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Integrity & Awareness by Paul Burnstein

Wednesday, January 31, 2007

To Trust or Not to Trust, that is NOT the Question

I want to trust people. I try to believe in the basic goodness of all those I interact with. I like to believe that people do not choose to act maliciously.

I was working on an international deal that involved people from a few different countries. We were talking about a very large deal where one company was securing collateral for another company to get a loan. I was introduced to the potential lender by a broker I have worked with in the past. The broker and I did not see any of our deals close, but we did get to know each other a bit through the process.

In doing the due diligence on both sides, we found that the lender was unwilling to provide any form of references. We could not find any information on him online other than that he appeared to have been scammed a few years back in a Ugandan mail scheme (NOTE: No one from Africa needs your help to get their riches, that were left by their dead, diplomat father, out of their country!). I spoke with him and repeatedly asked for some form of reference. He denied me each time.

I spoke with the broker who had given me this connection; coincidentally he is a Londoner originally from Uganda. He was vacationing in Uganda and I called him to find out any information I could on the lender, including information on past deals they had done together. The broker was very vague. He did not have any examples of actual deals they had done together, but kept saying to trust him, that he knew the lender could perform. He was talking around in circles a bit and kept saying, "if we can't find any bad information on [the lender], then everything must be good." That logic is quite faulty. It is not about blind trust! Honesty is great, but in business we need to be able to do due diligence and know for ourselves what we are stepping into.

This was a big red flag. We did continue moving forward with discussions, only because the next stage was bank to bank communication that was safe for the borrower. Ironically, the deal fizzled because the borrower could not provide the required documentation to proceed. Perhaps this deal will come back my way again. If that is the case, I will take them to a different lender, a private investment bank that I have worked with in the past and I know that they can perform and are quite willing to be "checked out." This is a more expensive route, but there will be a lot less time wasted.

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