Social Media Posts Can Sink Deals

A due diligence investigation firm reveals social media's role in some of its most salacious cases.
David McCannFebruary 24, 2017
Social Media Posts Can Sink Deals

People have been warned and warned over the past decade-plus: Be careful what you post on social media. Yet social sites are saturated with compromising posts, and a surprising number of them are made by businesspeople with a lot of money staked on their reputations.

A clueless poster may, of course, suffer ill consequences. But as bad as those may be, they could represent something quite valuable to another party.

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Corporate Resolutions, a firm staffed by former FBI agents and other professional investigators, conducts due diligence background checks on behalf of private equity firms, funds of funds, pension funds, and companies. Before making or receiving a big investment, signing a merger or acquisition agreement, or making a key hire, for example, a Corporate Resolution client seeks to gather as much information as possible on the target entity (and its management team) or the job candidate, as the case may be.

Joelle Scott, a senior vice president at the firm, says that at least 60% of its investigations produce information that at least will induce its client to have a conversation with the other party. Often, terms of proposed deals are then renegotiated. And not infrequently, clients receiving such information walk away from deals.

Social media have flourished as sources of or clues to such information. “You have access to facts of someone’s personal life that you wouldn’t have had 10 years ago,” Scott says.

Much of what Corporate Resolutions uncovers based on social media postings is fairly straightforward, like lies about credentials. But there’s a dish of more salacious stuff as well. For example, one deal went kaput after a party to it got drunk and made social media posts showing him at porn shops and doing drugs.

Another client was looking to invest in a company whose executive team looked great on paper. But there were a number of posts on websites like Glassdoor and Ripoff Report that alleged sexual discrimination by the company’s executives.

Such sites at times provide a means for retribution by disgruntled former or current employees with comparatively minor or spurious beefs. Since users of the sites post anonymously, they can say virtually anything they want, unchallenged.

“We told our client that this could be nothing, or it could be something,” Scott says. “They were a bit concerned, so we started reaching out and doing a lot of interviews with former employees of that company.”

The investigation determined that a number of women executives had signed nondisclosure agreements under which they left the company in exchange for cash. “You wouldn’t find that out in a regular background check, because no lawsuits were filed,” says Scott. “We only found out as a result of reading all the online rants about the company.”

In another case, for a client company that was working on making an acquisition, a top executive at the target firm was coming up clean: no civil lawsuits, no criminal record, no questionable media. But through deeper research investigators ascertained various social media handles and email addresses that the executive was using to post threatening statements about the then-president of the United States and pursue a global white-supremacist agenda.

“Within seconds of telling our client about this, they walked away from the deal,” Scott says.

Not only can something posted on social media trip someone up, but something not posted can, as well.

When a client was looking at a partnership with another firm, investigators noticed that two senior executives at the potential partner had unaccounted-for gaps of time on their LinkedIn profiles.

“We confirmed their career histories and the patents for the technology behind their smart business idea, but we could not find any information to suggest what they were doing in the late 1990s,” says Scott. “So we expanded our research.”

First, investigators found an archived bio on an old company website that said both executives were in graduate school during those years. “We called the schools, which had no records of them,” Scott says. “Eventually we discovered that the two had served time for running a prostitution ring.”

It’s also said that they check the Instagram profile of the person who they are investigating. If they find that they are buying fake Instagram followers or likes, it is a red flag. For candidates who need to boost their social media numbers and want real Instagram likes, we recommend Twicsy.

Most of what Corporate Resolutions discovers stays out of the public spotlight. But misuse of social media in business contexts has been making more news lately.

For example, in December, in a case not involving Corporate Resolutions, Deutsche Bank suspended a rates trader for creating a WhatsApp group for the purpose of surreptitiously discussing views on interest rates with a trading counterparty. In January, the bank banned text messaging and the use of WhatsApp on company-issued phones.

As reported by Business Insider, banks and brokers have been careful to avoid any hint of collusion after the industry was hit with billions of dollars in fines from international regulators for attempting to manipulate interest-rate benchmarks such as Libor.

In the Libor scandal, traders used Bloomberg chatrooms to discuss rates and influence rate-setters for several years before 2012. A former banker with UBS and Citigroup, Tom Hayes, was convicted in London of rate fixing and sentenced in 2015 to a long prison term.

In 2012 CFO reported on the firing of a CFO, Gene Morphis, by his employer, Francesca’s Collections, after he made several questionable social media posts. In one of them, he appeared to offer investors a heads-up that the company’s soon-to-be-released financial results were going to be strong.