by Chelsey Franks
March 24, 2017
Sentinel is defined as “a soldier or guard whose job is to stand and keep watch.” This is a great irony considering the recent downfall of the Founder and Chief Executive Officer of a firm by that name.
This investment adviser misappropriated at least $3.95 million of investor assets for personal and business expenses, and to pay prior investors, according to the Complaint filed by the Securities and Exchange Commission in February 2017. This $3.95 million in misused assets included over $1 million that was used to settle litigation brought against the investment adviser by a prior employer.
Hindsight is 20/20, as they say, so what red flags would an investor have found if they had conducted due diligence on this individual?
To begin, as mentioned above, a lawsuit was brought against the investment adviser in 2016, in which it is claimed that for an overlapping period of two years, he used his position as Chief Operating Officer to “falsify, manufacture and otherwise manipulate  financial accounts, employment records, payroll records, accounts payable invoices, and other of [his employer at the time’s] books and records, in order to divert  funds” to his own firm that he was simultaneously operating. More than $980,000 was embezzled from his employer during this period.
Looking back even earlier, however, a pattern of unpaid bills emerges. A cautious investor would have uncovered numerous tax liens filed in multiple jurisdictions between at least 2007 and 2014, including one for nearly $400,000.
You’ve likely heard by now the catch-phrase of the screening industry: “Trust but verify.” If someone is going to be handling your money, your business operations, your corner office, find out who they are by looking at who they’ve been. Trace their track record through court proceedings, business filings, and county documents (among other sources) to see what patterns emerge.
Better yet, hire an expert to do this for you.