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Private Equity Manager
September 2005
INTERNATIONAL SCAM OF MYSTERY
It's a global business that relies on the prestige that private equity firms have built over the years. We speak now not of actual private equity firms, but of the growing collection of international fraudsters who steal the names and trademarks of private equity firms in an attempt to scam unsuspecting businesspeople.
Michael Kessler, the president and chief executive officer of New York private investigation firm Kessler International, is working on at least two cases now in which con artists have used fake websites and other online lies to portray themselves as legitimate venture capital firms. Kessler may be working on other cases, but he won't say.
Two clients include the National Venture Capital Association and Wellesley, Massachusetts venture capital veteran Battery Ventures. Both have recently seen their brands and Web properties get used by look-alike entities also claiming to be in the venture capital business.
In the case of the NVCA, a group calling itself the International Venture Capital Association developed a Web site (now gone missing) that bore a striking resemblance to that of the NVCA.
Battery Ventures has lately had to deal with a group calling itself American Battery Investment Group. At one point ABlG, based in China, featured a website with headshots of Battery's partners.
These frauds are similar to yet another instance of VC impersonation emanating from China -- a "private equity" firm called the American Union International Group appears to have stolen most of its website text from The Carlyle Group.
BRAND THEFT
Kessler calls these frauds "just regular old confidence games" adapted to a world that places great confidence in American business in general and private equity in particular. He says all of the targeted victims he's identified, who are typically asked to pay an up-front fee to the fake firms in exchange for the promise of some future service or investment, are either in Asia or Europe. But the fugazi firms always have US identities, says Kessler.
In the case of the fraudulent IVCA, Kessler says his firm's investigation traced myriad IP addresses and e-mail headers to China, but also discovered mail drop locations in the UK. Recently, Kessler worked with law enforcement agencies in the UK to conduct raids on various mail facilities, and items of computer equipment were seized. Police have now linked this network to bank accounts in China, Taiwan and Bangkok. The investigation is ongoing.
There may be more than one IVCA. Details are still murky, but an organization calling itself the IVCA appears to be linked to a certain Paulsmeier Group of Cape Town, South Africa, which claims in its Website to have "direct access to more than 4,000 funding syndicates, venture capital funders and investment angels" with the "funding capacity of the said funders exceed[ing] $ii billion." Paulsmeier claims to be affiliated with the Global Association of Billionaires and Millionaires as well as the founder of the IVCA.
In addition to fake Websites, shysters also portray themselves as real private equity investors in chat rooms, where they can lure victims with astute-sounding advice. Kessler says his firm discovered that fake posters were using the actual trademark symbol of Battery Ventures when participating on chat boards.
Kessler says he advises his clients, including private equity firms, to regularly conduct "web sweeps" in search of trademark violations and other forms of plagiary. Failure to do so could cause "your trademark to go down the toilet," says Kessler.
A fraudulent private equity operation can have many types of victims. Kessler was aided in his investigation by the operator of a web hosting company that had helped the mysterious parties in question build and maintain their VC-lookalike sites. The company was more than happy to say what it knew about the fraudsters -- they hadn't paid their bills in months.
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