Internet executives are four times more likely to have "unsavoury
backgrounds" than corporate directors and officers of other
industries, according to an investigation by business intelligence
firm, Kroll Associates.
Over the past six months, the company carried out 70 "due
diligence" background investigations on internet executives and
board members in the US, Europe and Asia on behalf of private
equity groups, investment bankers and corporations.
In almost 39 per cent of the cases (27 people), Kroll uncovered
problems such as violations of Securities and Exchange Commission
rules, insurance fraud, undisclosed bankruptcies and even
connections to organised crime. Typically, Kroll expects to find
problems in just 10 per cent of its investigations.
Ernie Brod, executive managing director of the firm's New York
office commented: "We've been concerned for some time about the
young founders of internet start-ups bringing in the 'grey beards'
to add stature to their companies - without carefully checking them
out."
According to Brod, it was the consultants, advisors and board
members who were brought in to "add credibility" to dotcom ventures
because of their age and experience, that had the most "distasteful
histories".
Rather than leading young entrepreneurs to business success and
"IPO riches", he argued that the "fraudsters" were instead more
likely to be "looting the company".
"With systems and controls not yet in place, an experienced
predator can suck exorbitant 'consulting' fees out of the start-up,
and lead his life at the company's expense," Brod warned.