The Venture Capital Broker Scam

By Kevin Bousquet

Corpa Investigation
www.corpa.com

Scams To Watch For (If you are seeking investment)

If you use a company or a middleman such a loan broker to try to find you an investor or a venture capitalist, you may be asked to pay a large fee up front before any financing has been obtained. This advance payment may be called a processing fee, finder’s fee, or credit application fee.

Prior to being told about the up-front fee, you will be put through an exhaustive array of frustrating paper work which will include credit applications, the business plan, references, co-signers, numerous interviews, etc.Even though you have been told the fee is completely refundable, you may have trouble collecting your refund through the court system if the middleman has no assets.

You should be aware that there are thousands of fraudulent companies and fraudulent middlemen who make their living scamming for these processing fees.

The agreement between you will be so fine that you may find yourself in the cold as a result of some unconditional clause in the contract. There are hundreds of reasons why you could be denied independent financing under the contact.This processing fee scam has gotten so bad there has been new legislation written in many States and Provinces to protect consumers from it. This type of scam is most commonly found in the mortgage broker and loan broker field. I could write a book on the number of mortgage brokers I have investigated in my career.If you are using a middleman you must check references.

Have them give you the name of 10 to 20 individuals for whom financing has been successfully obtained. Pick up the phone and call these individuals.If you are nervous about paying the finder’s fee, pay the fee to your lawyer in “trust.” Your lawyer will disburse the finder’s fee only when the financing is in place. Just have your lawyer write the middleman a letter confirming that his fees are being held in trust upon completion of financing. It must be your lawyer, and not the lawyer acting for the middleman.There are a number of legitimate middlemen out there who work on a “No Find No Fee” basis; to find them you’re going to have to call around.

A reputable real estate lawyer or securities lawyer should be able to refer you to someone.We are not stereotyping these middlemen. We’re merely suggesting that if you are dealing with an individual or a company whom you don’t know, you must check references.You may even wish to perform a litigation search to see if the middleman has ever been a defendant in a lawsuit. This basic search should cost you no more than $100.Scams To Watch For (If you are an investor) Needless to say, the investigative and due diligence efforts that have to be made by an investor cannot be summarized in a few paragraphs.

There is an endless number of situations in which investors have been scammed lending money to new ventures that were nothing more than fraudulent paper corporations with no real foundation. The money gets invested into a corporation, the directors abscond with the money, and the company goes bankrupt. The same scam can apply to fraudulent real estate deals.We would suggest that all investors conduct extensive due diligence and investigative research before extending money to any individual or company.

It is important to investigate not only the company you’re looking to invest in, but most of all the individuals who are truly behind the company.Do these individuals have criminal records? Have they been defendants in lawsuits? Is there a history of bankruptcy, in which the individual formed a company that was shortly bankrupted after being financed by investors?It will be necessary to know where these individuals were before they started their new venture. If they were in a previous business, why did it fail? What is the likelihood of success this time around?We would again suggest that if you do not know how to do your own due diligence or homework (or you just don’t have the time) then you may wish to consider an outside source.It is best to go to a corporate lawyer (in the city where you reside) who can refer you to a reputable Private Investigator or Forensic Accountant.