Corporate Detectives – Private Investigators Mix High-Tech with Legwork

The Community Bank southwest of Houston, smelling fat fees and interest, was eager to fund the borrower’s request for a million-dollar business loan. The board of directors had consented. All the documents lacked was the borrower’s signature to close the deal.

But prior to closing, a shocked loan officer spied the borrower’s name in an unflattering newspaper article describing him as one of he biggest financial con artists in America.

The bank quickly stuffed the $1 million back into its pocket. The pseudo-borrower wound up cooling his heels in a Texas prison, convicted of fraud involving a separate bank.

Incidents of these kind have sparked a recurrent question among the public. Why do financial institutions and other businesses allow themselves to be bilked by unscrupulous clients and deadbeats?

The notoriety of such alleged scam artists as J. R. McConnell and Allen Eugene Porter, both under indictment in Houston for financial fraud, and the local business community’s clamor for more penetrating details about prospective clients, has spawned a growth industry: Corporate and Financial Investigations.

Local investigations firms such as Intertect Incorporated, Kimmons Investigative Services, Inc., and noted private investigator Clyde Wilson, are the rising stars of the field. They also are joined by companies that specialize in helping clients – particularly banks which have been burned with billions of dollars worth of uncollected loans – keep track of the property securing loans and other credit contracts.

The modern-day corporate detectives combine high-speed computers tied into local, state and national information pools with old fashioned gumshoe techniques in search of details not usually found in the course of a routine credit check.

At the same time, they see themselves bringing a classier view to the one-sided portrait most have of the private investigators lurking about the shadowy netherworld of trench coats with upturned collars and spyglasses.

In fact, most detectives are at ease wearing ties and sitting in front of a computer. And none of them, by state law, wears a gun; not that some of them wouldn’t need one.

Some, like Kimmons Investigative Services, Inc., will conduct undercover surveillance for clients, but usually in tandem with traditional law enforcement agencies.

“We’re like a businessman’s FBI,” said Edmond J. Pankau, and ex-Green Beret and former Internal Revenue Service investigator, who heads Intertect. “That’s what we’ve become.”

Everyone from doctors, lawyers, retailers to banks, government agencies and firms that lease office space and equipment, are knocking on the doors of the corporate detectives, they say.

The main demand for their services, the experts say, is a byproduct of a Texas economy straining to right itself. Worse, companies and individuals, in their eagerness to do deals, are blinded to the possibility that the smooth talkers with the sound balance sheet and stellar references just might be fudging, or worse, a crook.

Wilson, well known for his private investigations on murder-for-hire cases, says his Clyde Wilson International Investigative & Security Services agency is working with more business clients today than ever before. Some are employers who want to know about the new executive they are planning to bring on board, they said.

“The economy is such right now people can pick and choose employers they want,” Wilson said. “They don’t want the big time and expense to hire a man who doesn’t work out.”

“Investors are starting to use us more lately. Before they put money in, they want to know about the company and the people running it,” he said.

Making business even better for the detectives is that companies, once burned, are reluctant to discuss their misfortune with anyone. Instead of stopping the bad guys in their tracks, the silence allows perpetrators to move on to other unsuspecting victims.

“Some learn from it, but they don’t pass it on,” said Rob L. Kimmons, a former Houston police officer who formed Kimmons Investigative Services, Inc. eight years ago.

In many cases, a client will contact Kimmons Investigative Services, Inc. for search on a customer that Kimmons found out months earlier was a con artist.

Some corporations, in general, are leery of outside private investigators, Kimmons said.

“Private investigators have the image of what I call the ‘sleeze factor’,” he said.

Kimmons Investigative Services, Inc. belongs to the Houston Better Business Bureau. It also compiles its reports solely from public-available data, a reassuring point for clients who don’t want any sloppy or underhanded information that could put them in a position to be sued, Kimmons said.

“We don’t go peeping through windows,” he said.

The investigations industry has a professional association, which offers a standing certification program and continuing education courses.

Even if they don’t love them, many clients of the super sleuths couldn’t be happier with their work.

Attorney Robert Collins says it was a thorough search by Kimmons’ firm that helped the lawyer persuade a judge to jail the officers of a local firm until they paid a court-ordered judgment.

Kimmons search turned up invaluable data about the company and its assets buried in state corporate and legal records, information Collins used to press for payment.

“We got paid,” Collins said.

The lawyer said he relies on Kimmons’ bound dossiers to prepare for court cases in and outside Texas.

The list of satisfactory private investigations goes on. Charles Pfiester of Century Development Co. recalls a prospective tenant for one of Century’s properties who, on paper at least, appeared impeccable. That is until Intertect conducted a thorough background check and found financial documents the man had filed with the court in his recent divorce proceedings didn’t match those he had shown Century.

“The deal quietly went away,” said Pfiester, corporate counsel for Century, which manages more than 13 million square feet of commercial property.

Century has relied, he said, on credit checks, and more recently on the in-depth probing that Intertect offers, to verify the claims of prospects and to weed out potential troublemakers – up to a point.

“We obviously don’t check the backgrounds of the Exxons and the IBM’s,” Pfiester said.

The credit worthiness of those blue-chippers may not be called into question, but with the high number of bankruptcies and loan foreclosures, many more companies and individuals are being subjected to closer scrutiny, experts say.

Take banking, for instance. Used to be, the credit and professional references of the applicant and the location and value of collateral pledged to secure a prospective loan were a bank’s main tools of confidence for taking on a borrower, experts say.

Many of those seat-of-the-pants lending decisions, however, have come back to haunt their makers. Texas’ five largest bank holding companies are stuck with more than $5 million in past-due loans and foreclosed property, much of that from Houston borrowers.

“The city was blowing and growing so fast many of them looked the other way,” said Wayne Fredericks, whose company doesn’t do banking investigations. Rather, it conducts periodic reviews of collateral for lenders, an important job for the banking industry.

Today, a lender will hire Wayne Fredericks & Associates to visit the field to inspect assets securing a debt, especially such mobile items as drilling rigs and construction equipment.

“In many cases, with smaller loans of $500,000 or less, the banks felt comfortable slapping a lien on the collateral. But a lien doesn’t mean anything if the property isn’t there,” said Fredericks.

Fredericks, who has spent 25 years in the field of collateral management, said more lenders also want his ’3rd-party objectivity’ when it comes time to decide whether to bail out of a loan or to demand the borrower put up more security.

His fee to banks runs between $350 to $500 a day. Many banks pass that bill on to the borrower as called for in the terms of the loan, he said.

“The ultimate objective is to have a better, more profitable loan on the books,” Fredericks said.

Said Kimmons, “Banks are waking up to the fact that it would pay off to check out questionable borrowers before they lend to them.”

Four of every ten clients for Kimmons Investigative Services, Inc. are banks, up from three years ago, Kimmons said. The firm, which Kimmons started in 1979 doing child custody investigations for lawyers and a little corporate work, is blossoming.

Kimmons Investigative Services, Inc. has done work for clients in 41 states, and this year will gross more than $750,000 in revenues. Kimmons, a 35 year old Galena Park native, is aiming for more than $1 million in 1988 revenues, and hopes to double his 13-person investigations staff.

He charges $250 for basic background checks that usually involves a search of state Uniform Commercial Credit files and court records to spot any past or pending litigation involving the applicant.

After Kimmons’ firm checked out one $300,000 loan applicant, the bank denied the loan because Kimmons Investigative Services, Inc. turned up several pending court judgment against him tied to unpaid loans at some other lenders. The bank even showed the applicant Kimmons’ report.

Upset about the rejection, the applicant’s lawyer threatened Kimmons with legal action. The complaints eventually died, he said, but in the interim, the bank client was spared a potential $300,000 loss.

While the potential credit deadbeat is the primary focus of deep background checks, spotting the scam artists out for a financial joy ride is at the top of the list nowadays, say experts.

Local businesses were amazed at the alarming speed at which Houston, socked hard by the energy downturn, became a nesting ground for shadowy figures skilled at exploiting corporate weak spots.

“These professional con men never get caught criminally,” said Pankau. “They know the law, but they will have a long history of civil complaints.”

Pankau said the same network of bad guys often will make the rounds in various states and cities to victimize certain industries.

He estimates with some fervor that at least half the bank and savings and loan failures in Houston and Texas (50) were partly the work of con men who stuck the institutions for millions of dollars in unpaid loans. And much of that loss may have been avoided if more probing had been done into the borrower’s background, he said.

With indictments associated with bank fraud on the rise, the scam artists have gone where they reckon the looting is better, Pankau said.

“Fraud has moved from bogus loan borrowings into the leasing of offices and equipment,” said Pankau, whose caseload in that segment is growing as a result. “These are the same con men who were working the banks. They just learned where the new markets are.”

To these white-collar robbers, “free offices and equipment are just like free money,” he said.

For Intertect, it all means a booming business that will gross more than $1 million in revenues this year. The firm has 40 employees, all of whom do investigations of one sort or another, from offices in Houston, Newport Beach, Ca. and Providence, RI. A fourth will open shortly in Denver.

“Our business is counter cyclical,” Pankau said. “When the economy is good, we do good because there is a lot of activity out there. But when the economy is bad, we do better.”

Pankau said he has had offers to take his company public. The proceeds could allow him to open more out-of-state offices and equip them with more of the detailed credit and court housed records so vital to his business.

“There’s just a lot of work out there to do,” he said. “There are whole areas of business that no one has looked at and thought that is something private investigators can do.”

By Gregory Seay, Houston Post

Posted in In the News.