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Fraudulent Business Filings

Fraudulent Business Filings | Business Identity Theft

Fraudulent State Business Registrations and Filings

How thieves attempt to manipulate state business registration and filing systems for fraud

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Business registration

The duties and authority of the Office of the Secretary of State are defined and established under the individual laws of each state. In most states, one of these duties includes management of the business registration, formation, and filing processes for business entities operating within the state.

Secretaries of State generally do not have statutory authority or discretionary power under state law to review, confirm, or investigate the information presented during the business registration or filing process. Rather, their authority is often limited to a ministerial function - i.e. ensuring that the basic requirements have been met, the submitted forms are complete with all required information, and the appropriate filing fees have been paid.

Therefore, most states are good faith filing states, which means that if all of the basic filing requirements are met, under state law the Secretary of State must accept the information filed about a business at face value and record it.

Online business registration

Although state business registration and filing forms usually include a signed attestation, under penalty of perjury, that the information being provided is true and correct, this alone is not a significant deterrent for modern criminals who are intent on committing much greater fraud.

The statutory restrictions and the good faith nature of state business filing procedures have led criminals to discover that, in some cases, it can be relatively easy to manipulate state business registration systems and filing processes. Doing so allows these criminals to impersonate businesses and obtain the standing, credibility, and verifiable business records needed to deceive retailers, suppliers, creditors, financial institutions, and other businesses for illicit gain; and, to conduct any number of fraudulent activities in the business' (or business owner / officer's) name.

If your business does not regularly review your state business filings, file your annual reports in a timely manner, or enroll in email alerts or other preventative systems that may be offered by your state, you may unknowingly attract the unwanted attention of business identity thieves.

The following information describes common criminal tactics involving business registration records:

 



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Business identity theft warning Tactic:  Fraudulent change of your business registration information


For the cost of a filing or processing fee, typically $10 to $20 in many states, thieves may attempt to file a fraudulent change of your business address, or file changes to your business' officers, directors or registered agent.

Click the image below to view an example news report on this tactic


The Danger to You and Your Business:

Changing your business' officers or directors places the thieves in a perceived position of control over your business' operations, as far as outside parties are concerned, with corresponding authority to act on behalf of your business. For example, by making themselves or an accomplice president or secretary, a criminal may be able to initiate the fraudulent sale of your business assets; conduct transactions or make purchases in your business' name; open or access your business bank accounts; and open or access loans, lines of credit, and other credit accounts - including those that require a personal guarantee by an owner of officer of the business.

Likewise, changing your business' registered address or registered agent can place the thieves in receipt and control of important mailed notices and statements, or service of legal process, which might otherwise alert you that your business has been victimized.

 


Business identity theft warning Tactic:  Fraudulent reinstatement of a dissolved, closed, or "dead" business


A dissolved business entity is a business that has either voluntary elected to discontinue business operations, has filed articles of dissolution with the Secretary of State, or that has been administratively dissolved because it has failed to comply with its obligations under state law, such as filing required periodic or annual reports.1

Though the specific procedures vary from state to state, each state has an established process for reinstating a previously dissolved business, and an established time frame for doing so. A dissolved business entity can typically be reinstated up to two years after it has been dissolved.2

Click the image below to view an example news report on this tactic

 

The Danger to Your and Your Business:

Criminals know that once a business has been voluntarily or administratively dissolved, it is unlikely that the previous business owners will continue to monitor their business registration records. This provides criminals with a window of opportunity.

Because a business' registration records and status (active, dissolved, etc.) are available as public record, thieves can identify a dissolved business and potentially reinstate it without the previous owners' knowledge by filing the required forms and paying the filing fee within the reinstatement time period. The criminals may or may not choose to change the owner or officer information in the process.

For example, in 2010 identity thieves targeted businesses in the State of Colorado. Of the 356 reported cases of business identity theft, 80% of the victims were delinquent or dissolved businesses. Many owners of previously dissolved businesses were quite shocked when they were contacted by creditors seeking to collect from them personally for recent debts of a company they had closed years before.





 


Business identity theft warning Tactic:  Fraudulent registration as a foreign business


Although business registrations are public information, Secretaries of State are often prohibited by state law from actively sharing business registration information with other states. Because of this, thieves may identify a target business in one state, and fraudulently register that business as a foreign (out of state) business in another state.

 

The Danger to You and Your Business:

A business being impersonated in this manner is not notified by the new state it has just been registered in, and has no reason to suspect that anything is amiss, until it is too late - often learning of the fraud only when it is contacted by unknown creditors or by law enforcement.

If this happens to your business, thieves can utilize your company's standing or piggyback on your business' established reputation and credentials for credibility as they engage in fraudulent activities in your business' name in the other state.



Business identity theft warning Tactic:  File or use an intentionally similar business name or d.b.a


Criminals engaged in business identity theft sometimes utilize or register a business name or d.b.a (doing business as) that is intentionally similar to a well established business. Through a slight variation in spelling; adding, removing, or abbreviating a word; changing the entity type, or other minor change, they intentionally cause the business name to be confusingly similar to the legitimate company's name in order to deceive creditors, financial institutions, and other businesses.

Some simple examples might be:

  • Anderson Petroleum, LLC  vs.  Anderson Petroleum, Inc.
  • Williams & Son  vs. Williams & Sons
  • Beringer Company  vs.  Berhinger Company
  • Davis Painting  vs.  Davis Painting & Fabrication
 












The Danger to You and Your Business:

When the similar name is used in conjunction with other real and verifiable information from the legitimate business, such as on a purchase order or in a new account application, the change is slight and easily explained; or, it may appear to simply be the result of a minor typographical error. Either way, the order or application may be accepted.

If this happens to your business, you may suddenly discover that you are receiving bills and invoices for goods and services you never ordered or received.



Learn how to protect your business from business identity theft

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1 Model Business Corporation Act § 14.21
2 Model Business Corporation Act § 14.22


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9 News Report - Colorado Secretary of State
9 News Report - Colorado Secretary of State

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Fox 5 I Team Report - Georgia Secretary of State
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