Dotcom executives 'more likely to have dark pasts' By Caroline Daniel in London
Internet executives are four times more likely to have "unsavoury backgrounds" than executives from other industries, according to an investigation by Kroll Associates, the corporate security company.
The research findings are likely to add to concerns about the dotcom sector which has been hit by doubts about its viability.
It also underlines how far the rapid pace of internet investing - which has eroded traditional business practices, such as background checks on employees and close financial scrutiny - have helped create an amenable climate for potential fraudsters.
Over the past six months Kroll carried out 70 due diligence background investigations of internet executives and board members. About 39 per cent - or 27 people - were found to have problems. Kroll typically expects problems in 10 per cent of cases.
The problems unearthed in the worldwide investigation included: violations of Securities and Exchange Commission rules, insurance fraud, undisclosed bankruptcies, frauds committed overseas and even links to organised crime.
Ernie Brod, executive managing director of Kroll's New York office, said: "The whole effort has been to move at internet speed, which has meant not stopping to do careful checks on employees, or putting in place internal auditing or security. This is ready-made for those who know how to take advantage of these things."
One of the most extreme cases concerned a dotcom company in the US which had received an unsolicited investment offer and wanted to know more about the two potential backers.
"Then the people who offered to invest were murdered. In the course of the law enforcement investigation they found the two were connected to penny stocks promotional scams and with organised crime," Mr Brod said.
Kroll says it is not surprised by the findings of its investigation. Many dotcoms have not formally appointed finance directors or embraced traditional forms of corporate governance, such as holding regular board meetings to monitor decisions and the flow of money.
Kroll, the world's best known business intelligence agency, decided to conduct the investigation earlier this year after picking up anecdotal evidence from its consultants that a high proportion of cases of misconduct were at dotcoms.
Most of the cases Kroll identified did not concern inexperienced young management teams, who frequently run dotcoms. "Many are too young to have much of an unsavoury background or any kind of background," said Mr Brod.
Instead there were more problems with "grey beards" - older executives brought in to add stature to the company.
"I refer to these people as vampire investors. Maybe they put a couple of bucks in, then they lick their lips at the opportunity and suck exorbitant consulting fees out of them, or put their relatives on the payroll," said Mr Brod. Kroll said more clients were now requesting checks on employees.