Kroll’s roll in the Stanford muck

September 11, 2009

Kroll Associates is the big name in the world of corporate investigations. But a former top gumshoe at Kroll has mud on his feet as a result of the firm’s past involvement with accused Ponzi mastermind Allen Stanford.

In the late 1990s, Stanford hired Kroll’s Miami office to help with a number of internal investigations. But more important, Stanford retained Kroll to help smooth the waters with a parade of federal investigators who were raising questions about Stanford’s growing banking empire on the Caribbean island nation of Antigua.

And for a long time, Stanford’s strategy of hiring Kroll to put some polish on his image appeared to work. Stanford was finally unmasked as a charlatan this year, when the Securities and Exchange Commission and federal prosecutors charged the former Texas billionaire with running a $7 billion Ponzi scheme.

This week’s indictment of Stanford’s former chief of security, Thomas Raffanello, may further muddy the waters over the dealings of Kroll — a subsidiary of Marsh & McLennan Companies — with Stanford.

Raffanello, accused in a federal indictment of obstructing justice by ordering the shredding of documents at one of Stanford’s offices in Florida, is the former head of the Miami office of the Drug Enforcement Administration.

And Raffanello got his job at Stanford five years ago largely on the recommendation of Thomas Cash, a former Kroll executive managing director, who was a close confidant of the accused fraudster.

Lawyers, former federal investigators and former Stanford employees say that it was no secret that Cash, a former DEA agent himself, was instrumental in getting Raffanello the top security job at Stanford’s firm.

Cash, for his part, was a forceful advocate for Stanford over the years. Even after the SEC accused Stanford of running a Ponzi scheme, Cash continued to defend him, even though Kroll hadn’t done any work for the offshore banker for at least two years.

In August, however, Cash suddenly left Kroll, after running the firm’s investigative team in Latin America and the Caribbean for nearly 15 years.

Cash’s departure came not long after the National Electrical Contractor’s Association sued Kroll, contending that the firm misled the not-for-profit foundation when it retained Kroll to run a due diligence report on Stanford.

The electrical association bought $2.5 million of Stanford’s now worthless CDs, after Kroll came back and gave a “clean bill of health” to the offshore bank. It was Cash who in April 2007 signed Kroll’s contract with the electrical association to perform the due diligence search on Kroll’s former client.

But the electrical association alleges Kroll never disclosed that Cash and the firm’s Latin American group had previously represented Stanford for nearly a decade. “Kroll was grossly negligent … by failing to disclose Mr. Cash’s relationship and prior employment with Mr. Stanford,” the association’s lawsuit charges.

A Kroll spokesman would only say that “Tom Cash is no longer with the company.” As for Cash, he could not be reached for comment.

Now there’s no suggestion here that either Cash or Kroll had knowledge of the alleged document destruction ordered by Raffanello. And there’s no evidence that either Cash or Kroll did anything improper when they worked for Stanford.

As for Raffanello, he’s claiming he’s done nothing wrong. My Reuters colleague Jim Loney reports that a defense lawyer for Raffanello, appearing in federal court today, insisted his client was “only taking out the garbage.”

But this episode raises questions about the internal checks and balances at Kroll and whether its investigators are serving too many masters.

It should also serve as a warning sign to investors that the next time they hire an investigative firm to perform a due diligence check, it may be necessary to also run a background check on the investigators.

5 comments

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As I understand it, when the document destruction began Stanford was already on the front pages of every newspaper as an alledged master swindler on a monstrously large scale. Anyone involved in destroying his records from that point on had better begin getting their own affairs in order.

Posted by Tom | Report as abusive

Presumably these are ‘off-the-record’ due diligences – isn’t that illegal without the aquiree’s consent ? Isn’t there legislation for record retention periods ?

Posted by Casper | Report as abusive

Tom Cash never investigated anything in his career. He is a fraud and a BS artist

Posted by Rob Bonner | Report as abusive

I concur with Bonner’s assessment. Having experience with both the ilk of Cash and Raffanello, I must agree that the accusations against them could not fit better than a Hong Kong suit maker could conjure up.

[...] that Kroll had missed “numerous red flags” about Allen Stanford’s Ponzi scheme. Subsequent bad publicity about the firm’s relationship with Stanford did not help [...]

I was a private investigator for ten years and worked for a leading law firm for 15 years, doing due diligence. Kroll should have shed its bad apples on its own, before any unsavory relationships with Stanford could develop. One must wonder how many more toxic and explosive relationships are in Kroll’s pipeline. It’s most important investigation should have been an internal one that would have prevented this outcome and black mark.

Posted by CharlieD | Report as abusive