How can we help?


Avoid investment fraud with essential due diligence

It is well known that a high percentage of transactions or investments fail to meet their expected targets. Case studies suggest that this can most often be mitigated by a proper due diligence exercise.

The importance of due diligence

For a buyer or an investor, due diligence offers the chance to truly understand the ins and outs of their potential target, and the associated risks and pitfalls that may accompany ownership or investment. For a seller or founder, this critical evaluation of its business is a crucial opportunity to identify and make good any issues prior to buyer/investment involvement and will help deliver a smooth path to completion.

There are great risks of running an insufficient or inaccurate due diligence, our experience confirms that this often remains an overlooked, or underestimated, part of the investment, or transaction, timeline.

The Theranos founder conviction

Recently, the media has been dominated by the conviction, by a Californian jury, of four counts of fraud by Elizabeth Holmes founder of Theranos. The meteoric rise and capitulation of Theranos, the purported life-changing health technology company, makes for a fascinating case study.

Founded by Ms Holmes in 2003, the company claimed to have created blood-test technology that required only a very small sample to provide automated and rapid results for conditions such as cancer and diabetes. By 2015 the technology’s validity was under huge scrutiny from medical researchers and investigative journalists.

Exposes were published and by 2018 the company had dissolved. By this point however, Ms Holmes had already raised $700 million from investors, including some very high-profile and influential individuals. Investor fraud was alleged, and, at the beginning of this year, Ms Holmes was convicted.

Whilst the fraud charges relate to the information provided to the Investors, and are not a reflection of the investors themselves, this remains a good reminder of the importance of robust financial and legal due diligence.

For a buyer or an investor, due diligence offers the chance to truly understand the ins and outs of their potential target, and the associated risks and pitfalls that may accompany ownership or investment.

How to conduct due diligence?

It is important to have the support of an experienced advisors in this area, and together go through the due diligence checklist

Three types of due diligence include:

  • Legal due diligence -lawyers will check the legal contracts that the business has legal title to sell, ownership of all the assets and that regulatory and litigation issues are fully addressed
  • Financial due diligence – checking the numbers and making sure consistency and no hidden financial issues
  • Commercial due diligence – finding out the business’ place in the marketplace, checking competitors and the regulatory environment
    Whilst by no means a guarantee of protection against criminal actions, any ability to mitigate the risks associated with investing into a business should have a high value attributed to it.

Due diligence is most often the key to reassuring the buyer/investor that financial, operational and legal processes have been complied with and whether there are any areas which need to be addressed or which may impact their decision to proceed. If you are involved in a merger or acquisition, contact our commercial lawyers.

About this article

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

About this article

Read, listen and watch our latest insights

  • 22 February 2024
  • Employment

Time to take the heat off menopausal women

On 22 February 2024, the EHRC released guidance and resources for employers designed to help employers understand their legal obligations in relation to supporting workers experiencing menopausal symptoms.

  • 22 February 2024
  • Employment

Talking Employment Law: What to do if you’re at risk of redundancy

In this podcast, Harry Berryman and Rebecca Dowle, members of the employment team, will talk through the steps that need to be taken for a redundancy to be fair and the range of criteria that can be used when determining which employees will be made redundant.

  • 21 February 2024
  • Immigration

FAQs Partner Visa UK

Discover the UK Spouse Visa: eligibility, finances, relationship criteria, and the latest updates in 2024 for a successful application.

  • 19 February 2024
  • Privacy and Data Protection

The role of Data Protection Officers in ensuring compliance

How many of us receive marketing calls for products and services we did not sign up for?

  • 12 February 2024
  • Employment

The World of Work in 2024- What Can HR Expect?

In many senses, 2024 is unlikely to be a year with radical ruptures from those that have gone before it. The significance of 2024 though, is that it is likely to build upon those megatrends impacting the world of work, which have been emerging for some time now and are only likely to strengthen as we move on in time.

  • 09 February 2024
  • Privacy and Data Protection

Are we suffering from cookie fatigue?

An over-indulgence in Easter treats might not be the only cookie fatigue that individuals will suffer this year according to the Information Commissioners Office (ICO).