The Wall Street Journal reported last week that the Nasdaq employee who pleaded guilty to securities fraud in May 2011 had a history of drug abuse and fraud. read the article Hmm…this sounds so familiar….a schemer who had a history of scheming…oh, that’s right, because it happens all the time! Was there a way to prevent Donald Johnson, the Nasdaq employee, of defrauding investors of over $750,000 for his own personal gain? BACKGROUND CHECKS! Natch.
Nasdaq reportedly alleges they did, in fact, do a background check on Donald Johnson. Fine. But then this brings us to the fundamental difference between a background check (a real one) and a check-the-box-let’s-just-make-sure-he-didn’t-kill-anyone search. It’s the difference between cloud computing and DOS; an iPod and a Walkman; Toro sushi and Bumble Bee canned tuna…you get the picture.
Nasdaq hired Johnson in 1989. Three years prior, the Virginia Board of Nursing commenced an investigation into Johnson. He had been working at Fairfax Hospital and, as a result of the investigation, according to the records from this department, Johnson admitted he had not only consumed Schedule II drugs while on duty as a nurse but also falsified hospital records in order to steal these drugs from the hospital. Johnson was discharged from the U.S. Army Reserves where he was a captain and served as a nurse.
As we have explained to clients (both potential and existing) for over 20 years, comprehensive background checks are designed to uncover this sort of information to protect investors, board members, corporations and others. Contacting licensing departments and appropriate regulatory bodies is an essential component of background checks. This includes not only identifying any sanctions or disciplinary actions filed by the major regulatory agencies (SEC, FINRA, etc.) but also independently reaching out to government bodies that oversee the professions in which an individual has been involved from OSHA to the Departments of Nursing. These agencies provide critical information about an individual.
Johnson is one of many. We have seen numerous people lie about degrees received from Ivy League schools and certifications received (yes, people still lie about this stuff!) and, like Johnson, people who voluntarily do not disclose their troubled pasts hoping no one will check.
Lanny A. Breuer, the assistant attorney general of the Justice Department’s criminal division, called Johnson “a fox in a henhouse.” This is not a new role for Johnson: he was the same as a nurse in Virginia. He duped others around him, earned their trust and betrayed it. Donald Johnson is another example of why we all need to be more vigilant and use the information that is available to prevent more instances of fraud.