Earlier this month the former owner of the Chicago Rush arena football franchise, David A. Staral, Jr., was sentenced to over three years in federal prison plus $139,000 in restitution to be paid to three investors he swindled, culminating a long lesson in the importance of due diligence.
A Bad Playbook
Staral embarked on a series of poor decisions in what the U.S. district judge trying the case described as “just one opportunity for fraud after another.” Clues as to what Staral was capable of should have been evident to anyone who reviewed his sordid financial history, which includes three felony convictions, multiple lawsuits and liens and two bankruptcy filings, one of which was filed a month before Staral fraudulently represented to the league that he had a net worth of more than $5 million. These red flags surely should have been cause for concern during the vetting process and due diligence associated with his buying of the team, though what exactly that entailed is anyone’s guess as the league president refused to comment on what steps the league took in researching Staral and his background.
Know the Limitations of Online Sources
When it comes to performing due diligence investigations it is imperative to go beyond basic Google searches and inexpensive “background check” services available online. Many of the records mentioned above, including the three felony convictions, were filed with the Cook County Circuit Court in Illinois, where most criminal case records are only searchable on location in one of the courthouses. Online third-party databases are spotty at best when it comes to coverage of Cook County and it is likely that Staral may have had a “clean” record according to such a search, if one were run at all.
Unfortunately there is no one-stop-shop for criminal history searches available to investigative agencies, and even the FBI’s National Crime Information Center database is subject to inaccurate information now and then.
The Best Defense Is a Good Offense
As with most important decisions in business and personal life, hindsight is always 20/20. We have no crystal balls, time machines or other definitive insights into which is the path of least harm. However, when it comes to business transactions, mergers, acquisitions or otherwise placing assets and reputation on the line, comprehensive due diligence is the next best thing.