Fall of the House of Howrey

Here's an idea...Outsource...
I shared brunch with a lawyer friend this morning. She knows I am a private investigator, a professional investigator with recognized credentials. She knows I have a quarter century of experience in real estate transactional due diligence. It never occurred to her, however, until our brunch conversation, that she could leverage my expertise.

This week's The Economist has a two-page story about the legal industry in America. They use Howrey (one of the world’s top 100 law firms)  as an example of sea-change facing the profession. Aside from bankruptcy, securities litigation, and regulation issues, the world of 700 member law firms has been hit hard. Gone are the lucrative mergers and acquisitions (M&A), and it seems that clients are seeking, even demanding, alternatives to the ubiquitous billable hour.

Here in the States alone the legal profession shed nearly 10,000 lawyers in 2009 and 2010. That’s pushing 8% of the total professionals practicing in the 250 firms surveyed. Recent graduates of prestigious law schools are working for scraps. It seems that clients are no longer content to have an associate work their case at a partner’s billable rate.

One point The Economist makes: clients are demanding “…that their lawyers pass certain routine work to cheaper contractors.” While this is potentially bad for some lawyers, it's likely fantastic for highly qualified third parties (i.e., Certified Fraud Examiners, professional investigators, and industry specific experts) and software providers.

Back in the day a firm could pay a salaried associate to paw through files in search of evidence. Now e-discovery software has virtually eliminated that need.

Expert Opinions - It used to be that an associate could read up on a topic and brief the partner, each being paid handsomely for the private course of study. Now, more often than not, it makes more since to bring in a qualified expert in certain fields, pay them a flat fee or lower hourly rate, and likely be better informed in the long run.

The Economist points out that law firms can guarantee themselves work by becoming “…experts in other industries, not just areas of legal practice.” An alternative to this, The Economist points out, would be outsourcing the expertise.

That’s where we come in. That’s where my friend made the connection. She can leverage my expertise, my firm’s collective experience, and craft herself into a linchpin for her firm. When you’re faced with the necessity to acquire industry-specific knowledge, give some thought to outsourcing that need.

Routine/Repetitive Tasks – Locating and interviewing witnesses, identifying and locating assets, all of these are things a lawyer can do. However, it may be more financially feasible to outsource that work to a professional investigator. Two reasons come to mind.

First, a professional investigator has the skill set, connections, and tools to complete these tasks efficiently. This translates into less time (Time = Money). Second, while our rates are at the upper end of the spectrum for investigators, we’re still well below the hourly rate of partners in most law firms.

The following list offers a small sampling of the services professional investigators provide, often freeing the lawyer to focus on more productive issues.

Conflicts of Interest Search –self-dealing, and hidden business interests.

Personal History Research – records for divorces, civil lawsuits, etc.

Professional History Research – detection of resume fraud.

Regulatory Issues Research – complaints by state and federal regulators.

Criminal History Research –national, regional, and county-by-county records for DUI, solicitation of prostitution, and other criminal issues.

Financial Status Analysis – tax liens, civil judgments, etc. review financial statements, lifestyle audits, etc.

Assets Location and Analysis – location of assets, real and personal. Chain or title, in-depth transaction analysis, identification of personal and corporate ownership.

Liabilities Identification – tax liens, outstanding debt, mortgages, civil judgments, etc.

Locating Witnesses – locate and interview potential witnesses for litigation prep.

Service of Process – when that person who needs serving is hard to find.

“Many bosses of law firms,” says The Economist, “realize that the profession is changing in ways that will be uncomfortable for some.” Those who utilize their resources, leverage their relationships with experts (CFE’s, Professional Investigators, etc.) in the most efficient manner, will be the ones to succeed.

Due Diligence and Deep Research

An article in this month’s PI Magazine called, “Evolving Background Checks into a Reputational Due Diligence Model,” while severely over-titled, is a fairly comprehensive outline of how to start a standard background investigation.

The very idea of trying to market something called a Reputational Due Diligence Model to clients is preposterous, and, I believe, even redundant. In the context of business intelligence, a background investigation should be included in the due diligence process.

[FIND] Lexicon

due diligence - noun 1 : the care that a reasonable person exercises under the circumstances to avoid harm to other persons or their property; 2 : research and analysis of a company or organization done in preparation for a business transaction (as a corporate merger or purchase of securities)

Now that we have the phrase defined, let’s break it down. Note the words I’ve highlighted: first, we’re defining the term based on what a “reasonable person” would do under “…the circumstances.” Second is the “research and analysis” component -- not just a gathering of facts, but analysis of the information.

My problem with simple due diligence as defined here is the idea that we have to limit ourselves to the research and analysis and level of care that a reasonable person would exercise. I, personally, like the idea of research and analysis being conducted by an unreasonably anal person who pays attention to detail in approximately the same infuriating manner that my tenth-grade English teacher graded my essays. A background investigation should be at least thorough, if not exhaustive. That said, common sense must be employed. You don’t want to spend valuable time chasing down obviously erroneous tangents.

Many investigators think a background investigation is simply a reporting of facts, when it should always include thorough and thoughtful analysis of the information. Granted, any licensed professional investigator with a basic level of competency can query the various databases available to him or her and get a quick list of criminal, civil, and other publically available records. But a worthy investigator should always dig deeper.

Deep Research

One standard we that must employ as a matter of practice is Deep Research. The objective of deep research is discerning observation and smart analysis. Discernment in observation calls to mind the notion of not just sensitivity, but also intelligent, wise, and judicious thought. Smart connotes sharp, shrewd, and clever, with a touch of brash and sass for good measure. The entire premise of this method is based on investigators being astute, which comes from the Latin astus, which has both the positive sense of adroitness or dexterity and the… more ambiguous, shall we say, concept of craft or cunning.

Once the initial database inquiries have been made, the basic information is compiled for further study. At this point, look to some proprietary data services that offer more information. Sources like LexusNexis and Westlaw allow natural language and Boolean queries and gather more data from a broader set of sources. This is the second phase of deep research and it involves discernment. Again don’t waste valuable investigative time chasing useless tangents.

Once the basic information and more extensive details available through various data providers are compiled, it’s time to be astute: adroit, dexterous. A dose of cunning is often useful as well. Now we’re down to…craft, or as it’s known in our circles, tradecraft.

Initial Probe

An investigator places a call, either direct or under pretext, to all references. Verify as much information as possible from the subject’s own character witnesses. Confirm all employment, education, and associations. Any claims of advanced degrees, professional designations, and awards should be authenticated. Create a synopsis of the universities attended, professional organizations, and sources of awards. If the subject attended Phoenix University and earned that MBA via the post office, let the client know. If the Association of Bank Managers is made up of four guys and a poker table, the association is most likely of no real value. If the Frank Stevens Award for Legal Letters was conferred by the next-door neighbor, your subject has been creating fiction. Investigate the veracity of all claims.

Digging Deeper

A thorough and exhaustive background investigation should include, but should not be limited to, on-site courthouse research, visits to colleges, interviews with professors, chats with neighbors and old friends, and other methods of tradecraft. The last two methods of gathering primary reference materials are straight out of the world of spycraft and almost always yield valuable insights.

It is almost always useful to place the subject under surveillance for a period of time. Get an idea of lifestyle, character, and habits. This is a chance to expand the list of associates and friends. Often an investigator can identify the subject’s true associates and check this list against the references listed. Actual physical surveillance affords the investigator a chance to get to know the subject, to study his daily routines. With physical surveillance, the investigator can develop a more intimate and realistic picture of the subject’s lifestyle.

The last piece of tradecraft discussed is arguably one of the most underhanded methods available to the field operative. Trash Cover, refuse audit, pulling trash, dumpster diving…whatever an investigator chooses to call it, it’s a messy job, but almost always produces results. The legality of this method is fairly well established. In most states, once a person has placed their rubbish in the bin and rolled it to a publically accessible place, the trash is fair game. One month of garbage usually generates a clear profile of the subject. Groceries, prescriptions, movie/theater tickets, alcohol, illicit drugs, porn, letters to girlfriends, notes to boyfriends, retail receipts, credit card statements, and on, and on, and on…To muster this information into a cohesive portrait of the subject simply takes time, rubber gloves, evidence sleeves, a few notebooks, and meticulous organizational skills.

Summary

A background investigation for due diligence should be a thorough exploration of the facts and a thoughtful rendering of those facts into a portrait of the subject. The subject provides a head shot, their best side in the nicest possible light. Our objective should not be to destroy that ideal, but to augment it with a serious dose of reality. Many investigators approach this type of work with a broad-brush methodology. They simply gather computer-generated information and report that under their letterhead with no verification or support. (Actually, a lot of investigators will just copy and paste the database information into their report.) A worthy investigator will dig deeper. They will corroborate their initial research with several sources. They will contact the original source of information and verify in person or via telephone the virtue of all claims. The true professional will take it even further. He will conduct primary research in the form of observation and evidence gathering.

The “reputational due diligence model” sounds a bit pedantic and purposefully overwrought. A quality background investigation should be thorough and thoughtful and doesn’t need a long meaningless name. Spies have been doing this work for ages. I think they simply call it a dossier.

Tradecraft - Public Records and Gathering Intelligence

 

Private investigators love information, also known as “intelligence.” We gather it and analyze it. We spend hours online searching proprietary databases trying to locate people, things, and places. It’s true, we sometimes go dumpster diving, clawing through trash to find tidbits of information that can help a case. Get enough intelligence gathered, and you can make a case for fraud or infidelity simply by arranging the information in a timeline and making inferences.

Identifying links, connecting the dots, is the key to solving most cases. There are a number of resources that help us connect the dots, tie people together, and establish that a relationship exists.

 

Surface Data

We crawl around our online sources every day. We hit Facebook, Linked In, and My Space regularly to identify people and relationships. One service we employ actually has a graphic that shows relationships between people, assets, and criminal records. It looks and behaves just like Visual Thesaurus. This tool is perfect for gaining that 1,000 foot view of a case, kind of like a data-driven aerial photo, a data-map. There are other services we use that aggregate publicly available information. These are all great places to start an investigation, but we here at [FIND] Investigations like to dig a little deeper.

 

Deep Research – Applied Tradecraft

Once the obvious connections have been made, we have the information to start really digging for connections. An article in the March/April 2010 edition of PI Magazine covers one of the least used resources available, the City Clerk’s office.

The City Clerk often handles personal property and maintains a list of property owned by residents. Want to find a boat or its owner? Just check out the personal property index for boats. It’ll have a detailed list of owners in alphabetical order, mailing address, and type of personal property owned. Want to find the owner of a piece of rental property? Have a look at the book that tells where tax bills are mailed. Some rural locales actually keep what they call the 3x5 file, a card index of residents in a town. These little gems very often have extra notations, hand written notes about the person in question. Notes like, “watch out for dog,” or “nut job.” The City Clerk’s office can be a treasure trove of intelligence.

We also like to pay a visit to the Tax Assessor’s office. In larger metropolitan areas, the assessor’s office is usually well organized and relatively easy to navigate. Most larger counties actually have their full database online. Still, when you drop by the office in person and take the time to pull a property file, you’d be amazed by what you can find. I’ve used the property file to get floor plans, pictures, and detailed lists of improvements on the property. The property file will almost always have a list of past sales for the property, listing deed book and page numbers.

Next stop, after the assessor’s office, is the Register of Deeds office. Armed with document numbers, you can go to the records room, pull the heavy leather bound book off the shelf and review the original deed. Here’s where the real fun starts. Make note of all signatures, buyer (Grantee), seller (Grantor), what law firm filed the deed, and who notarized the deed.

It’s possible to tie a single fraudster to several transactions simply by noticing that the same person notarized every one of the deeds in question. A quick stop by the Notary Public’s office and a few friendly questions later and you can likely identify the one person behind all of the sales.

Notifications are often sent to all parties involved in a transaction (sale or lease). In the Notifications clause, you may find alternative addresses for everyone concerned. Read the entire document and make note of all details.

Another source of valuable information is the prior ownership certification. I’m not certain about this for all states, but in Tennessee every deed includes a legal description followed by a clause that states who owned the property previously and a document number for that last sale. Track the sales back for several years. Pull all of the deeds and see what you can find.

If the property is owned in the name of a company or a corporation, track down the principals of that entity. It’s not unusual to find several companies owned by the same person. People try to distance themselves from transactions sometimes, but no matter what the degree of separation, there’s almost always some piece of paper that ties them to the deal.

Compiling information, the tradecraft of intelligence gathering, is not necessarily a difficult process. Sometimes it just takes a lot of time and a high degree of patience to establish all the connections. Start drawing the inferences with online searches and databases--these are the recognized starting points. But to make the hard case, it’s helpful to physically visit the original source of information and review the documents. We here at [FIND] Investigations have spent the past 24 years creeping around court houses and city offices. If there’s a connection, we can usually find it.

 

Deep Research: The Process

Deep Research, n. a systematic exploration of behavior that employs intense field work, meticulous evidence-gathering, and knowledgeable interpretation.

Deep research assumes many forms.

In journalism, as in detective work, a case always begins with a question. If an investigator’s worth his salt, the question he asks is the right one, even if the question his editor or client presents him with is not.

Our major deep research project this summer and early autumn called on both journalistic and detecting skills. The question we asked, and planned to answer for the nationally syndicated public radio show, Marketplace, was this:

Does an economic recession cause an upsurge in crime?

We at [FIND] began our quest for answers in mid-July, by combing national news sources on the subject. No easy answer emerged from the scores of contradictory articles, as you’ll see from just a few examples:

New York Times article: “Keeping Wary Eye on Crime as Economy Sinks”

LA Times editorial: “Crime and Economy Don’t Tell Whole Story”

It quickly became clear that we needed to winnow the question down a bit. A phone call to our cop buddy (who wishes to be called “Officer X”) and a couple of reconnaissance cruises along his beat—the seedier stretches of Gallatin Road near downtown—began to carve our thinking into a sharper instrument .

“Officer X” said several things that caught our attention:

“The average laid-off person…tight on cash—they are contributors to society. They’re not gonna lose a job and then go out stealing cars and selling dope…But they might write more bad checks, sell some prescription drugs, or maybe shoplift." -Officer X

Shoplifting, we thought. The ultimate opportunity crime. Wouldn’t that kind of crime, the afterthought of someone newly desperate and trying to provide for his family, be the first category affected by higher unemployment, especially in a neighborhood that’s always existed near the edge? A few initial conversations with beleaguered store owners seemed to confirm this suspicion. (One national drugstore chain manager said off the record she'd seen baby formula and diapers marching off the shelves via the five-fingered discount like never before.) Our curiosity was now officially piqued.

So the new question became:

Has the current economic downturn caused an upsurge in petty thievery and shoplifting in Nashville?

We thought so. And we discovered that, most likely, it does. But not for the reasons we thought.

To find out what we discovered, you’ll have to listen to our Marketplace piece on the subject.

*The story posts this evening, whenever Marketplace airs in your city. We'll post a link after the fact.