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The Digital Detectives

The Burgeoning World of Corporate Security Has Gone From Cloak and Dagger to Computers and Databases
Daren Fonda
From the Print Edition:
Denzel Washington, Jan/Feb 98

(continued from page 2)

For firms such as I.G.I., cracking so-called "whitemail campaigns" has proved lucrative in recent years. In such cases, clients suspect an enemy of spreading rumors about their business or stock, and hire detectives to locate the culprit. "We now have a division with five full-time investigators working on these kinds of cases," says I.G.I. chairman Terry Lenzner. "We've handled cases where Silicon Valley companies have been targeted by short-sellers [traders who profit when the stock price falls]. They short massive amounts of the stock, and if it doesn't go down they leak negative information to the press or tip the FBI that the company may be a mob front. Usually the allegations are false and they can be charged with market manipulation or violating securities laws."

I.G.I. is considered one of the country's top three agencies (along with Kroll Associates and Decision Strategies/Fairfax) for large corporate investigations. Lenzner co-founded the firm in 1984, after a storied career as a Watergate prosecutor and private litigator--training that made him an ideal corporate sleuth. As deputy chief counsel for the Senate Watergate committee, he tracked millions in illegal contributions to president Richard Nixon's reelection campaign fund. After Watergate, as an attorney in private practice, he issued a massive report to the state of Alaska in 1977, documenting corruption and $1.5 billion in cost overruns in the building of the Alaska pipeline. He spent most of the next decade litigating claims against the contractors; when the suits finally ended, in 1986, the state had won more than $1 billion in settlements.

As a private detective, Lenzner works mainly for corporate interests. His 1992 report on corruption at the United Way of America brought down the charity's longtime president, William Aramony. The same year, he was hired by Martin Marietta and Lockheed to help prevent the LTV Corp. from selling its $300 million missile division to the French electronics giant, Thomson CSF. Both American companies had bid unsuccessfully for the business, and to persuade the Bush Administration to block the sale, they commissioned I.G.I. to investigate Thomson's sale of equipment to Iraq and Libya during the 1980s.

Aside from the corporate work, Lenzner has snooped for clients ranging from The Beatles, to Teddy Kennedy, to Ivana Trump, who commissioned him to look into the affairs (mostly business) of her ex-husband during their divorce proceedings. Then there was the case of one of America's greatest art heist: the 1991 theft of 13 paintings, including a Vermeer and Rembrandt's only known seascape, from the Isabel Gardner Museum in Boston. The paintings are still missing. But Lenzner says he has some new leads. "There are now two men in jail who claim to know where the paintings are being kept and are demanding the $5 million reward along with immunity against prosecution," he says of the ongoing case. "We're investigating their background to see if they're legitimate."

Last year, Lenzner landed another plum assignment: investigating contributions to President Clinton's 1996 reelection campaign, mainly due to his Watergate experience. Lenzner won't comment on his discoveries, but he did confirm that his client, the Democratic National Committee, returned "several million" in contributions to questionable donors based on money trails he uncovered.

For obvious reasons, I.G.I. and other agencies won't divulge their investigative methods. When asked how Kroll Associates gathers its "business intelligence," Ernest Brod, executive managing director, would say only, "We are out there not only working from the databases and the records in the way that consulting firms or investment banks are. We talk to former employees of companies. We look into the backgrounds of principals and executives of potential joint venture partners. We look into integrity issues, and operating strengths and weaknesses."

Like other agencies, Kroll says it operates under a strictly enforced code of conduct. To ease clients' concerns about unethical practices, Kroll has for years employed an in-house monitoring staff that polices the company's detectives. Other agencies vaunt similar claims. They say their business hinges on an understanding with clients that their stealthy ways won't jeopardize company secrets or kindle a criminal or civil suit for invasion of privacy. "That is our worst nightmare," says Decision Strategies' Schwartz.

Yet even top firms such as Kroll sometimes defend their snooping ways in court. In 1984, Philips Petroleum hired Kroll to dig up dirt on the corporate raider T. Boone Pickens, who was planning a hostile takeover of the oil giant. Pickens persuaded a Texas judge to issue a temporary restraining order against Kroll detectives. In court transcripts, his attorney claimed they were harassing members of his country club, former employees and family members in his home town of Amarillo, Texas. The order was overturned within 48 hours by a judge, who ruled that Kroll's questions were warranted.

In another 1980s case, Kroll agents working for Goldman Sachs were accused of impersonating a journalist and police officer when investigating Martin A. Siegel, the financier prosecuted for insider trading. When asked recently about the case, Kroll refused to comment. However, in a 1994 New York Times interview, Jules Kroll conceded that detectives working for the firm had occasionally skirted company policy by obtaining bank and telephone records of a target. Kroll told the Times that the company's "biggest black eye" came in 1990, when a Delaware judge forbade Kroll operatives from misrepresenting themselves while interviewing employees of a chemical company. Kroll's defense today: "It was a clever tactic by companies on the other side to chill our investigation," says Brod. "Nevertheless, we took it seriously, and we continue to take steps to make sure no one connected to our company oversteps the law."

Perhaps led by Kroll's example, the industry as a whole is trying to clean up its seamy public image. Many firms now operate out of well-heeled office towers, their sleuths as anonymous as Fortune 500 executives. The term "private investigator" has been replaced with tonier titles such as "investigative consultant" or "risk management specialist." And agencies are expanding their product lines, aggressively marketing them for corporate buyers. Kroll, for instance, offers a travel advisory service which alerts executives to politically unstable regions and terrorist threats in nearly 300 cities around the world. Another specialty from Kroll is classes in terrorism-avoidance for selected business clients (some tips: don't travel alone, vary driving and walking routes, carry a working cellular phone, don't accept drinks from strangers).

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