Clients who hire us for asset searches always want to know what we find. As often as not, the big news after an asset search is when we don’t find something we should be seeing but are not.
When someone is concealing the truth, they often put in place a lie to throw you off. One of the best ways to figure out if someone is lying is to ask yourself, “is this likely?”
Remember the Bernard Madoff Ponzi scheme? The people who managed not to get burned turned away from Madoff because of what they didn’t see:
- No major accounting firm auditing what purported to be a multi-billion-dollar fund.
- No independent custodian.
- No regulatory filings in the last couple of years that reflected billions of dollars in holdings.
Computer programs are terrible at telling you what they should be seeing but are not, which is why so many investors never clued in to the Madoff risks that many experienced professionals noticed.
When we do an asset search, we are always on the lookout for what doesn’t make sense. In the past three years, we’ve seen the following:
- A man who claimed to put no money in any financial institution, yet whose computer showed a browsing history at two-dozen brokerages. You can keep your money out of banks, but still on deposit with Schwab or TD Ameritrade. Next step: 24 subpoenas to those brokers.
- A divorcing husband’s loss-making entity that did no business (zero sales) yet persisted in paying one employee $75,000 a year. And, bank accounts showed the business paid plenty of taxes.
Both of these fit the common scenario in divorce: appearing to have fewer assets that you really have. In the first case, the husband hoped to get money out of his brokerage after the divorce was final. In the second, the company may have been in partnership with another company that was holding back the first company’s share of the profits until after the divorce. The second company could also have been owned by the husband or trusted friend or relative.
As with the Madoff fraud, a computer program did not point to either of the divorce cases above and spit out a “High Risk” or “Possible Asset Concealment” result. Instead, both findings were the product of hours of slow and careful research.
The next time you wonder why an asset search takes hours and not just the feeding of a few names and numbers into a database, remember: Databases tell you (sometimes) what’s there – not what isn’t.