Investors Hire Gumshoes to Snoop on Fund Managers

Investors are increasingly hiring private investigators to dig up dirt on fund managers in hopes of avoiding the next Madoff-style fraud, Bloomberg reports. Background checks are expensive—depending on the firm, they may cost $1,000 per company or individual investigated—and can take weeks, but investors say they are often highly effective at identifying questionable funds.

That’s because screw-ups tend to be screw-ups for life: If managers have dodgy practices, they’ve likely had run-ins with regulators in the past. Personal indiscretions, like citations for drunk driving, are also reliable red flags, investigators say. For example, Arthur Nadel, a manager from Florida who was recently caught for having perpetrated a $300 million investment fraud, was disbarred in New York in 1982. (More investor stories.)