Jules Kroll: private eye who loves nailing 'life's bad guys'

Brooklyn-born Jules Kroll turned a one-man detective agency into the most famous and feared private intelligence outfit in the world.

Few people know more about the dark recesses of the human psyche than Jules Kroll. He has turned a one-man detective agency into the most famous (and feared) private intelligence outfit in the world. But now he's found a new target, says The Wall Street Journal. Kroll wants to smash "the Big Three credit-ratings cartel" Moody's, Fitch, and S&P by launching a rival bond rating service. "Where there's corruption, there's opportunity," he says. Can he pull it off?

On paper, Kroll, 69, is the perfect man for the job, says The New Yorker. He loves thrilling the lecture circuit with colourful "morality tales" of the plundered wealth he recovered from dictators such as Saddam Hussein, Ferdinand Marcos, and Haiti's 'Baby Doc' Duvalier. But nailing infamous baddies is only "the Marvel Comics version" of his career.

Kroll really made his living, and his name, on Wall Street, digging deep on behalf of Goldman Sachs and a long list of corporations. Employing an army of lawyers, forensic accountants, technology experts and investigative journalists, Kroll's background checks on mergers and acquisitions targets, competitors and employees became a standard business tool, spawning a plethora of copycat corporate intelligence outfits.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Born and raised in Brooklyn, in the mid-1960s he worked for Bobby Kennedy while still at law school, later becoming an assistant district attorney. But when his father fell ill, he began running the family printing firm, quickly wising up to the industry's endemic corruption. In 1972, he started offering a sleuthing service to publishers, soon expanding into broader investigations. Kroll exudes decency and professionalism, says The Guardian. In those days that was a big plus, since investigators, as he notes, were generally viewed as "brutal characters". There was also a homespun element to some of his early investigations: he once hired his mother to tail a target.

Kroll often presents himself as a crusader, but as Kroll Inc expanded into armed security its own ethics came into question, says the Sydney Morning Herald. Some, noting the group's many secret services operatives, described it as a "private CIA". In 2004, five employees were arrested after being caught bugging Brazil's President Lula. Allen Stanford, the Texan tycoon indicted in 2008 for operating a multi-billion-dollar Ponzi scheme, was a long-standing client. Critics also questioned why Kroll sold his firm to Marsh & McLellan for $1.9bn in 2006 months after the insurance giant had been fingered by the New York authorities for "an elaborate charade of price-fixing and bid-rigging".

Despite decades of digging up dirt, Kroll told The Guardian that he believes life's bad guys "the sociopaths without conscience" are not in fact that common. Most people are fundamentally honest. "I continue to believe in human nature. I don't think I've become a cynic."

Will Kroll's multi-million-dollar gamble pay off?

Jules Kroll's multi-million-dollar gamble against the might of the credit reference agencies is quite some punt, says Richard Blackden in The Daily Telegraph. His proposition for prospective customers is simple: why put your trust in such discredited, compromised organisations "when you can hire a detective instead"?

His methodology for assessing a company's creditworthiness will concentrate on "traditional investigation" and be far less dependent on computer models. It's a great back-to-basics idea. But given the Big Three's continuing stranglehold on the ratings business, his new model is up against it. Kroll recently spent $5m acquiring Lace, a 12-strong Maryland ratings agency, which analyses the health of big banks. But with more than 1,000 credit analysts each, S&P, Moody's and Fitch "are unlikely to be sweating too much over the market's new entrant".

It is tempting to view Kroll "as an ageing cop who refuses to hand over his badge", says The Independent. But he has built a global business from scratch before. Maybe he can do so again. Moreover, given the 'D' grade in credibility scored by the AAA giants, he has an open goal, says Bloomberg particularly as the industry shows no interest in meaningful reform. Steps are being taken to curtail what Kroll calls the "very profitable sausage machine", which enabled the issuers of securities to pay large sums for the rating they wanted. But while "the government can try to make the credit-ratings agencies less conflicted", it cannot make them more reliable or competent.

That's Jules Kroll's point exactly, remarks The New Yorker. "Credit ratings turned out to be a false god," he says. What's needed now is "a whole new risk model". The scarcest commodity in today's financial markets is trust. "That's where the Kroll name comes in."