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There’s a scene in “The Shawshank Redemption” when Andy is explaining to Red about the warden’s money laundering operation.
Red points out that “[a]ll that paper leads back to somebody.” Andy, an experienced banker, recognizes the problem: “Exactly. So, you invent a person. Someone no one’s looking for. Someone who only exists on paper.”
Andy created Randall Stephens and ran away with hundreds of thousands of dollars. And so begins my story of someone making me their “Randall Stephens” and how I fixed the problem.
Anybody that’s formed a business with the Indiana secretary of state knows all the junk mail they receive post-formation.
Semi-scrupulous vendors toe the line with selling garbage like corporate record books, useless corporate seals and copies of free public filings.
One day, while getting my mail, I received such an advert for “AGSDRULTURAL DARER LLC.” The letter, addressed to my residence, congratulated me on forming the new LLC.
The problem was that I did not form this LLC; I was visiting the three-fingered mouse in Florida with my daughter over fall break.
I immediately got on the secretary of state’s website and looked up the company. Sure enough, I did form the LLC. My name was listed as the organizer, registered agent and the sole manager of this multi-member LLC.
Congratulations indeed! There was nothing in the records to indicate that anyone was involved with this company other than me.
I immediately contacted the non-emergency line of IMPD. I had to explain to them why this was a problem (they weren’t well versed in this type of crime).
I explained that filing a fraudulent filing is a misdemeanor. After explaining the crime, the officer was worried about someone borrowing money in the name of the LLC and me being on the hook.
I was not worried about that. I have a credit freeze in place and banks are not easily tricked into lending money without proper identification.
However, opening a bank account in the name of the LLC is another matter. With organizational documents and fraudulent corporate resolutions, it would not be difficult for an “officer” of the company to open a checking account.
Once opened, the fraudster could sell services (think general contractor work, pool building, leaf cleaning, pressure washing) at too-good-to-be-true prices, get a deposit, cash the check and then disappear.
All that’s left when they come looking for the LLC is me receiving a summons as the registered agent. This worried me greatly as I did not know what this scam artist was doing.
Once I informed IMPD of this issue, they referred it to their financial crimes unit.
I also marched into the secretary of state’s business services division and told them of the problem. Sadly, they knew exactly what to do because this happens all the time.
I filled out State Form 57737 – Business Filing Complaint. A friendly SOS employee immediately reached out to me. He said that they would have to send interrogatories to the corporate address (in this case, my house) pursuant to state law.
Since I was not connected to the LLC, I could ignore those, but it was a condition precedent to closing the entity. Thereafter, they promptly deleted the filing. Now, when you search for the entity, you find nothing. It is as if it never existed.
If your client or you get caught in a similar position, contact the non-emergency number of your local police department. Explain the situation and expect to give a short education to them on the crime (filing a fraudulent filing is a misdemeanor) and the potential victims.
You can file the Business Complaint form online; no need to head to their headquarters like I did. Save all the records so you can present a proper defense if the entity is ever sued.
Preventing this type of crime in the future is difficult because we balance the ease of doing business with preventing crime. Nevertheless, I recommended to the SOS business services division that they implement the following procedures to reduce fraudulent filings:
• Require the submission of a state or federal ID at the time of organization.
• Require the submission of a cell phone/email at the time of filing, text/email a code and then require the code to be entered before the filing is accepted. The FBI then has a method to discover the perpetrator—even if the perpetrator uses a burner phone.
• Allow SOS searches for “member, manager, authorized agent, agent, and legal representative.” This allows a person to search if their name is being used fraudulently. Presently, you can only search by registered agent or incorporator/organizer.
• Advocate for upgrading the crime of fraudulent filings from a misdemeanor to a felony.
Since I’m a cinephile, I’ll end this article with a quote from another movie—”The Laundromat.”
When Mossack, played by Gary Oldman, was asked how he built such a massive money laundering operation in Panama, he quipped “[y]ou want to know who really invented money laundering? The United States. Delaware, to be exact.”
The ease of doing business in the U.S. opens the door to fraudsters to skirt the rules.
If you are ever caught in a situation where you or a client is in the same position as I was in, now you have a roadmap to resolution.
Hopefully, the Legislature and the Secretary of State take simple steps to curb these abuses. Until then, stay vigilant my friends.•
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Justin Leverton is a partner with Kroger Gardis & Regas LLC.
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