FRAUD – Due Diligence Prior to Investing

FRAUD – Due Diligence Prior to Investing

May 01, 2019

One of the best tactics to avoid investment fraud is to preform thorough due diligence prior to entering a transaction.  This leads to the most common question: “What is Due Diligence?”  Due Diligence is an investigation of a potential investment opportunity prior to entering into a contract, agreement or financial transaction.

There is no one comprehensive checklist of items to investigate when completing a due diligence check.  Each transaction or investment opportunity requires a specifically designed due diligence plan.   While not a complete list some key points to consider prior to entering a transaction include:

  1. Inquire. Investigate before you invest. As an investor you must inquire and do your own investigation prior to investing funds.  Seek out references, ask questions, know the history of the proposed opportunity and retain expert services when needed to complete an adequate due diligence check
  2. Research. Understand a company’s business and its products or services before investing. Ask to see any completed feasibility studies completed on the product or services. Look for the company’s financial statements on the SEC’s EDGAR filing system. Retain an independent auditor to complete and audit and opine as to the financial solvency of the business.
  3. Know the Parties Involved. Look into all the parties involved in the transaction prior to transferring funds. This includes the seller, the business itself, etc…
  4. Scrutinize with Extra Caution Unsolicited Offers. Be especially careful if you receive an unsolicited pitch to invest in a company, or see it praised online, but can’t find current financial information about it from independent sources.
  5. Protect Yourself and Your Assets. When entering a transaction be cautious of the manner in which you hold the investment.Whether you are investing in your personal capacity, forming an entity for investment purposes, look into how are you are expected to execute contracts in the proposed transaction.
  6. Be Aware of Common Fraud Traps. Make yourself knowledgeable about different types of fraud and red flags that may signal investment fraud.

If you or someone you know, is considering an investment opportunity we invite you to call us today at 619-432-5145 for a free consultation with one of our experienced Investment Attorneys and Due Diligence Lawyers.



Diana Legal