Stopping Scammers From Selling 'Shell' Corporations

Question: I paid $4,000 for an ‘aged’ corporation for my business in Florida. For the past month, I haven’t seen the man who took my money. The phone number on his office door forwards to a company in Colombia. I am sure he is taking people’s money left and right. What can I do to put an end to this scam?

Answer: While we are more likely today to hear about fraud involving individual identity theft or mammoth data breaches, the modern-day snake-oil salesman never goes out of style, as your situation shows.

If you’re interested in putting an end to this crook’s scheme, your best bet is to gather all the documentation you have about him and report it. Many times, scammers pack up and leave town when they realize their victims are wising up. That’s likely what has happened in your case. Still, the more reports the authorities get on this guy, the more likely they are to investigate. Unfortunately, whether it’s out of embarrassment or indifference, victims often do not file complaints.

Start with your local law enforcement office, then your state attorney general’s office, and move on to the federal authorities. If the fraud you experienced involved a wire transfer or a letter sent through the U.S. mail, you can also report it to the U.S. Postal Inspection Service, which brings cases against mail and wire fraudsters in federal court.

In your case, it sounds like you fell prey to a well-known scam involving a purported business shortcut. That’s the typical selling point of an aged corporation—also known as a shell or shelf corporation—which is an incorporated business entity that has been created and left on the shelf for a number of years. Sometimes, minimal business activity is done in the name of the shelf corporation over the years to lend it some legitimacy and build up a credit history. The idea is that lenders who routinely steer clear of startups will more readily approve loans for a company that can show it has been established for several years.

Historically, there were some legitimate uses for shelf corporations, as I wrote in 2011. But in recent years, online incorporation has become inexpensive and easy to accomplish, and lenders have largely caught on to this technique of making a new company look like an experienced one. That has left aged corporations seeming less like fine wines and more like good ways to rip off small business owners. A Texas man prosecuted for selling aged corporations in 2011 was sentenced to eight years in federal prison.

It’s not only the scammers who can get in trouble with aged corporations, says Katherine R. Hutt, national spokesperson for the Council of Better Business Bureaus. “Business owners who buy shelf or aged corporations with the intent of deceiving a bank about their stability and creditworthiness are probably violating lending laws. We won’t accredit a business if the only way it met our minimum time-in-business requirement was buying that longevity.”

The underlying principle in any business transaction—small or large—is that due diligence is always required, even if a trusted acquaintance or friend vouches for an individual who is trying to sell you something. “In the end, it’s buyer beware,” says Donald P. Klaskin, managing director of Corporate Resolutions, a business investigation and consulting company.

It’s easy enough to research someone online and check to see if any complaints are registered against him or her with the Better Business Bureau or on one of the myriad DIY message boards where victims congregate to report scams. In the future, if you’re not sure whether someone is legitimate, you can hire a security company to check him or her out or ask your attorney for help.

This time around, you can file a complaint with the BBB. “If we don’t have a file yet on the company, we will create one,” Hutt says. “At least there will be a BBB business review on the company, and that may prevent others from falling victim.”

You can also hire an attorney to file a complaint against this scam artist in civil court, Klaskin says, but “the likelihood of recouping your investment is slim to none,” even if the individual is arrested and prosecuted. “If this individual is in fact in Colombia,” he notes, “the only thing the local authorities might do is post a warrant for his arrest and, if he attempts to enter this country in the future, have him detained due to the warrant.”