Identity Theft In Fundraising – Nearly a Case Study

You have been contacted by a foreign investor who is looking to make a sizeable investment in your startup?

Great! However, it might be necessary to do more than the usual due diligence on the investor, as one founder recently discovered.

The founder was contacted by an investor whose initial background check was clear – such a person exists and has been active in the startup investment scene. During the negotiations, communication was shifted from the investor to its financial advisor – also not something out of the ordinary, since lawyers and other external advisors are usually involved in the process.

The financial advisor asked for a draft of the agreement, which was promptly sent over by the founder. That was when things got a bit unusual.

After sending over the agreement, the founder quickly received confirmation about the suitability of the terms and the parties were proceeding with signing the agreement.

In addition to the regular data asked by the financial advisor of the investor, they also required a copy of the passport of the founder and said that the agreement would be “legalized”. The meaning and importance of this requirement remained unclear to the founder.

After requesting clarifications from the financial advisor, the founder received an explanation that the process would cost € 1 000 and the investment would be made only after that. The demand for money to conclude an investment agreement made all the warning bells ring in the founder’s head and committed him to further research.

So, what is it that the founder discovered? As it turned out, the digital communication was operated through Russian, German and Brazilian servers and the people behind the scheme were actually not investors, but imposters. The real investor had been the victim of identity theft and the same had happened to some of the other members of his family.

Due to the happy ending of this case, the founder is more active than ever in fundraising, just a bit more cautious.

What is legalization?

Legalization is the internationally recognized certificate of authenticity for the use of a public document issued in one country in another country. There is no such thing as the legalization of private documents – investment documents thus cannot be legalized.

A public document must only be legalized if it is to be used in a country that is not a party to the so-called Apostille Convention. To date, 119 countries are parties to the Apostille Convention, including all the countries of the European Union. The list of the countries party to the Apostille Convention is available online.

Legalization is carried out by the diplomatic or consular mission of the country in which the document is to be used. In Estonia, the state fee for legalization is 30 euros.

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