Due Diligence is to perform an intensive case study of the product or service in question, wherein the investors may appoint auditors, investigators to decipher the credit-worthiness, business operations, financial database of the suspicious organisation.
And thinking that due diligence is for the easily deceivable minds is analogous to turning a blind eye to the threats around you. The most recent case in due diligence sets an example.
When a revolutionary Silicon Valley Biotech start-up– Theranos –pooled up $9 billion funds through the world’s top Venture Capitalists in 2015, no one imagined that after 2 years of grandeur, the company would be accused of deceit and fraud by the U.S. Securities and Exchange Commission.
Projected as the “Steve Jobs” of medical industry, Theranos’ CEO Elizabeth Holmes claimed to have discovered a technology which uses 1/100th amount of blood sample for performing highly comprehensive laboratory tests.
But neither the working nor the expertise to achieve such a quantum leap was apparent as auditors began questioning the capabilities of these claims.
What did the investors lack? – Due Diligence
Besides false and misguiding visionary claims, organisations may also dig into other illegitimate activities to extract confidential data out of the users. Here are the two most common-
Spoofing is the act of falsely disguising oneself or an organisation as a legit, valid entity. This way users are enticed to hand over their personal information such as banking credentials and passwords directly to the posing organisation.
This issue under due diligence has recently won a world-wide attention, wherein fake news sites are misused to spread politically controversial information like wild fire.
Personal emails, phone calls or text messages from impersonating bankers, customer service portals, or even Company CEOs have led to billions of losses in the US alone. This technique is known as Social Engineering, wherein fraudulent peeps wear a sheep’s costume to cheat potential customers.
Roping in 97% of the world’s internet using population, phishing emails, pretentious organisations and fake websites are wash-trading over the market. Due Diligence or well-informed investment planning is of crucial importance.