Let’s take a closer look at some of the most common myths—and the reality behind them:

Myth #1: Public Records Are Enough

Public records are a great starting point, but they don’t tell the whole story. Many significant developments never make it into court filings or government databases. News articles can surface details about business deals, legal disputes, or regulatory issues that haven’t yet entered official records—or may never appear there at all. They help fill in the blanks and uncover leads you might otherwise miss.

Myth #2: News Sources Are Just Fluff

Some see news as too soft to be useful in an investigation. But solid reporting can reveal a lot—how someone responds to pressure, how they handle setbacks, and what others say about them. That kind of detail matters. You’ll also find images, graphics, and maps that add helpful context to your findings.

Myth #3: Online News Can’t Be Trusted

It’s true that misinformation is out there, but that doesn’t mean all online news is unreliable. The key is to evaluate your sources carefully. Ask yourself: Is this source reputable? Are the facts verifiable? Premium databases like LexisNexis and Factiva include vetted news sources with editorial oversight. And once you develop a system for evaluating what you find, online news becomes a powerful part of your toolbox.

Myth #4: Google Covers It All

Google is a great place to start, but it’s not the finish line. Many valuable articles—especially older content or trade publications—won’t show up in a basic search. That’s where news databases and specialized sources come in. A layered search strategy helps you catch what others miss.

Myth #5: Only Negative News Matters

Yes, red flags are important—but so is seeing the full picture. Positive coverage can highlight accomplishments, community involvement, and leadership qualities that matter just as much. Balanced reporting helps you avoid confirmation bias and make more informed decisions.

Myth #6: AI Can Do It for Me

GenAI tools like ChatGPT can help with brainstorming or analysis, but they don’t replace solid research. These tools aren’t built for real-time, comprehensive news searching. They can point you in a direction, but you still need to verify, cross-check, and dig into the details using multiple trusted sources.

Myth #7: News Research Takes Too Much Time

It doesn’t have to. A strategic approach to news searching—starting broad, refining keywords, and using filters—can actually save time. Tools like alerts and monitoring services also keep you updated without constant manual searching.

The reality: is that news sources help fill critical gaps in your investigations. When done right, news research:

• Reveals information you won’t find in public records
• Provides leads and helps with verification
• Adds personality, behavior, and context
• Keeps you current on trends and developments
• Strengthens your findings with another layer of intelligence

Don’t let these myths limit your investigations. With the right strategies and tools, news sources can add depth and insight that your clients will appreciate. The more complete the picture, the better the decisions—and that’s what due diligence is all about.

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Here are some of the biggest myths about due diligence background investigations:

Myth #1: A Quick Online Search Is Enough
With so much information available online, it’s tempting to think a few simple Google searches can reveal what you need to know. But online information has its limitations such as missing and incomplete records and data that’s hidden from search engines. Professional investigators use multiple sources–both free and fee-based–and we’re skilled at finding and using the most reliable information. Also, due diligence involves more than just searching. There’s lots of analysis, including making connections, identifying gaps, and knowing what’s important to our clients.

Myth #2: Background Checks Are a One-Size-Fits-All Solution
There’s no magic formula for a due diligence background check. The scope of an investigation should be tailored to your specific needs and level of risk. Gathering names involves a lot less risk than being on the verge of handing over a large sum of money. A professional due diligence investigator will work with you to understand your unique situation and create a customized approach that addresses your concerns.

Myth #3: A Clean Background Check Guarantees Success
A clear background check is certainly a positive sign, but it’s not a guarantee of future performance or trustworthiness. The information gathered should be considered within the broader context of the situation. Look for red flags or inconsistencies that might warrant further investigation. Monitor for changes and conduct regular updates, because things can change. And remember that due diligence is about risk assessment, not absolute certainty.

Myth #4: Background Checks Are Invasive and Unethical
With due diligence, subjects are often aware of the investigation and may even sign an authorization form. Professional investigators know what’s allowed and what’s not and work within a legal framework. We adhere to strict ethical guidelines, only collect information relevant to the specific purpose of the investigation, and destroy personal and private information after the investigation.

Myth #5: Background Checks Are Too Expensive
While there’s an initial cost associated with due diligence investigations, the potential cost of not conducting a thorough check can be far greater. Investing in the wrong people and companies can lead to financial losses, productivity issues, reputational damage, or even legal trouble. A well-designed background investigation can help minimize risk and avoid these costly pitfalls.

Don’t let these myths get in the way of conducting a thorough due diligence investigation. Make decisions based on information from comprehensive data sources, and use a customized approach that allows you to make decisions with confidence. Look at the results within the context of your needs, and be sure your processes follow strict ethical and legal standards. Don’t compromise when it comes to managing business risk.

If you’d like to learn more about due diligence background investigations, check out my course with PI Education, Due Diligence for Investigators. Also, Hal Humphreys and I discuss due diligence in this episode of The Sound of Pursuit Podcast.

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The Role of Background Investigations

Background checks in M&A are not just about confirming identities or criminal records. They dig deep into the reputational and operational histories of key individuals and entities. This includes examining past business dealings, financial strengths and weaknesses, litigation history, regulatory compliance, and even cultural alignment with the acquiring company. While financial statements and legal documents tell part of the story, a background investigation that uses public records, news, social media, interviews, and other research methods, will complete the picture.

What you Might Find in a Background Investigation

Skeletons in the Closet – A clean criminal record for key executives is a must. Past fraud, safety violations, or regulatory breaches can uncover the true story behind a target company’s culture and any future compliance risks.

Hidden Liabilities – Background checks can reveal outstanding lawsuits, liens, or judgments–those financial burdens you might inherit after the merger. If someone can’t manage their own finances, what will happen in their businesses?

Reputational Risks – Negative press or social media controversies surrounding the target company or its leaders can tarnish your brand after the merger and affect the bottom line. Finding these issues before you complete the deal allows you to plan for damage control.

Hidden Gems – Background checks aren’t just about red flags. They can also reveal valuable assets like under-utilized patents, highly-skilled employees, or strategic partnerships, which may enhance the value of the deal.

Best Practices for Conducting Background Investigations

Start early – Incorporate background checks into the due diligence process from the outset. This allows time for negotiation and facilitates decision-making. Don’t let any surprises interfere with your process.

Comprehensive scope – Go beyond the basic criminal check. Look at civil court cases, bankruptcies, judgments, liens, business partnerships, and more. You want to create a full profile, including both the good and the bad.

Unbiased third party – Anyone involved in the outcome of the deal should not take on the due diligence. It’s easy to overlook the warning signs, so try using your research department if you have one or–even better–an outside investigator.

Legal Compliance – Make sure all background checks comply with state, local, and international laws regarding privacy and data protection. That means getting signed authorizations for obtaining official degree verifications and never buying banking information from online sources.

Continuous Monitoring – Consider ongoing monitoring post-transaction to mitigate risks that may arise after the deal closes. Conduct regular updated reports or set up alerts for continuous monitoring. That way you’ll know if and when anything changes.

As businesses navigate complex M&A landscapes, leveraging the power of due diligence background investigations will transform potential risks into rewards. By identifying and acting on red flags early in the process, companies can make informed decisions, protect their investment, and pave the way for a successful merger or acquisition.

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The Guardian Australia’s investigation revealed that Steven Reece Lewis, the CEO used to market the fund, “does not appear to exist.” But the issues started before this latest revelation, and the saga makes a compelling case for thoroughly checking your investments–before you invest–and paying attention to the warning signs.

According to this report and a previous article in the Guardian, HperVerse is one of several companies within the HyperTech group run by Sam Lee and Ryan Xu. At the December 2021 online global launch event of the fund, a man called Steven Reece Lewis was introduced as the CEO. Promotional materials included a long list of achievements, including two degrees and several positions with well-known firms. Lewis even claimed to have sold a web development company to Adobe. Video released through social media after the launch included celebrity endorsements from Lance Bass, Chuck Norris, and others.

As was the case with other investments from Lee and Xu, the big returns and lofty goals did not materialize, and, according to the Guardian, “thousands of people have lost millions of dollars to the HyperVerse crypto scheme.” Through their investigation, the Guardian found that none of Lewis’ credentials checked out, and they could not verify his identity.

Unfortunately, the warning signs were all there and could have been discovered through a pre-investment due diligence investigation. No journalism credentials required.

Here are some of the biggest red flags that should have given investors and celebrities pause:

Flagged by regulators – Several regulators issued warnings about companies within the HyperTech group, including the U.K.’s FCA and New Zealand’s FMA. Some regulators missed it, though, so it’s important to check your target and all related companies in several places, including the International Organization of Securities Commissions Investor Alerts.

Unverifiable degrees or business claims – Always check credentials, because if someone lies about that, they’ll lie about anything. Selling a company to Adobe? That can be easily checked in public filings. Never rush into an investment without verifying all self-reported information.

Poor track record – The past can help predict the future. By looking at previous companies and investments run by the fund managers, you can get a idea if they’ve had their share of successes or failures. HyperTech companies and their affiliates haven’t fared so well, and they’ve left a trail of bad investments.

Grandiose claims and unrealistic returns – Vague, lofty promises of a “parallel system of existence that will change how people live…” sound fascinating, but what about specifics like technology or strategy? And those promised 300% returns sound much too good to be true.

No digital footprint – The Guardian found no LinkedIn profile or internet presence for Steven Reece Lewis other than HyperVerse promotional materials. In due diligence, no information is good information, and if you can’t find anything, it’s important to ask why.

The moral of the story? Don’t trust anyone with your hard-earned money or reputation without a thorough pre-investment background investigation on the company and people running the investment. Expand your searches to all related companies, don’t rely on regulators to do the work for you, and pay attention to any red flags–before it’s too late.

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It’s a lot like that in due diligence investigations. Taking some time before starting the search helps us become more efficient and effective. We know what’s important to our client, make sure we have everything we need to move forward with the right tools, and we have the right goals in mind. We know our limitations and how to work around them.

Here’s how to prepare for our due diligence investigations and get better results in less time:

Know what our client needs – Getting some context helps us match the the level of due diligence to our client’s level of risk. Is this a first pass to help decide if the deal is worth pursuing, or are they ready to sign the contract? Do they need this now, or do they have time for a deeper dive? Would boots-on-the-ground investigations follow the online research?

Know the warning signs – What should we look for in the data? What warning signs indicate the potential for fraud? Which are more severe, and which need to be taken in context with other warning signs? Most importantly, we try to find out what matters to our clients. Some clients have a higher risk tolerance than others, and some industries consider certain behaviors the norm, while others may not.

Know our sources and how to use them – Invest in learning about the best places for reliable information and what sources to avoid. Save time and money by getting to know the latest advanced features and identify the strengths and weaknesses of each database. Invest in learning before you get started to avoid missing any important details.

Invest in premium sources – We miss a lot when we rely on just free resources. Premium sources offer specialized content, pro search tools, copyright clearance, useful formatting, and much more. By using a combination of free and fee-based sources, we work more quickly and get better results. We also cover the most content, so less chance of any misses.

Pay attention to the laws – Several federal laws that protect your privacy affect due diligence background investigations, including the Fair Credit Reporting Act, Gramm-Leach-Bliley, and the Family Educational Rights and Privacy Act, and many states have their own versions. That means no official degree verifications without consent, knowing the difference between due diligence and compliance, and learning what financial information is legally available and what’s not.

Make sure to prepare for your due diligence investigations so you work more efficiently and effectively and don’t miss what’s important to your clients.

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As a private investigator, my area of specialty is fraud. I help my clients spot it and prevent it. One way I do this is with hedge fund due diligence background investigations, also called background checks.

Through the years, I’ve been asked a lot about these due diligence background checks and what’s involved, and I’ve discovered that there are lots of misconceptions and stereotypes about hedge funds, the people running them, and what I do for my clients. In light of that, I’ll answer some of those questions here:

What’s a hedge fund?
According to Investopedia, hedge funds are “private investments that are only available to accredited investors…,” and they are “…known for using higher risk investing strategies with the goal of achieving higher returns for their investors.” Mutual funds, on the other hand, are regulated investment products that are available to the public.

Why conduct due diligence background checks?
To help minimize the higher risk involved with hedge funds, investors rely on due diligence. In addition to conducting their own financial, legal, and other types of due diligence, clients use an investigator to look into the fund investment manager, including the company and key individuals. During the background check, we look at past and current behavior and any potential for fraud.

What’s involved in these types of background investigations?
Depending on the level of risk and the stage of the investment, we may look at watchlists, degrees, credentials, corporate filings, civil and criminal courts, regulatory records, property and other assets, and liens and other financial liabilities. We verify supplied information and uncover anything relevant that wasn’t disclosed. We’re looking for fund managers that are too distracted to focus on client investments, any past fraud, and other red flags.

What kinds of resources do you use?
We use a combination of free and fee-based sources for online public records, news, social media, and non-public private information available only to investigators and others with a legitimate need. We’re looking for addresses, court dockets, property records, and other open sources. Premium databases include LexisNexis, Tracers, ProQuest Dialog, and Dow Jones Factiva, just to name a few.

What makes hedge fund due diligence investigations so unique?
With these types of backgrounds, we don’t need to locate anyone or conduct any stealth investigations. Our subjects generally know we’re conducting a background investigation, and they’ve even signed a consent form. With most other types of investigations, we’re starting from scratch, with very little information to go on. For hedge fund due diligence, our subjects will supply date of birth and other identifying information, a CV or bio, fund marketing info, and a due diligence questionnaire.

Do you find lots of crooks?
Actually, no. For the most part, we hardly see any red flags or other warning signs besides the occasional tax lien or unverifiable degree. Most fund managers pass the background check just fine, although I sometimes recommend additional research or encourage clients to ask for more details.

Do you tell your clients whether to invest or not?
That’s not my area of expertise. My job is to present the facts and let my clients decide. In fact, I never know what happens after I’ve sent in the report and answered their questions—except that time when we caught our subject in a lie, and the client called to say thanks for helping them avoid a bad investment.

Do you have any other questions about hedge fund due diligence?

The post Top post: Hedge fund due diligence investigations FAQ appeared first on Marcy Phelps and Associates.

Through the years, I’ve been asked a lot about hedge fund background investigations and what’s involved, and I’ve discovered that there are lots of misconceptions and stereotypes about hedge funds, the people running them, and what I do for my clients. In light of that, I’ll answer some of those questions here:

What’s a hedge fund?
According to Investopedia, hedge funds are “private investments that are only available to accredited investors…,” and they are “…known for using higher risk investing strategies with the goal of achieving higher returns for their investors.” Mutual funds, on the other hand, are regulated investment products that are available to the public.

Why conduct due diligence background investigations?
To help minimize the higher risk involved with hedge funds, investors rely on due diligence. In addition to conducting their own financial, legal, and other types of due diligence, clients use an investigator to look into the fund investment manager, including the company and key individuals. During the background check, we look at past and current behavior and any potential for fraud.

What’s involved in these types of background investigations?
Depending on the level of risk and the stage of the investment, we may look at watchlists, degrees, credentials, corporate filings, civil and criminal courts, regulatory records, property and other assets, and liens and other financial liabilities. We verify supplied information and uncover anything relevant that wasn’t disclosed. We’re looking for fund managers that are too distracted to focus on client investments, any past fraud, and other red flags.

What kinds of resources do you use?
We use a combination of free and fee-based sources for online public records, news, social media, and non-public private information available only to investigators and others with a legitimate need. We’re looking for addresses, court dockets, property records, and other open sources. Premium databases include LexisNexis, Tracers, ProQuest Dialog, and Dow Jones Factiva, just to name a few.

What makes hedge fund due diligence investigations so unique?
With these types of backgrounds, we don’t need to locate anyone or conduct any stealth investigations. Our subjects generally know we’re conducting a background investigation, and they’ve even signed a consent form. With most other types of investigations, we’re starting from scratch, with very little information to go on. For hedge fund due diligence, our subjects will supply date of birth and other identifying information, a CV or bio, fund marketing info, and a due diligence questionnaire.

Do you find lots of crooks?
Actually, no. For the most part, we hardly see any red flags or other warning signs besides the occasional tax lien or unverifiable degree. Most fund managers pass the background check just fine, although I sometimes recommend additional research or encourage clients to ask for more details.

Do you tell your clients whether to invest or not?
That’s not my area of expertise. My job is to present the facts and let my clients decide. In fact, I never know what happens after I’ve sent in the report and answered their questions–except that time when we caught our subject in a lie, and the client called to say thanks for helping them avoid a bad investment.

Do you have any other questions about hedge fund due diligence?

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In due diligence background investigations, it would be easy to resort to the “find everything” method of investigations, and you do need to cast a wide net. But you want to add some focus.

After identifying the client’s level of risk, budget, time frame, and deal stage, we decide what to include. So, some investigations may need an official degree verification, while others don’t. Some backgrounds involve retrieving court records from the courthouse, while others just need online searching.

That’s why no two background investigations look alike, and our objectives change based on individual client situations. But, no matter how broad or deep we go and which components we include, all due diligence background investigations focus on these five basic goals:

Confirm supplied information – In due diligence, our subjects often provide some documentation–the Due Diligence Questionnaire, marketing materials, team bios, signed authorization forms. Make sure what they say is true. Even if it’s too early in the process to ask for these, verify what’s in LinkedIn profiles, speaker bios, and other self-reported online info.

Uncover any missing information – What did they leave out of the supplied info, and why did they leave it out? Was it a simple case of deciding it wasn’t worth including? Or did something occur during their employment there that you or your client would want to know about?

Reconcile any inconsistencies – Sometimes you discover inconsistencies between supplied and found information. Maybe employment start and end dates are slightly off, or job titles don’t match. Gather as much evidence as possible, and ask your subject for clarification. How they react to your questions could be as telling as their words (forthcoming? evasive?).

Identify warning signs – In due diligence background investigations, look for certain red flags, facts that indicate past fraudulent activities or potential for fraud. These are the deal breakers, such as a past conviction for fraud, or lying about a degree or previous employment. Then there are the yellow flags, the signals that, taken individually, don’t amount to much, but, when combined with other yellow flags, add up to some concerns.

Analyze results – After you finish your research, it’s time to take a look at the results and determine what they tell you. Do your findings inspire action, or is something missing? What recommendations can you make to facilitate decisions? What’s the best format for delivery?

In due diligence background investigations, you can’t find everything there is to know about your subjects. Investigators should help clients narrow their focus, and concentrate on these five simple goals to help spot fraudsters–before they do their damage.

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Due diligence background investigations come in all flavors. They’re generally customized according to industry, level of risk, and time constraints. There’s one component, though, that should be included in all background checks on people and companies–the media report.

What’s a media report?

It’s the section of a background investigation that covers news and social media. It complements public records findings, and it offers insights into both good and bad behavior that can help you decide whether or not this is the kind of person with whom you want to do business. As one long-time client says, “It provides the color.” Sometimes there’s nothing, and sometimes you strike gold, like the time we learned that our subject was recently convicted of securities fraud in a non-U.S. court.

Why is the media report so important?

Many red flags don’t make it into the public record, including claims settled out of court. At times, it’s a workaround for when we don’t have the consent needed for an official degree verification. Also, public records can be incomplete, and a news article about a legal proceeding might fill in a few details. Finally, the information you find in your media searching provides leads for further investigations. For example, we once learned–from our subject’s wife’s Facebook page–that were living in a country different from the one he claimed in disclosure forms, which changed the direction of our investigation.

Why do people skip the media report?

Searching news and social media means going past a basic Google search, and it takes time and some specialized sources. Because of the type of analysis needed, it requires a human touch and can’t be done by a machine. Also, investigators often believe that their subject isn’t famous enough for news coverage, even though local papers share lots of useful info about their current or one-time residents. And sometimes, no news is good news.

How do you create a media report?

Here are a few tips for including news and social media in your background investigations:

Use more than one search engine – Google is a good start, but you need some variety. More than once, Bing has come to the rescue with content not found elsewhere–like our subject’s blog posts that explained the two-year gap in her work history. Also try some other Google alternatives.

Use fee-based news sources – Search engines and other free sites don’t cover everything. We use LexisNexis, Dow Jones Factiva, and ProQuest Dialog (yes, all three), and we frequently find content in one that doesn’t appear in the others.

Use specialized sources – Search news websites, and check social platforms directly to see what your subject or their family are posting. Also research any industry sources not included in the premium databases.

Look for the good and the bad – Don’t just focus on the negative news. You want to get the full picture of how someone operates in their personal and professional lives.

Analyze, refine, report – Look for connections in your findings and identify gaps or new leads. Go back to searching news and/or public records, if needed. Include only what’s necessary, highlight any red flags, and format your report so it’s easy to read and digest.

The media report is an essential part of any due diligence background investigation. It may take some additional time, money, and effort, but it’s well worth it–and it could add some color to your findings.

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I’ve been collecting articles that illustrate some of the best reasons for conducting due diligence and why so many skip this step. It’s time to share these with you, starting with what Walgreens executives did while vetting Theranos prior to their soon-to-be doomed partnership .

As reported by the Wall Street Journal, before announcing the partnership in 2013, some Walgreens executives had their doubts about the firm. The veil of secrecy surrounding their technology and the stonewalling on the part of Theranos when asked for information raised some red flags, as they should. But Walgreens kept on going because – and here’s the kicker, which makes Walgreens the first to earn their place in our due diligence hall of shame:

“If Safeway trusted Theranos, then Walgreens could, too, the Walgreens officials believed.”

So, just in case ignoring the excessive-secrecy red flag wasn’t enough, Walgreens committed the cardinal sin of due diligence – assuming that someone else checked out their new business partners.

If that were true, we wouldn’t find so many fake college degrees. When I discover a “seasoned” (over 50) hedge fund manager’s non-existent MBA, I wonder if I’m the first investigator to check them out during their long career. And if they had been investigated, remember that not all background checks are the same.

Don’t become a candidate for the due diligence hall of shame. Never, ever make assumptions, and –  even if someone tells you they’ve already done a background check – make sure you check again.

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