How to Perform a Background Check

 

The objective of this web page is to give you the correct and most inexpensive sources to go to for the information you need to perform a thorough background check on any company or individual. Based on the results, you will be able to quickly decipher whether you should move forward with the rest of your due diligence or pull the plug and run. More specifically, the information contained in this chapter will do 3 things;

1)   Show you exactly where to go to do a thorough background check on an individual or company, thus saving you time, money and avoiding unnecessary exposure to you personally.

2)   Give you the ability to track down someone that might have scammed you in the past and disappeared with your money.

3)   Enable you to research any and all persons you might encounter whether personally, online or in business.

The Following is an 8 Step Process in order to do a background check on an individual or company.

 

Step 1

Magnifying GlassGather as much information as you can on the person you are doing the background check on e.g. first name, middle name if possible, last name, home address, phone number, relatives if possible, prior residence, name of current employer, past employers, social security number, date of birth, where they attended school, hometown they grew up in, and any other related information you can think of.

In all actuality you will only be able to gather a fraction of this information so don’t get discouraged by that.

Step 2

One of the quickest and most immediate sources for gathering general information about an individual is found on the Google search engine. So go to www.google.com and in the search box type the person’s full name in quotation marks for example; “John Doe” or type in the individuals name and type criminal record, the name of the city they live in, etc. (“john Doe” + “criminal records”) or (“John Doe” + “Denver”) or some other related word.

​​This is where the information gathering starts. Social networking is such a big part of our society that in most cases you will have a lot of information pop up from facebook.com, twitter.com, linkedin.com, blogger.com, wordpress.com, technorat.com, among other sites. If you can’t find the individual you are researching on any one of those or similar sites, to me that is a red flag. Who are they hiding from or is the name they are using an alias? The information you do find will not only tell you a lot about who these people are, there interests, business background, family and friends, etc. but it will also enable you to look for consistency in information they have already given you about themselves. For example; if they tell you they are married and you find them on a singles dating website that would definitely be an issue for concern. Also, with the information you find on Google you will be able to combine with the information you had already gathered in Step 1 so you can research this person in more detail.

Step 3

MugshotNext, go to the website www.mugshots.com This is a search engine for official law enforcement records, including more specifically photographs and mug shots. Public records and other material displayed on “The Mugshots.com Database” are obtained from a variety of sources, including but not limited to official governmental sources and/or other third-party licensing agreement(s).

While publisher, the owner of mugshots.com, is perfectly within its rights to publish Official Records, protected by various state and federal laws, publisher has made the ethical decision to accommodate a number of situations where a case has been concluded. Those situations are specific and limited to the following:

–Charges have been legally Expunged, or sealed
–Juvenile Records, (under 18 at the time of arrest)
–Disposition of Acquittal or not guilty
–Clemency, pardon, or amnesty commutation
–Non-adjudicated Disposition​ Adjudication withheld
–Dismissal of charge
–Misdemeanor charge
–Non-violent charge
–Diversion Program
–Nolle Prosequi
–Deceased relative

In other words, not everybody that has ever been booked appears on mugshots.com. For this reason, even if the person you are researching does not show up on this website you still need to continue with your background check.

Step 4

​​​​The next website you need to go to is www.Pacer.gov This is a valuable website which gives the general public access to all Federal Electronic Court Records. The PACER website was developed by the federal Judiciary to provide public access to court information via a centralized service. This service provides case and docket information for all district, bankruptcy, and appellate courts. PACER currently hosts approximately 500 million case file documents. These are available immediately after they have been electronically filed. According to Pacer no other court system provides as rapid access to as much case information.​​​

Just a reminder, Pacer only provides information on those cases that involved the Federal Judiciary System. If you are doing a background check on someone that was booked, tried or prosecuted at the state or county level their records will not show up on the PACER website. You will have to go directly to the state or county in which they were prosecuted which at this point you probably don’t know when and if they ever have. We will address that at a subsequent Step.

Step 5

Supreme CourtThe next website to go to​ is www.nsopw.gov.The Dru Sjodin National Sex Offender Public Website (NSOPW), coordinated by the U.S. Department of Justice, is a cooperative effort between jurisdictions hosting public sex offender registries (“Jurisdictions”) and the federal government. The information on this website is offered free of charge to the public. These Jurisdictions includes all 50 states, U.S. Territories, the District of Columbia, and participating tribes. The Website provides an advanced search tool that allows you to submit a single national query to obtain information about sex offenders;

The criteria for searching are limited to what each individual jurisdiction may provide. Also, because information is hosted by each jurisdiction and not by the federal government, search results should be verified by the user in the jurisdiction where the information is posted. Users are advised to visit the corresponding jurisdiction websites for further information and/or guidance, as appropriate.


Before we go to the next step I need to explain that there are a lot of different investments within the securities industry. Not every company is regulated by the same regulatory agency. For this reason, when you are doing a background check on an individual or company you will need to take into consideration what the investment is in order to determine which regulatory agency you should go to for information. For example; if you are working with a broker or broker dealer you will go to FINRA, for municipal bonds you will go to MSRB or EMMA, for public companies you will go to EDGAR and for private companies you will go to your local state or federal Securities and Exchange Commission (SEC).

Providing full disclosure or transparency to investors by the company representing an investment is a mandatory prerequisite with all of the regulatory agencies that oversee the investment industry whether state, Federal or otherwise. It is your right as an investor to have access to any and all material information about a company before investing and during the holding period, including potential risk factors. Private companies raising capital are exempt to some extent from the disclosure laws and/or are not regulated as closely as public companies. In other words, private companies, unlike public companies are not required to file audited financial statements and other annual and quarterly filings such as the Form 10-K, 10-Q, 8-K, etc. Although private companies who are raising capital have to strictly adhere to disclosure laws, the information they are required to provide are not as detailed, not as accessible to the general public and rarely provide audited financial statements. ​

The point I’m trying to make is that when you are doing a background check on a company it is much easier to find accurate information on a public company than a private company. The main reason for this is because public companies are required to adhere to quarterly and annual filing requirements including audited financial statements, material changes within the company, etc. When looking at a private company, promissory notes, real estate and a number of other related investments, access to this type of information is much more difficult to obtain and tends to be less reliable. In other words, you cannot count 100% on the information given to you by those representing private investments. You will have to dig deeper and document the truth and accuracy of the information you are being provided.​

As I explain each regulatory website I will also identify which investments they regulate so that you can go to the right source for the information you are looking for and don’t have to waste any valuable or unnecessary time. Each one of these regulatory websites provide comprehensive information that will be very beneficial as you proceed with your background check on the sales representative, brokers, broker dealers, financial advisors, and the investment companies themselves.


Step 6

Finra

 

 

www.finra.org – The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms doing business in the United States. FINRA’s mission is to protect America’s investors by making sure the securities industry operates fairly and honestly. FINRA oversees approximately 4,335 brokerage firms, about 163,370 branch offices and approximately 635,490 registered securities representatives. FINRA has approximately 3,300 employees and operates from Washington, DC, and New York, NY, with 20 regional offices around the country. For more than 70 years, FINRA has played a critical role in America’s financial system, working to protect investors. Today, nearly 53 million American investing households count on FINRA to make sure the securities markets operate fairly and honestly

FINRA is one of the leading sites you should go to in order to find out whether the sales representative has the proper licenses and is legally registered to sell certain securities. FINRA is also an excellent source to find out whether the broker has had any prior or pending actions against them for securities fraud, misrepresentation or other possible securities violations. This would include being associated with any prior companies that may have had legal action taken against them for the same or similar securities violations.

​​All brokerage firms likewise must be registered with FINRA in order to sell securities. You will definitely want to inquire about any brokerage firm you are communicating with and make sure first of all they are properly registered to sell securities and second to find out what kind of complaints and possible legal action has been taken against them for securities violations. From time to time you will come across a licensed broker or registered broker dealer firm that has had their hands slapped for various violations or infractions of the securities laws. This does not necessarily mean the broker or the company is bad. Most if not all of the largest brokerage firms in the country have paid hundreds of thousands of dollars if not millions in fines for securities violations. However, you will want to know specifically what those violations have been for, how recently they occurred, the details surrounding the action and if they are still authorized or licensed to sell securities. This is all part of your due diligence. The information you find will allow you to better access how and if you want to continue working with the brokerage firm or broker any further.

When you go on the FINRA’s website you will be able to access a plethora of information on brokers, broker dealers, investment advisors, etc. Take the time to peruse the website and become familiar with its services and the educational tools they make available. For example you can get details on a broker’s background and qualifications for free on FINRA’s BrokerCheck website. FINRA also has an Investment Adviser Public Disclosure website which provides information about investment advisor firms registered with the SEC and most state-registered investment advisor firms as well. This, along with many other valuable services is provided by FINRA for free to the general public.

​If you are not sure who to contact or have any questions regarding checking the background of an investment professional, call the SEC’s toll-free investor assistance line at (800) 732-0330.

​Other investment resources provided by FINRA are as follows;

      • ​ Annuities and Insurance Auctions
      • Rate Securities
      • Bank Products
      • Bonds
      • College Savings Plans
      • Futures & Options
      • Mutual Funds
      • Stocks

Step 7

If you are considering investing in bonds you will want to go to the Electronic Municipal Market Access (EMMA) website. The free website was set up by FINRA and the Municipal Securities Rulemaking Board (MSRB) MSRB’s provides investors with key information about municipal bonds and approximately 529 college savings plans. The MSRB is the self-regulatory organization (SRO) for brokers, dealers, banks and municipal advisors that engage in municipal securities and advisory activities. An SRO is an entity that regulates its industry through the adoption of rules governing the conduct of its members. The MSRB has operated under Congressional mandate with oversight by the Securities and Exchange Commission since 1975.

Information available to investors on the EMMA website includes:

      • An Education Center, which helps investors better understand market data and disclosure documents for municipal bonds and 529 College Savings Plans
      • A video showing what is on the website and how to access it

Step 8

Securities and Exchange CommissionEDGAR is the acronym for (Electronic Data Gathering, Analysis and Retrieval) which was developed by the SEC (Securities and Exchange Commission). The purpose of the database among other things is to provide FREE public access to corporate information. This system allows individuals and companies to research a company’s activities, registration statements, prospectuses, and periodic reports, including financial statements. EDGAR also provides access to correspondence about corporate filings reviewed by the SEC.

The EDGAR website has a great tutorial on how to use it so investors can easily extract valuable information on company’s they are serious about investing with. For example, if you type in the name of the company you want to research or its ticker symbol and do a Full-Test Search you will be able to view the company’s full text of EDGAR filings for the last four years based on keywords. Search results appear as a list of filings, beginning with the most recent. The types of filings are shown in the left-hand column including the company’s Form 10-K’s, 10-Q’s, 8-K’s, etc.

Here are the most common types of documents you will find on file with the SEC, which will help you gather valuable information on any public company:

 


Corporate Reports

 

Quarterly and annual corporate reports describe the business including financial statements that show where the company’s money came from and how it was spent. The following forms are required to be filed by each corporation;

 

Annual Reports – Form 10-K. The annual report includes the company’s history, audited financial statements, a discussion of products and services, a review of the organization and its operations, and a discussion of the company’s major markets.

 Quarterly Reports – Form 10-Q. Each quarter, companies file unaudited financial statements and information about the company’s operations in the previous three months. The 10-Q often compares the company’s performance in the current quarter to the previous quarter, and to the same quarter in the prior year.

 

​​There are 4 primary financial statements:

​​Balance sheets show a company’s assets and liabilities at a fixed point in time.

Income statements show how much money a company made and spent over a period of time.

 ​​Cash flow statements show the exchange of money between a company and the outside world over a period of time.

 Statement of shareholders’ equity shows changes in the value of owned stock in the company over time.

Other reports of interest to investors are also available on EDGAR including:

 

Registration Statements. By law, public companies in the U.S. must disclose important financial information before they issue securities such as stocks and bonds for sale to the public. This includes a description of the security being offered; information about the company’s properties, business, and management; and financial statements audited by independent auditors. The SEC may examine a company’s registration statement to determine whether it complies with U.S. disclosure requirements but it does not evaluate the merits of offerings to determine if the securities are “good” investments.

 Form 8-K. Companies file this form with the SEC to announce major events that shareholders should know about, including bankruptcy proceedings, a change in corporate leadership (such as a new director or officer), and preliminary earnings announcements.

 Forms 3, 4, and 5. Corporate insiders – the company’s officers and directors, and anyone owning more than 10% of its stock – must file a “statement of ownership” about those securities with the SEC.

 Form 3 is the initial ownership statement.

 Form 4 reports changes in ownership when the owners buy or sell some of their stock, and must be filed within two business days of the transaction.

 Form 5 is used to report any transactions that should have been reported earlier on a Form 4, or that were eligible for deferred reporting. If a Form 5 must be filed, it is due 45 days after the end of the company’s fiscal year. 

 

How to Read a 10-K​​

​All public companies are required to file annually with FINRA a Form 10-K. The 10-K provides detailed information on what the company does, history, financial statements sand supplementary data, potential risk and a wealth of other pertinent information. For more current information on a company you would look up the Form 10-Q which is filed quarterly and requires more current information.

The following is a synopsis of what you will find on a Form 10-K

​The 10-K includes these sections:

      • “Selected Financial Data” provides certain financial information about the company for the last five years. You can find much more detailed financial information on the past three years in a separate section called, “Financial Statements and Supplementary Data.”
      • “Management’s Discussion and Analysis of Financial Condition and Results of Operations” gives the company’s view on the business results of the past fiscal year. This section, known as the MD&A for short, allows company management to tell its story in its own words.
      • “Financial Statements and Supplementary Data” contains the company’s audited financial statements, including the income statement, balance sheets, and statement of cash flows.

Form 8-K​​

​Form 8-K provides investors with current information allowing them to make more informed decisions. The type of information required to be disclosed on Form 8-K are generally considered to be “material.” In other words the information provided would include any and all pertinent activities of the company that can or has adversely affected the company or its investors.​

Companies typically provide a number of 8-Ks throughout the year, whenever significant corporate events take place that trigger a disclosure. Companies must file 8-Ks promptly, rather than waiting until their next periodic report, such as the quarterly report (on Form 10-Q) or annual report (on Form 10-K). Companies are required to make most 8-K disclosures within four business days of the triggering event and in some cases even earlier.

​​The public can find 8-Ks on the SEC’s EDGAR website.