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Red Flags of Investment Fraud Checklist

Red Flags of Investment Fraud
Written by Andy
  1. High turnover in senior and middle management.
  2. CEO complains repeatedly about short-sellers.
  3. Proxy risk factors mention short-sellers.
  4. A CEO who doesn’t live in the city where the company is located.
  5. Someone who treats his or her assistants and secretaries badly.
  6. A leader with a large corporate jet allowance disclosed in the proxy.
  7. Constant restructuring and layoffs, even in good times.
  8. Frequent press releases about winning business with unnamed customers..
  9. Small/unknown companies touting contracts or relationships with large household name companies. E.g., “We have signed a memorandum of understanding with Boeing”.
  10. Compensation that consistently appears egregious relative to the size of the company and the compensation of its peers.
  11. 2 pages’ worth of related party transactions in the proxy.
  12. New lavish headquarters.
  13. Big naming rights deals to stadiums.
  14. CEO gives interviews in hard-hats.
  15. Major executives are married to each other.
  16. High amount of travel expense.
  17. Spends a lot of $$$ on consultants.
  18. Excessive or nonsensical ESG disclosures.
  19. The use of ‘serial entrepreneur’ biographies by management.
  20. Tech companies with no patents granted or applications on file at the Patent Office.
  21. Located in region with weak criminal law penalties. Senior management who can make a run to their home country. Unknown accounting or law firms doing meaningful work.
  22. Unknown accounting or law firms doing meaningful work.
  23. Any company based in Ft. Lauderdale.
  24. Big Florida homes (homestead exemption from creditors’ claims). Abrupt trips to countries lacking extradition treaties. Dyed hair and veneers.
  25. Managers/shareholders with margin loans. Low levels of push back on corporate doc negotiation.
  26. Hiring a bunch of college buddies.
  27. Not showing organic growth ex M&A charging/re-arranging segments frequently.
  28. Frequent changes of accounting firm. ‘Strategic’ changes in fiscal reporting periods.
  29. Kissinger or similar luminaries on board of directors.
  30. “Philanthropy that tries too hard”.
  31. Executives who do not speak freely and candidly but resort to legal boilerplate or drivel.
  32. CEOs who wear wigs.
  33. The majority of equity compensation is time-vesting without any performance requirements.
  34. Responding. ‘Will follow up offline’ to detailed questions on conference call. And any reference to Street/consensus expectations.
  35. Long term guidance is non-GAAP/lots of adjustments in non-GAAP stuff.
  36. CEO is giving interviews promoting the stock.
  37. Number of senior executives that attend Davos every year.
  38. Marianne Jennings ‘Seven Signs of Ethical Collapse’ checklist: Pressure to maintain numbers, Fear and silence, Young ‘uns and a bigger-than-lif CEO, A weak board, Conflicts (of interest), Innovation like no other, and goodness in some areas atoning for evil in others.

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Andy

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