Outrageous Scams in Financing: Not So Unusual After All

10 April 2014 Technology Transactions Today Blog

When fundraising, remember—everyone is trying to cheat you.

Well, that’s not really true, but it’s obvious that we’d all be skeptical if a foreign “prince” is offering a start-up company several million dollars with almost no conditions. It might be easy to see through the prince’s scam offer, but it isn’t always that clear.

Several weeks ago, for example, one of our clients was approached by a seemingly legitimate overseas investment company that offered the client a sizable loan with little due diligence necessary. The company had a passable website, email addresses that appeared legitimate (as opposed to Hotmail or Gmail addresses), telephone numbers, etc. A representative of the company engaged with the client first, next with lawyers here at Foley on conference calls, and eventually presented a term sheet for the multimillion dollar loan. In exchange, the investment company wanted the client to buy an insurance bond securing payment on the loan, to be purchased through the company and paid for prior to the loan closing. That’s when we cut off discussions.

It’s actually a fairly common scam. In another instance a few years ago, another client was approached by a potential overseas investor whose family supposedly owned a diamond mine. We were finalizing the negotiation on terms for an investment when a simple background check showed that there was no diamond mine and no cash for an investment. We still don’t know exactly how the scam was intended to play out, but again, we cut off discussions immediately. Maybe the investor just liked to lead people on.

Stories aside, the real problem is that we’ve all seen investments come together too quickly, with little diligence from unknown investors. Successful investments like these do occasionally happen. But be careful and don’t be dazzled by the prospect of money—there is no free lunch (even from a prince). Start with some diligent research on your potential investors before you’re too far down the road, whether they’re performing much diligence on your company or not. Start simple enough with Google, but be prepared to do professional background checks.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Insights

A Review of Recent Whistleblower Developments
19 July 2019
Legal News: Whistleblower Developments
Cloud security inadequate for Cyber threats, are you surprised?
19 July 2019
Internet, IT & e-Discovery Blog
Blockchain: A Tool With a Future in Healthcare
18 July 2019
Health Care Law Today
Do You Know What IMMEX Stands For?
16 July 2019
Dashboard Insights
Review of 2020 Medicare Changes for Telehealth
11 December 2019
Member Call
2019 NDI Executive Exchange
14-15 November 2019
Chicago, IL
MAGI’s Clinical Research Conference
29 October 2019
Las Vegas, NV
Association for Corporate Counsel Annual Meeting 2019
27-30 October 2019
Phoenix, AZ