Doing homework can prevent financial nightmare

Doing homework can prevent financial nightmare — such as in Madoff case


By GAIL LIBERMAN, Special to the Daily News
Saturday, January 31, 2009

With Zsa Zsa Gabor among the latest to be added to the list of those who were taken by Bernie Madoff, professional advice on how to avoid financial nightmares is in order.

The key: A lot of hard work before you invest, suggests Ken Springer, president of New York-based Corporate Resolutions, a business investigations and consulting firm. After all, chances are your family wealth wasn't built on luck. So why rely on blind faith when you invest?

Springer, a former special agent for the FBI, says before entrusting your money to someone, get to know the person with whom you're investing. Do this by scrutinizing his or her history.

I've often suggested some basic web sites worth searching for information on your money manager. Those include an internet search of articles and blogs via "Google." Also, a search for background and complaints at http://us.bbb.org, www.finra.org/investors and www.sec.gov.

But don't stop there, Springer says. There had been a number of questions raised about Bernie Madoff in a Barron's article a couple of years ago. Unfortunately, that article wouldn't have appeared on a traditional search engine because not all publications are on search engines. Plus, some search engines may limit articles they carry.

He suggests a couple of other tactics. Thankfully, a couple, he says, are particularly easy to do in Palm Beach County.

* Search for lawsuits. One great resource is www.pbcountyclerk.com, he notes. You can find liens, judgments and criminal records. "Every county is different," he says, "but (Palm Beach County) happens to be a good one."

* Check with your attorney general to see if your money manager, or anyone else with whom you're considering doing business, has been in trouble or is involved in an ongoing investigation. In Florida, you can check ongoing state attorney general investigations at www.myfloridalegal.com. Click on "Programs and Units," on the left. For a searchable data base, click on "Economic crimes."

* Check federal U.S. District Court, bankruptcy and Appellate court records at http://pacer.psc.uscourts.gov. Unfortunately, this Web site charges. It's generally 8 cents per page, including the initial search results. Plus, there is a limit of $2.40 per other document you view, download or print.

* Be sure to scrutinize your money manager's ADV form, on file, often at www.sec.gov. Bernie Madoff, Springer notes, disclosed on his ADV Form that he had a relationship with a securities firm through which he conducted all his trades — a conflict of interest. Monitor custodial agreements so you know who's managing the money. Make sure it's an independent third party.

* Examine the accounting firm. In Madoff's case, the accounting firm was a three-person firm 40 miles north of New York City. This, Springer notes, didn't make sense. "If (an investment firm) is in Palm Beach, you're going to use a firm in Palm Beach, West Palm Beach or Delray. You wouldn't use someone in Alabama!" This raises a red flag to ask questions.

* If you're investing large amounts, don't do it, he advises, without searching all of these major data bases: LexisNexis, Westlaw, Factiva — which covers The Wall Street Journal and Barron's — and Bloomberg. Those four data bases, he says, "are the types of research tools just to see what news stories are out there."

* Verify whatever you can. "If someone gives you three references, call them," he suggests. "I don't care if it's a general contractor who did work on a home. Find out, 'Did they do what they said? Were there any problems?' If the person says he or she is licensed and bonded, ask, 'who are you licensed with?' 'How can I confirm this?' Verify the information."

* Monitor your investments on an ongoing basis. Today, Internet search engines let you arrange to have ongoing information about anything you choose automatically emailed to you. Make certain you use this great feature.

Relying on a librarian to help you? Make sure your librarian understands exactly what you need. Problem: Say you're searching for lawsuits. Not all courts list previously settled lawsuits. Their data bases may be limited to pending lawsuits. Also, beware that nowadays people will settle cases out of court for business reasons. Of course, you'll want to read what that lawsuit was about.

Gail Liberman is co-author of several books with her husband, Alan Lavine. Their latest, published by Que, is 'Quick Steps to Financial Stability.'