GSC’s Enhanced Due Diligence (EDD) service combines public source information, private databases and discreet professional investigative methods to identify potential Red Flags that should alert individuals and companies of potential problems in an investment or business relationship. Our EDD service is designed to help individual investors, broker-dealers and companies avoid financial loss or damage to their reputation by uncovering potential issues prior to making an investment or engaging a company’s services. Our goal is to provide our clients with all of the information they need to make an informed decision on a future investment or business transaction before proceeding with an investment or transaction.
Our EDD investigations are conducted discreetly and can be done with or without knowledge or cooperation of the subject of the investigation. We do not contact the subject of the investigation unless specifically authorized to do so by the client.
GSC’s Enhanced Due Diligence services target potential Red Flag areas in investments or business relationships. A Red Flag is a warning or indicator of a potentially significant undesirable characteristic that may preclude the consummation of an investment or potential business arrangement. Red Flags can vary from one industry to another, and the use of a standardized template for conducting EDDs is likely to miss some potential Red Flag areas. Our company uses customized templates that are designed for our client’s specific industry. We also work very closely with our clients to understand their specific needs prior to conducting an EDD to ensure that we do not miss any potential Red Flag areas.
All investments carry some degree of risk. One area of investment risk is the risk of fraud in an investment. Various studies determined that anywhere between 10% and 16% of investors fall victim to investment fraud schemes in any given year. The dollar amount of these losses can be staggering – ranging anywhere from $3 billion on up in a typical year. The key to avoiding investment fraud is to know the various Red Flags common to fraudulent schemes, and then investigating these issues prior to investing any money.
A thorough EDD can help to significantly minimize the risk of losing money in a fraudulent investment. Our EDD service can be used by all levels of investors to review key Red Flag investment areas such as broker registrations and disciplinary records, broker litigation history, securities registration verification, verification of audited financial statements and even background and qualification of the CPA firm auditing the financial statements.
The Financial Industry Regulatory Authority (FINRA) has recently made a point of emphasis in holding broker-dealers accountable for their obligation to conduct a reasonable investigation of the issuer and securities they recommend in offerings made under the Securities and Exchange Commission’s (SEC) Regulation D, more commonly known as private placements. Federal courts have consistently ruled that the broker-dealer has a “duty” to conduct a reasonable investigation concerning the security offered and the issuer’s representations about it.
Our EDD service can help broker-dealers meet this duty by providing a detailed investigation of the issuer, their background, litigation history, and other Red Flag areas. The scope of investigation conducted under this EDD can be specifically tailored for each broker-dealer to ensure there is a documented commitment to exercising a high degree of care on the part of the broker-dealer prior to recommending a security for sale to either commercial or retail investors. The EDD is a vital step in ensuring broker-dealers have a reasonable basis to believe that the recommended security is suitable for their investors.
Prior to entering into any business relationship, companies should perform Enhanced Due Diligence investigations on these potential partners, vendors, suppliers, or acquisitions. The failure to perform a thorough EDD can needlessly expose the company to potential liability, regulatory fines, financial losses and damage to their reputation. Our EDD service is designed to investigate potential Red Flag areas such as true ownership of the company, litigation history, regulatory compliance record, and the principals’ reputation, background and possible links to illicit activities. The result is that our clients are provided with a complete picture of the entity and have the information they need to make an informed business decision.
Typical areas that we would cover in an EDD investigation for your organization would include, but not be limited to, the following:
|Corporate Registry||Trade or Fictitious Names|
|Sanction and Embargo Lists||Negative media articles|
|Verification of physical address||Company financial information|
|Corporate criminal records||Corporate civil records|
|Bankruptcies / Judgments / Tax Liens||Uniform Commercial Credit filings|
|Eligibility for federal contracts||Connections to criminal enterprises|
|OSHA and other safety violations||Principal employee(s) criminal records|
|Principal employee(s) civil records||Principal business affiliations|
|Political exposure of principals||Bankruptcies|