SEC Action Involving Scheme with Fictitious Company Name
Recently the Securities Exchange Commission (SEC) in an enforcement action initiated litigation against three (3) individuals over an investment scheme that involved a fictitious company and name. This enforcement action is an interesting read. While the story has call girls, an investment program named after a gun, and claims of a one eyed man who threatened to kill the participants if they did not cooperate in keeping the scheme going; what really got my attention was the use of a fictitious company name.
Dresdner Bank was one of the largest banks in Germany, and as a result had some pretty solid name recognition. In order to add legitimacy to their activities, the alleged schemers named their operation Dresdner Financial. What this basically did was allow them to make the claim to potential investors that they were somehow connected to Dresdner Bank.
This is not the first time, and probably won’t be the last, that we have seen con artists name their operations something similar to a larger legitimate company. In our investigative work, we have seen variations on Credit Suisse, and Berkshire Hathaway. Time and time again, con artists make use of similar sounding names to take advantage of unsuspecting investors. You can think of this as a form of “corporate impersonation.” It has become so common place that the SEC publishes a list of Unregistered Soliciting Entities Impersonating Genuine and Former US Registered Firms. I have to admit that anytime I hear of a company with a name too similar to that of a well known firm, it sends up a giant red flag. There are legitimate reasons for similar sounding names; this can occur when someone uses part of their name, a family name, or a name based upon a region, ect.
However, this can be sorted out. The legitimate firms can be verified, and a high number of the fraudulent firms can be weeded out quite easily. All companies operating legally in the United States are registered in their state of incorporation, or in a company friendly state such as Delaware. As a result, certain basic information about a company is on file with the Office of the Secretary of State in the state in which the company is incorporated. Also, each corporation is required to have a registered agent in the state of its incorporation. If a company is operating in a state in which it is not incorporated, then it is generally required to file some form of a foreign corporation notice with the Secretary of State’s office. A simple visit to the web site of the Secretary of State for the state the business is operating in can easily verify if the company is properly registered in the state it is operating in. Legitimate companies will be registered with the state they are operating, and the information on file will correspond with their public statements, and the business they are in.
In the case of Dresdner Financial, they never bothered to incorporate operations. There was nothing on file with the Secretary of State’s office. An inquiry into the status of the company would have uncovered this, and should have served as a massive red flag. It should have been enough for any potential investor to have avoided this scam.
We have seen numerous instances where con artists have created actual corporations in an attempt to give (false) credibility to their claims of ties to a legitimate company. However, in almost every instance, it quickly becomes apparent that the companies do not have any times to the legitimate companies they are claiming to be associated with. Again, just bothering to do a little bit of research can help uncover these fraudulent operations.
Finally, in what also should have been a massive red flag, big enough to scare any and all potential investors away, these con artists named their investment program the “.44 Magnum Leverage Finance Program” and promised to turn $44,000 into $1 million in 10-12 days, a 4,445% annualized return. Naming an investment program after a gun also should have been a massive red flag, as well as promising an annual return in excess of 4,000%.
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A copy of the SEC’s Litigation Release can be found at: http://www.sec.gov/litigation/litreleases/2012/lr22514.htm
A copy of the SEC’s complaint in this action can be viewed at: http://www.sec.gov/litigation/complaints/2012/comp-pr2012-213.pdf
We do applaud the SEC’s efforts to police this type of activity.