Wall Street has a new answer to corporate executives' attempts to finesse tough questions from analysts or sugar-coat presentations to investors: Bring in the CIA.
"Deception detection" skills used by CIA and other intelligence personnel are gaining ground within top hedge funds, investment banks and consulting firms, Politico reports in an article by Eamon Javers based on his forthcoming book, Broker, Trader, Lawyer, Spy: The Secret World of Corporate Espionage.
Like military probers questioning a suspect, investment analysts aim to unearth verbal and non-verbal clues that an executive might be concealing damaging information. The high-level engagement of former intelligence officials in Business Intelligence Advisors, a Boston-based consulting firm specializing in deception detection, indicates how important these skills are to hedge funds and other financial institutions. BIA was founded by ex-CIA agents and boasts clients such as Goldman Sachs and SAC Capital Advisors. Today its expertise is utilized by financial firms to scrutinize executives who know more than they let on.
Dissecting Telltale Gestures and Words
Among other behavioral techniques, BIA analysts identify gestures and movements that may suggest someone is lying - adjusting clothing or hair while speaking, for instance, or rearranging items on a desk. They also dissect a person's actual words.
The story includes a detailed account of a 2005 analyst conference call with the CEO and CFO of UTStarcom, a telecommunications company. After listening in on the call, BIA's "human lie detectors" reported back to their client - identified only as an "enormous hedge fund" - that the executives were being evasive about revenue recognition and how long UTStarcom would take to turn profitable. The confidential 27-page report concluded: "Management's behavior indicates that they will post poor third-quarter results, and it is also highly unlikely they will achieve profitability in the fourth quarter."
There is no proof that management actually tried to deceive anyone, Politico notes. However, the company's results that quarter did come in below the guidance its executives provided on the conference call, and its stock price slid 33 percent from the day of the conference call to the day after the results were announced. And when announcing the poor results, UTStarcom disclosed difficulties with revenue recognition.