criminal cases for allegedly writing bad checks, and a biography that falsely claimed a degree from St. Cloud State University. In one 1989 lawsuit, Shain said, Petters contacted Hennepin County court officials and told them to remove the case from the calendar because it had been settled -- when it hadn't." That gives you an idea about the kind of person you're dealing with," said Shain, now vice president of First Advantage Investigative Services in New York.
- 11/2/08 – Editorial: The Lessons of the Tom Petters Case
Bookbinder was approached about making an investment in a deal involving Petters in 2002. As part of the routine due diligence process, Bookbinder hired First Advantage Investigative Services, which quickly determined that Petters had lied about earning a degree from St. Cloud State University. He actually attended the school for one semester. That was enough to chase away Bookbinder. Other clients of First Advantage also steered clear of Petters after they became aware of how much litigation he had been involved in during the 1990s. But back home in Minnesota, the legend of the native son and seemingly successful entrepreneur kept growing.
- 10/29/08 – Opalesque Exclusive: First Advantage Investigative
opalesque.com >> Registration Required
“Typically, what we find in managers´ backgrounds is not fraudulent behaviour so much as behavioural patterns. In our experience the managers who tend to blow up have often times lied about where they went to school, or exaggerated their credentials at a particular job, have had a series of regulatory problem, a number of lawsuits, and some even had some kind of criminal history.”
- 10/26/08 – Part 1: The Collapse of the Petters Empire
“The amount of litigation involving Petters was pretty startling,” Shain said. “We don’t tell clients what to do. We let the clients decide. But a background report tells you what has happened in the past, and human beings tend to do the same thing again, especially under stress.”
- 10/20/08 – Anatomy of a Fraud (PDF)
Shain’s firm looked into Petters in 2002 at the behest of several hedge fund firms who did not go on to invest in the deal. One of the first red flags was that Petters said he graduated from St. Cloud University. It turned out that he went to the school for only one semester. Shain also says, “I’ve seldom seen so much litigation for someone.”
- 9/5/08 – Mystery of the Missing Millionaire
msnbc.com (originally aired on Dateline NBC)
He (Sam Israel) was playing on his pedigree as being, “This is my grandfather and my great-grandfather, my father, and now me … that was his whole pitch.” Contact us if you’re interested in receiving a DVD of Randy Shain’s guest appearance on Dateline.
- 7/31/08 – Die Global Zocker
Randy Shain lebt von diesem Risiko bisher sehr gut. In Jeans, Turnschuhen, Wollpulli sitzt er vor dem Computer in seinem großen, hellen Loft in Manhattan und lächelt freundlich. Auf dem Tisch liegen das Buch eines Hedgefonds-Managers, die Fachzeitschriften Derivatives Week, Hedge Fund Review und Alternative Investment News. Shain ist Hedgefonds-Detektiv.
- 6/25/08 – SageCrest Principals’ Past Should Have Raised Red Flags (Link Unavailable)
Dow Jones Newswires
“For most people, they would be at least alarmed enough to ask the question of ‘what happened?’” said Randy Shain, New York–based vice president of First Advantage Investigative Services, which investigates hedge funds for would–be investors.
- 6/20/08 – Hedge Fund Arrests Send Chill Through Industry
"One would hope that after all the previous scandals involving e-mails that hedge fund managers will realize they have to make sure the things they say internally match what they are telling their clients," said Randy Shain a private investigator who specializes in the hedge fund industry.
- 6/13/08 – Probe Deepens in Missing Hedge Fund Manager
"He's not Matt Damon in the Bourne movies who is going to escape using his physical agility," said Randy Shain, a private investigator who specializes in cases involving the $1.8 trillion hedge fund industry, referring to the Hollywood thrillers in which Damon eludes a posse of authorities.
- 4/30/08 – Books: What to Ask a Hedge Fund
As Shain puts it, “the idea that people willing to exaggerate, obfuscate, or just outright lie about ‘unimportant’ items in their history would then be completely forthright when faced with a potentially devastating blow to their business is simply ridiculous.”
- 3/31/08 – New Hedge Fund Book Tackles Due Diligence
fundfire.com >> Registration Required
“The amount of money flowing into and held by hedge funds combined with a clear desire to understand the risks of investing in or doing business with hedge funds [make the book a worthwhile read],” says Shain. “The very public reporting of hedge funds that fail, make it prudent for the target institutions to peruse this book.”
- 3/27/08 – Hedge Fund Sleuth Goes for Psychology
hedgeworld.com >> Registration Required
“It’s rare that one finds something egregious like fraud. A fair number of interviews don’t provide a black–and–white picture. Most of what you learn is pretty positive but the person interviewed may point to one or two things the manager might have done differently. People will tell you things that they think of as positive but become a liability in a certain context. Suppose you’re told a manager is a great trader and a very honest man but a terrible marketer. If he’s going to do marketing for the new fund and you invest, you could be the only investor!”
- 2/18/08 – I–Spy Hedge Fund Managers
“I would make the argument, and plenty of institutions have made the argument to me, that if they see a manager has acted in a way that that institution is not comfortable with in the past, then it's very unlikely that institution will be comfortable with the way that person will act going forward. Although people can change and clearly people mature, under stress, many if not most humans, tend to act the same way they have in the past; it's kind of the way we're wired.”
- 2/18/08 – … and Tips From Hedge Fund Gumshoe
Pensions & Investments >> Registration Required
A new book, “Hedge Fund Due Diligence,” puts the expertise of hedge fund investigator Randy Shain on investors’ desks.
- 11/12/07 – Check the Firm Out to Avoid Disaster
Financial Times >> Registration Required
“Most of what we focus on is in the public record,” says Mr. Shain. “The macro issue here is ‘pattern of behaviour’. In isolation, a single blemish may be of no concern, but when we find couplings of events, clients may start to raise flags.”
- 9/07 – Operational Risk/Due Diligence (PDF)
Hedge Funds Review
“Your background search must include searches of all the areas where the manager has lived and worked, regardless of the country and continent. Investing in Asia, in what is still considered an emerging marketplace, only heightens the need for effective due diligence procedures.”
- 7/07 – The Takeover (Link Unavailable)
As hedge fund private eye Randy Shain would discover in backgrounding Durus for clients of his BackTrack Reports, Sacane had invented at least one detail in his early marketing documents – that he had graduated from the University of Colorado, where he studied molecular, cellular and developmental biology. Instead, he just attended classes there over a six–year period. But for the most part, his resume was viewed as the right kind of training, done in the right order.
- 7/07 – Holidays See Forensics Teams at Work
Global Investor Magazine >> Registration Required
“We find that if there was ever any CV manipulation, they tend to do the same later on a grander scale. It’s a character trait, and character traits get magnified in difficult circumstances. Everyone has losses. That is the nature of investing. But long–term success depends on how you handle it, how you respond to pressure. You can’t get away from who you are.”
- 6/07 – Growing a Hedge Fund (Link Unavailable)
“I wouldn’t be giving my money to Madeleine Albright unless I knew who was trading,” says Randy Shain, a vice president with First Advantage in New York who has helped oversee investigations into the backgrounds of 2,500 hedge funds and 4,500 managers on behalf of prospective investors. “The real issue is that she has no qualifications. Obviously someone else is doing the trading; who is that someone else? That someone else has nothing to do with her history,” he says. “You still need to check that person just as rigorously as you would someone else. The fact that she’s put her stamp on that person means nothing to me.”
- 5/1/07 – Top–Paid Hedge Fund Managers Join Billion Dollar Club After Big Year on Wall Street (Link Unavailable)
“The reason that people make as much as they do is because they’re making so much for the institutions that they’re working for,” said Randy Shain, vice president at First Advantage Investigative Services, which creates reports for hedge funds and other investors on the backgrounds of hedge fund managers. He contends the results of these managers justify the pay. “It’s not as if someone’s losing because someone else is winning,” Shain said. “I would argue that what they make is not obscene at all. ... These people wouldn’t be making all of this money if you didn’t have pension funds and funds of funds that were giving them all this money,” he said.
- 3/07 – First Advantage Setting Up in Asia
Asia Hedge >> Registration Required
First Advantage Investigative Services has expanded its scope of services to meet the growing demand for in–depth, due diligence reports on hedge fund managers in Asia. To deliver its Backtrack Report, an independent background due diligence report, on Asian funds, the company has tapped into the resources of its parent company to utilize existing operations and human resources in Tokyo.
- 11/06 – Hedging Against Disaster (Link Unavailable)
"First Advantage investigators found one lawyer turned hedge fund manager that not only had been disbarred, but his business partner faced an undisclosed seven figure legal judgment, according to Randy Shain, a vice president at the firm. ‘With hedge funds, this type of information is not a secret. You can identify these red flags if you just pay attention,’ Shain adds."
- 10/06 – Sizing Up The Target’s Top Managers (Link Unavailable)
Mergers & Acquisitions: The Dealmaker’s Journal
A private equity investor, for instance, might not hold a bankruptcy against an entrepreneur since numerous entrepreneurs have business failures under their belts, notes Randy Shain, co–founder of investigative firm First Advantage Investigative Services. But a hedge fund manager who has been in bankruptcy is another story. "If he can’t manage his own money you really have to question whether he can manage investors´ money,” says Shain, whose firm probed Wood River for some potential investors.
- 9/8/06 – BackTrack´s Growth Mirrors Hedge Fund Industry
Absolute Return Weekly >> Registration Required
This year, BackTrack has increased its staff to 50 employees from 35 in 2005 to deal with the increased workflow. BackTrack was hired to complete roughly 1,750 reports in 2005 and is on target to complete more than 1,900 this year, an increase in excess of 11%, says Randy Shain, BackTrack CEO. A similar increase is expected for 2007.
- 9/06 – Due Diligence Primer (PDF)
The Substantial Investor
If you want to have a professional firm get involved in the process, here’s a couple you can look into. First Advantage Corp. and Kroll (a division of Marsh & McLennan) are two publicly traded companies that perform investigative work and background checks. I put calls into both firms; only First Advantage returned the call. So they get the mention.
- 8/30/06 – Liberty Bank Building Welcomes Newest Tenant
Part of a national conglomerate, First Advantage (FA) is a licensed private investigation firm specializing in backtrack reports for a variety of financial industry clients. The East Liberty location is the company’s first satellite office in Pittsburgh.
- 08/25/06 – A Private Eye for Investors
New York Times
Randy Shain, a private investigator who specializes in looking at hedge funds, was examining the public records of the manager of Wood River Capital Management, a hedge fund that at its peak held $265 million under management. Mr. Shain found records of four state tax liens, ranging from about $45,000 to more than $86,000, against the manager, John H. Whittier, a former analyst with Donaldson Lufkin & Jenrette. “At the time, I thought either he’s sloppy or he’s always losing money,” Mr. Shain recalled later in an interview.
- 4/24/06 – City Invested in Failed Hedge Fund (Link Unavailable)
DFW – Star Telegram
BackTrack´s co–founder, Randy Shain, said the company had first spotted red flags with Bayou in the fall of 2001. It discovered that Israel´s résumé falsely stated that he had been a head trader at another firm for four years. "The issue there was dual: Both that he did not have the experience he suggested he did, which is bad enough, and he was a liar," Shain said.
- 2/25/06 – Wanted: Fund Manager, No Experience Necessary
"The ‘hotness’ of this field certainly has attracted people whose pedigrees [suggest they are at] greater risk to fail than those who have, say, served a more typical apprenticeship at a large hedge fund," says Randy Shain. He’s vice–president of First Advantage Corp. (FADV), producer of the BackTrack Reports , which conducts background checks on fund managers. Over the past five years, Shain says, his staff has seen "an Olympic gold medalist, some former military folks, several ex–professional football players, and a professional arcade–game player."
- 2/13/06 – Teufelskerle der Wall Street
Die Zeit (Translated)
"Those are hardly individual cases, Randy Shain´s experience has shown. Shain runs BackTrack, a firm that specializes in analyzing the personal records of hedge fund managers on behalf of investors. “Some candidates lie about the little things: they give false University degrees or fail to mention lawsuits,” says the private investigator.”
- 2/1/06 – Government Catches Up With Hedge Funds
Randy Shain, executive vice president of investigative due diligence firm First Advantage CoreFacts, which publishes BackTrack Reports, said that while he doesn’t think hedge fund registration is a terrible idea, he doesn’t feel it will ferret out fraud. "When I look at industries that are heavily regulated, I see no correlation between them and the prevention of fraud," he said. "Look at broker/dealers – they’re heavily regulated and yet they’ve given us the biggest boiler rooms. Why would this be different?"
- 12/20/05 – Hedge Funds: More Money, More Problems
“I just don’t know what they are going to do otherwise to catch up. If people start to see how bad of shape they’re in – and you can’t just invest in bonds to catch up – investing in hedge funds (will be viewed) as a real strategy," said Randy Shain, executive vice president of investigative due diligence firm First Advantage CoreFacts, which publishes BackTrack Reports.
- 12/12/05 – We Wuz Robbed!
“Randy Shain of First Advantage CoreFacts, which investigates money managers for institutional investors, punctured that myth with a single phone call to Cooperman in 2001. "The fact that he (Sam Israel) got any money in the beginning is hard to believe," says Shain.
- 11/21/05 – Hedge Fund Sleuths
The warning signs that Bayou and Wood River clients missed offer lessons for other investors – many of whom rely heavily on personal recommendations when selecting funds in this clubby world. Among the most important: Verify the manager’s credentials and the fund’s claims, says Randy Shain, executive vice–president at First Advantage CoreFacts´ (FADV) New York–based investigative unit, which conducts background checks, known as the BackTrack Report.
- 11/14/05 – Tracking the Slime (Link Unavailable)
“We looked at Wood River in June,” Cadigan says. “We found a lawsuit in which Wood River was sued for defaulting on its lease.” According to the suit, the firm failed to pay rent from June to August of 2002. What’s more, BackTrack uncovered a series of tax liens issued against Wood River’s managing partner, John Whittier, from 2002 through 2004. They included a lien from the State of California for $54,000 and a separate lien from the State of Idaho for $86,000.
- 10/31/05 – Performance Drop as Fund of Funds Mature
"Fund of funds still serve an extremely important function and, unless pension funds are going to take over the function of fund of funds, I don’t understand why they wouldn’t continue with that model," says Randy Shain, co–founder of due diligence specialist firm [First Advantage CoreFacts] Backtrack Reports. Mr. Shain explains that FoHFs perform an extremely important task that consists in firstly meeting and speaking to potential managers and doing all the operational due diligence and "trying to figure out whether the manager’s story makes any sense."
- 10/13/05 – Another Fishy Hedge Fund
In October, 2002, Wood River ´s landlord in San Francisco sued the firm for failing to pay rent for three months. That suit was dismissed. And from 2002 through 2004, the state of Idaho filed four tax liens against Whittier totaling $267,156. It couldn’t be determined how those liens were resolved. "Those things in concert really made us feel ill at ease," says Randy Shain, executive vice–president at First Advantage CoreFacts, a New York research firm that vetted Wood River for two potential investors this summer. Shain urged his clients to steer clear.
- 10/12/05 – Scandals Make Hedge Fund Sleuthing Pay Off–Experts (Link Unavailable)
For fees ranging between $2,000 and $50,000, firms will compile dossiers that can turn up anything from unpaid parking tickets to lawsuits to lies on resumes. "Getting reports on managers shows that for $2,000 up front, you can avoid people like this instead of having to spend hundreds of times that amount to recoup millions of dollars in losses later," said Randy Shain, executive vice president of First Advantage CoreFacts LLC, which investigates hedge funds. "It is cheap insurance," he added. “Taken together, these three things added up to a red flag," Shain said, explaining that "the report shows Whittier ran out of money or that he’s sloppy. Neither inspires confidence."
- 10/12/05 – Lack Of Response To Wood River Draws Questions (Link Unavailable)
Wall Street Journal
"Separately, the [allegations about] tax liens, failure to pay rent and CSFB suit are yellow flags," says Randy Shain, executive vice president of First Advantage CoreFacts LLC, which investigates hedge funds. "Together they’re red flags."
- 9/29/05 – What Happened at Bayou
“Randy Shain, co–founder of the investigative firm First Advantage CoreFacts, said his firm investigated Bayou on behalf of clients who were considering investing in it. The firm, formerly known as BackTrack Reports, first looked into Bayou in 2001. "I always thought this was a person I wouldn’t do business with (but) I wouldn’t have thought he was a total crook," he said, noting, though, that there were red flags in Israel´s background.
- 9/25/05 – Hedge Funds: Alpha Decays With Age
Euromoney >> Registration Required
"The professionalism in the industry is increasing. Compliance officers are being brought in and staff hired. Maybe if you’re a hedge fund running $100 million you can manage with two people and an assistant. But if you have a great year and get up to $600 million, you’re now going to have to manage people – not just money," says Randy Shain, executive vice–president of due–diligence company First Advantage CoreFacts. "And some individuals just aren’t good at managing people. Hedge funds that want to grow need a structure that allows them to do so. It’s about how to build a team and reward people."
- 9/24/05 – Watch for Danger Behind the Hedge (Link Unavailable)
“Randy Shain, the co–founder of BackTrack Reports, which researches hedge funds for institutions and some wealthy individuals, says that in the Bayou case, several red flags – including questions about Israel´s character – would not have been evident to people contemplating an investment in the fund.”
- 9/12/05 – Want a Hedge Fund? Here’s Your Homework (Link Unavailable)
“The problem for individual investors is that many of them "have made a lot of money doing something else," Mr. Shain said. "They have a false sense of security about their own sophistication in analyzing financials," he added.”
- 9/12/05 – Want a Hedge Fund? Here’s Your Homework
New York Times
Randy Shain, the co–founder of BackTrack Reports, which researches hedge funds for institutions and some wealthy individuals, says that in the Bayou case, several red flags – including questions about Mr. Israel´s character – would not have been evident to people contemplating an investment in the fund. For example, it would have been difficult to learn from publicly available data that Mr. Israel had exaggerated his position at one hedge fund, had been charged with drunken driving and had been accused in a lawsuit by a former employee of violating securities regulations.
- 9/5/05 – Bayou Bust Puts Onus on Investors’ Due Diligence
Pensions & Investments >> Registration Required
“It is very rare for institutional investors, like hedge funds of funds, to be involved in a hedge fund fraud. They do a much better job of due diligence than high–net–worth investors, for example. Institutions know that the ‘people due diligence´ is so important, so essential to competent due diligence,” said Randy Shain.
- 9/1/05 – Seeing in the Dark
“I know this is a biased, self–serving statement, but I don’t think funds of funds are equipped to do people due diligence on their own," says Randy Shain, executive vice president of BackTrack Reports Group, an intelligence division of First Advantage and a company that specializes in conducting investigative work for several dozen funds of funds.
- 8/8/05 – Diggin for Hedge–Fund Dirt
"Unlike your friends, who you want to be Renaissance men, in a hedge–fund manager you’re looking for the guy that doesn’t have a personality," says Randy Shain, executive vice president at First Advantage Corps First Advantage CoreFacts LLC investigative unit, which produces BackTrack Reports. "People who have spent a lot of time doing a lot of other things, like auto racing, means that they’re away from a computer screen."
- 7/05 – Fighting Fund Fraud
ipe.com >> Registration Required
Randy Shain appears in an article cautioning against over–reliance on "stale and static" due diligence questionnaires and prospective government regulators, neither of which is likely to address possible operational hedge fund risk.
- 5/05 – Rolling the Dice on Hedge Funds
Firms such as Backtrack Reports will research a manager's background for a few thousand dollars; that's money well spent.
- 3/05 – Not on the Short List
Barron’s >> Registration Required
Barron’s notes the small number of mutual fund managers successfully transitioning to hedge funds, with BackTrack co–founder Randy Shain offering his thoughts on why this is so.
Articles by BackTrack
- 9/09 – The Need to Conduct Due Diligence (PDF)
Family Office Exchange Newsletter
In recent months, the headlines have been filled with the names of now notorious firms like Stanford Financial Group, Valhalla Investment Partners, WG Trading, Weavering Capital and Petters Group Worldwide, among many others. The lesson from all these cases, as well as previous blowups such as Wood River and Bayou Securities, is the same. No matter what you’re doing with your money – whether you’re investing in a hedge fund or private equity fund, buying out a company, or hiring someone to run your single family office – it is essential that you know the background and character of the individual with whom you are looking to do business.
- 6/2/09 – Another View: The S.E.C. and Journalists, Part II
NY Times DealBook
As I wrote a few months ago in this space, I’m all for this idea. I recognize the idea of hiring seasoned journalists instead of simply continuing to hire first- or second-year lawyers might sound radical. Ms. Schapiro, however, has illustrated that she is willing to take risks and draw criticism in an effort to improve the S.E.C.
- 1/28/09 – Another View: The S.E.C. Should Hire Journalists
NY Times DealBook
Rather than simply joining the chorus of S.E.C.-bashers, I have an idea that could breathe new life into this organization, an idea that is affordable, tested, and ready to be implemented right now. Instead of entrusting the S.E.C.’s investigative work to lawyers who dream of working on Wall Street, mix things up by hiring the best of our nation’s out-of-work financial and investigative journalists.
- 12/08 – Tom Petters Case Provides Valuable Due Diligence Lessons
Markets Media Online
The recent arrest of Tom Petters – the Minnesota businessman who allegedly made off with billions in investors' money in a purported Ponzi scheme – serves as a valuable example of the importance of conducting due diligence.