Kroll--Wall Street’s Super Sleuth
As the former prosecutors and ex-FBI agents at Kroll Associates see it, they are sort of the Rolls-Royce of private investigators.
In a business sometimes sullied by questionable tactics and indiscretion, Kroll prides itself on keeping its hands clean and mouth shut while digging into the background and activities of a corporate raider, prospective business partner or errant executive.
Many times, information unearthed by Kroll’s white-collar sleuths makes or breaks multimillion-dollar transactions.
“Wall Street’s private eye” is the way a New York lawyer once described Kroll.
A particularly great piece of dirt--say, a hidden criminal conviction or concealed ties to organized crime--is referred to by Kroll insiders as a “home run.” The worst charlatans join a rogue’s gallery known in Kroll offices as the “Hall of Slime.”
As with a Rolls, the price is steep. Hiring Kroll usually costs a minimum of $10,000 for an ordinary case, and the standard price up-front on a takeover deal is $50,000. After that, the sky’s the limit.
“They have extraordinarily good people, and they are equipped to jump totally into something really big,” said Steve Wilson, senior partner at the Los Angeles law firm of Latham & Watkins, who has employed Kroll on major takeover deals. “The only negative thing you can say about them is that they are expensive.”
Other Kroll clients complain about the size of the firm’s bills. But an increasing number of corporations are willing to pay the fare, particularly when millions of dollars and possibly the integrity of the company are on the line.
Last year, Kroll Associates handled 880 cases, and the figure will top 1,100 in 1988. Kroll has worked on hundreds of takeover battles in recent years and performed additional investigations ranging from “due diligence” inquiries to tracking down a $1.65-million apartment in New York’s Trump Tower owned by deposed Haitian ruler Jean-Claude Duvalier on behalf of the Haitian government.
In hostile takeovers, lawyers and investment banks hire Kroll to dig up information on the raider that may blow him out of the water--or at least provide grounds for an amicable settlement. If a big company suspects that an employee is stealing, Kroll can set up a sting operation to catch the worker in the act.
Corporate raider T. Boone Pickens Jr. complains that Kroll keeps a 2-foot-thick file on him that it sells for $500,000 to any company that Pickens goes after. A few years ago, he got a short-lived court order stopping Kroll investigators from poking around his hometown, Amarillo, Tex.
When Business Week suspected that people were using an early look at its stock-tip column to buy securities, the magazine’s lawyers hired Kroll. The firm’s job, said founder Jules B. Kroll in an interview, “was to find out who done it.” Among Kroll’s tasks was staking out the R. R. Donnelly & Sons plant in Torrance where Business Week is printed for Western distribution.
In another highly publicized matter, Kroll is playing a key role in the defense strategy of the New York investment house of Drexel Burnham Lambert and its Beverly Hills “junk bond” king, Michael Milken.
Faced with a civil lawsuit by the U.S. Securities and Exchange Commission, Drexel has hired Kroll to help discredit Ivan F. Boesky, the jailed stock speculator whose testimony will be central to the government’s case.
The SEC has even asked a court to order Drexel to turn over records of Kroll’s “inquiries, surveillance, research or investigations” of Boesky as well as any SEC employee or prosecutor who may have come under the firm’s scrutiny on behalf of the the investment bank.
Kroll’s presence extends well beyond the New York office founded in 1972 by Jules Kroll, a former Manhattan prosecutor. Today, 180 Kroll employees work out of offices in Manhattan, London, Washington, New Orleans, San Francisco, Beverly Hills and Hong Kong.
Much of the company’s growth is expected to come from the two West Coast offices, which are bringing in an increasing number of cases from the expanding Pacific Rim business in California.
“A substantial percentage of the firm’s business is still domestic, but more and more cases are coming from overseas, such as investors from Taiwan, Hong Kong and Japan,” said Charles E. Bohlen Jr., a lawyer and former banker who heads the Beverly Hills office.
San Francisco, with 22 employees, started in 1985 as the first Kroll office outside New York. The Beverly Hills office, opened last year with two permanent employees, has a staff of 11 and is searching for office space in downtown Los Angeles.
Benefited From Boom
Corporate America has always used private detectives, but the field has boomed in recent years on the wave of hostile takeovers. The new global economy has also been good for the private eyes because it introduces a lot of unknowns into business deals.
This growth has spawned a new breed of private detectives, who use sophisticated computer databases and other techniques for worldwide searches. Often the detectives tend to be retired FBI or Internal Revenue Service agents, with a smattering of ex-prosecutors. Firms such as New York-based Investigative Group Inc., known as IGI, and Chicago’s Niscor offer many of the same services as Kroll, but not on the same scale.
IGI is generally regarded as the industry’s No. 2 firm, with 35 employees and offices in New York, Los Angeles, Washington and London. One of its best-publicized cases involves working for lawyers hired by the Beatles in their suit against Capitol Records over the distribution of their albums.
“Cases are often large, complicated commercial and litigation problems where the key issue is what the hell happened,” said James B. Mintz, a former investigative reporter, who runs the firm along with Terry F. Lenzner, a former federal prosecutor, who was deputy counsel to the Senate Watergate Committee.
But no firm has benefited from the industry’s boom as Kroll has. After starting with cases involving abuses by purchasing agents, the firm conducted investigations in late 1979 and early 1980 of two men who would become key players in the merger mania of the 1980s, Anglo-French financier Sir James Goldsmith and raider Victor Posner.
“Those two cases brought us to the attention of Wall Street,” Kroll said in a telephone interview.
Then in 1981, Kroll hired William Kish, who had spent 37 years in the FBI, including a stint as attache at the U.S. Embassy in London. He brought a new ability to conduct international investigations, which Kroll has subsequently parlayed into a host of international clients.
For instance, when a West German bank recently discovered that an employee had used its computer to transfer $3 million to his account at a Hong Kong bank, the institution turned to Kroll to try to track down the culprit and recover its money.
Within two days, Kroll was working with German authorities and checking out clues in London, Munich, New York, San Francisco, Honolulu and Hong Kong.
Investigators questioned acquaintances of the suspect and discovered that he was traveling abroad with a friend and that his girlfriend was in the United States.
Kroll traced the girlfriend to the home of her aunt and uncle in San Francisco. She had left for Honolulu, but the relatives remembered that she had received some telephone calls from Hong Kong.
Kroll’s team missed the woman in Honolulu but persuaded an employee at the hotel where she stayed to check her telephone calls. The employee would say only that a call had gone to a hotel on the Kowloon side of Hong Kong.
Checking Kowloon hotels that cater to foreigners, Kroll discovered that the suspect had left for Bangkok, Thailand, using a new identity. A description was relayed to Thai police and to Kroll contacts in Bangkok.
Within a day, Thai police looking for the West German nabbed a man who fit the suspect’s description at a posh hotel. He was the wrong man, but he turned out to be another European who had been on the lam for seven years from a series of drug convictions. The police kept him in custody.
Kroll’s man in Bangkok, one of hundreds of subcontractors used by the firm around the world, then got a tip from an informant that the fugitive would be having lunch at a particular hotel.
Police were alerted, and Kroll employees in several offices around the world eagerly awaited the arrest as the lunch hour neared. The police were late, however, and missed the fugitive by 15 minutes.
“We expect to nail him any day now,” John C. Gibbons, the former top-ranking federal prosecutor who heads Kroll’s West Coast operations out of San Francisco, said last week.
Gibbons declined to identify the West German bank.
Confidentiality is a big ingredient in what Kroll sells. Kroll investigators are so close-mouthed that it’s been said that they wouldn’t tell you if your coat were on fire.
Gibbons, who was involved in the prosecution of Hitachi for stealing International Business Machines’ secrets and headed the criminal division of the U.S. attorney’s office in San Francisco, is one of several former federal prosecutors on the Kroll payroll. Another is William S. (Buck) Farmer, who was the lead prosecutor in the case against Navy spy Jerry Whitworth.
Kroll also employs a number of ex-FBI agents, some former business executives and one-time investigative journalists, such as former Wall Street Journal ace Jim Drinkhall. Each Kroll office also has a cadre of recent college graduates who turn their agile minds to scouring the hundreds of databases available through computers.
The San Francisco office limits its recruiting of researchers to UC Berkeley, where its applicants must graduate cum laude or above and must speak at least one foreign language. Last spring, 309 people applied for two openings. The Los Angeles office has shown a preference for the Claremont Colleges.
Kroll pays its people well, but many of the ex-prosecutors and other lawyers at Kroll could earn a lot more with big law firms. They are drawn to the excitement of being private investigators and to what they describe as the collegial atmosphere within the organization.
“Many of us are corporate misfits,” said Bohlen, who spent several years at a Minneapolis law firm after graduating from Yale Law School and also worked for First Interstate Bank. “These are people who are more comfortable asking questions and think that making trouble is a good thing. They all think this is great fun.”
Asking questions is at the heart of what Kroll does. “The best information that we get comes from talking to people,” said Thomas J. Cowley, who joined Kroll’s office in Beverly Hills after 10 years as an FBI agent. “There is always someone willing to talk. If you can find the right someone, you can find the right answer.”
The trick is knowing how to find the right person or the right document.
A corporation was considering a deal that would have given an outside executive a large stock position in the company. The corporation’s lawyers asked Kroll to check out the executive.
The first step was for a researcher to examine all the material available about the person through public records and computerized databases. Such checks can discover what kind of car someone drives, where they live and what they paid for their home and any other property they own. Divorce records can yield fascinating information about assets and personality.
Few businesses avoid being sued, and examining court records of such lawsuits can turn up not only a picture of business practices but a list of employees and competitors. Often, disgruntled ex-employees are ready sources of first-hand information, as well as of rumors and tips that Kroll can pursue.
The executive under Kroll’s microscope in this case turned out to have a history of trouble, including an indictment on criminal charges and tax problems in the United States and Canada.
“We presented the client with an arsenal and took him out of the deal,” said Wendy A. Pickering, a UC Berkeley graduate and researcher in Kroll’s San Francisco office. “We hit a home run.”
Sometimes the information comes in strange ways. Another female Kroll researcher telephoned the subject of an inquiry and, without identifying her purpose, began to ask him about his business.
The man began making sexual suggestions to the young woman over the telephone, which piqued her investigative interest. A check of public records found that he had a record of convictions for pandering and pimping. Another home run.
Kroll employees sometimes do not identify themselves or their purpose in telephone calls. They are called “pretext calls,” and there are no written guidelines for them. Kroll investigators simply say they are working for a consulting firm or doing business research. On rare occasions, they make up names for themselves and their employers, but they are not supposed to say that they work for another real company. Or a newspaper.
“We will do whatever is reasonable within the law,” said Cowley, the ex-FBI agent.
Raider Pickens is one of the few who has criticized the company’s tactics publicly. In late 1984, when he was battling for control of Phillips Petroleum, the oil giant’s New York law firm hired Kroll.
Pickens got an order restricting Kroll’s activities after the investigative firm telephoned dozens of employees and ex-employees of Pickens’ company as well as members of the Amarillo Country Club and his family.
A judge eventually overturned the order, however, and said: “I can’t see where anybody is sacrosanct in an investigation. I don’t know that anybody ought to be stopped from calling somebody else up and saying, ‘Will you talk to me?’ ”
But Kroll offers more than simple telephone calls and database searches.
Earlier this year, a major East Coast company became perplexed by the behavior of the chief executive of a Southern California subsidiary that made computer equipment. The executive was highly secretive, kept material locked in an office safe and was behind schedule on turning out an important new product. The parent firm turned to Kroll.
“They had a bad feeling about this person,” Buck Farmer said. “It wasn’t one thing, but a combination of things.”
The first step in an inquiry of this type is to have the researchers check the databases, searching for signs that the executive is spending significantly more on cars or homes than he is earning. They also examine records that contain the names of corporate officers and executives in a dozen or more states, trying to determine whether the executive or any family members may be associated with a company that competes with his employer.
In this case, the inquiry turned up an out-of-state company that listed the executive’s wife on the board of directors. Further searching turned up a Southern California address for the new out-of-state firm.
Kroll made discreet inquiries with neighboring businesses and determined that the new company was establishing relations with customers of the executive’s employer. The sales manager at the new company had recently quit the same post at the subsidiary, and the new operation appeared to be gearing up to sell patented products developed by the subsidiary.
But the essential piece of the puzzle was missing. Kroll needed to tie the executive to the new operation. His name was not on the corporate records, and no one who was interviewed could tie him to it. So Kroll placed him under surveillance.
After five days, the team watched him leave his office late one night and meet some people in the offices of the new company. Kroll took its evidence to the parent firm, and the executive was fired.
Kroll employees who do not have the investigative experience of a former prosecutor or FBI agent are often surprised by this sort of discovery.
Margaret L. Allen, a 22-year-old graduate of Claremont McKenna College who has worked for three months as a researcher in Kroll’s Beverly Hills office, said, “It’s amazing how many people are not who they say they are.”