More Unusual Background Checks – from Bernie Madoff to Knight Rider

“THOSE” PEOPLE

Several years ago I called and spoke to a New York based magazine editor who was listed as a personal reference for an applicant that we were doing a background check on. While talking to her she told me that she thought that background checks were a horrible invasion of one’s privacy and that she thought that they should be outlawed. She couldn’t believe that her former assistant’s new prospective employer would subject her to what was clearly an affront to her personal dignity.

Now, I enjoy a heated tête-à-tête as much as the next guy, especially with an intelligent person who makes a living developing and expressing their thoughts in writing. I was up to the challenge. This woman was the managing editor an in-flight magazine for one of the major airlines (that no longer exists in its previous form) and as such, I assumed that in addition to her writing and editing that she traveled frequently, so I asked her the following question. “If you were staying in a hotel in a strange city wouldn’t it be comforting to you to know that everyone that had access to your room had undergone a criminal background check prior to being employed by the hotel?” She asked, “Who would have access to my room?” “Managers, maids, janitors, security personnel and other repair people potentially had master keys or keycards and could access your room,” I replied. Her response was, “Well yes, those people should be checked out, but not people like us.”

My reaction to what she said cannot be printed here. It started with smug, sanctimonious bigot and quickly went downhill from there.

WHOM DO YOU TRUST?

Years ago we were commissioned to do background checks on a bunch of nuns. (Do nuns come in flocks, herds or gaggles? I can’t remember). These nuns were the regular Catholic type nuns who were going to be working as spiritual counselors at a chain of Catholic hospitals and, like any other prospective employee of this organization they were subject to a criminal check as well as verification of their previous employment and highest level of education.

The irony of the situation did not occur to me until I was on the phone with the Archbishop of Phoenix at the time. Now, I don’t know about you, but if I had an applicant for a job that listed the Archbishop of anywhere as a personal reference, I would assume that that person must be pretty upstanding. Believing in background checks as much as I do, I still thought that everybody needs to be checked out, no matter who they are and what horse they rode in on. Then it dawned on me while talking to the Archbishop and verifying their previous employment, that my client trusts me more than they trust a bunch of nuns. In essence the sentiment was: they are not honest, trustworthy and eligible for employment until I say that they are honest and trustworthy and eligible for employment. I confess; I let it go to my head for a couple of weeks.

FREE ADVICE

As a rule, I don’t give advice. My job is to research information and convey it to whomever has employed me and my company. It is not my job to tell them what to do with the information that I have conveyed. Furthermore, I make it a habit not to ask clients what they are going to do with the information, say, on an applicant who is found to have a criminal record.

I took exception to this rule once when I reported to a long term client that the applicant that I background checked for a job as an accountant had, in fact been convicted of felony embezzlement and had served a short prison term. When I told the client, verbally (we always call the client if the info is urgent) she told me that she knew about his criminal record. To her, I said something on the order of, “Why are you paying me to screen out criminals if you are going to hire them anyway?” My client said, “He was such a nice young man and he interviewed well, and in fact, he was very forthcoming about the problems in his past. And he won’t be handling money or writing checks, but rather doing budgeting, projections and auditing.”

I told my client that I thought that this was a big mistake on her part and I would guess that at some point he will be writing checks. I told her, “Mark my words; sooner or later the person that writes checks is going to be out sick or on vacation, it may be next year or the year after, but this guy will be writing checks.” She said, “You know, you’re probably right. What should I do?” I advised her that if I were hiring a convicted felon that I would tell him to have himself bonded at his own expense. “That way, I said, “If he runs off with your money you only have to contact the bonding company and your losses are covered. You don’t have to go looking for him hoping that he didn’t already spend the money.”

I never asked the client what she did as a result of our conversation and the subject never came up again. I do know this: the company went out of business a couple years later.

KNIGHT RIDER

Then there was the time that we worked for Knight Ridder Newspapers, Inc. On the first day handling the new account we had an employee that kept referring to them as Knight Rider like the TV show of the 80s when she was making calls to verify employment. The employee didn’t last long and sadly, neither did the client.

BERNIE MADOFF

We did a background check on Bernie Madoff for an international hedge fund client in 1999. In January 2009 I received a call from this former client asking if we still had a copy of the background check that we conducted on Mr. Madoff. I told him that we did not; that as required by law, we kept the info for two years after which it was shredded. In fact, we have been paperless for about five years now and have no reports older than two years.

I told the client that I did not remember that we did a check on him (he was not famous at the time), but I do remember in general that none of the people that we screened for them had any significant problems with regard to criminal history, civil court history and potential SEC regulatory actions.

Now, I know what you’re probably thinking; that we did a pretty lousy job checking out what was to be the world’s greatest con man and erstwhile investment manager. But remember, this was 1999 and in fact we did a pretty thorough job based on what the client ordered and was willing to pay for. We know now, that the first inkling that something was amiss happened in 1999 when Harry Markopolos, the whistle-blower in the Madoff scandal, first made his case to the SEC. Note how long it took for the powers that be to figure out that something is seriously wrong. In fact, the SEC’s initial reaction to the 1999 revelation by Mr. Markopolos was to get Madoff to register as an investment adviser. Big deal!

The point of mentioning this at this time is that the Securities and Exchange Commission oversight and reporting is a joke and always has been. I have known for years that if someone wanted to check out their broker and they went to the SEC website, they would not be told of any pending complaints or actions. A broker or brokerage could have dozens of complaints against them, but the SEC does not release information on complaints. They investigate (supposedly) the complaints and take action as necessary. Information about those actions are made public upon completion of the action.

This should be a lesson to all of us.