The Las Vegas Review-Journal began an investigation into Nevada businesses after hearing the following story:
Business Identity Theft: The Andy Pham Story
Andy Pham is an Idaho-based property developer. In November 2016, his assistant was updating his business records with the Nevada secretary of state and it was discovered that Caballos De Oro Estates LLC, five acres of property that Pham and a group of investors purchased for $4.95 million, was listed as belonging to James Kalhorn, who is a dentist in Colorado Springs.
Someone had logged onto the secretary of state’s website and replaced Pham as the managing member with Kalhorn’s name.
Pham’s assistant corrected it on the website and sent Kalhorn a cease-and-desist letter. Pham believed this would take care of the issue. He was wrong.
In March 2017, Pham received a foreclosure notice. Kalhorn had moved the land to another LLC, borrowed $2 million against the property form private lenders, and defaulted on the loan. He filed a lawsuit believing he was a victim of fraud.
According to the Las Vegas Review-Journal, the reason Nevada businesses are vulnerable to fraud is because the secretary of state had not done much to prevent the filing of fake documents.
Why Is It so Easy to Commit Business Fraud?
For $150 anyone can submit records, either online or in person, which names them as the manager of any Nevada company. The secretary of state accepts the documents with no questions asked.
Once the scammer has changed the records, they are able to exploit the assets and credit of the companies. Alleged thieves in Nevada have used fake business ownerships to purchase luxury vehicles and sell off plots of land.
It is often too late by the time the rightful business owners realize what has happened, as they are burdened with poor credit or have to fight to retrieve their property.
There is a lack of safeguards at the secretary of state level to protect business owners. Nevada is one of the most business-friendly states because of its business laws and low tax rates.
Secretary of State Barbara Cegavske has been applying her efforts to attract businesses to Nevada. She has helped to generate $180 million in filing fees each year. There are over 11 million business entities on the books and all of them are susceptible to fraud, according to the Las Vegas Review-Journal.
What Is Being Done to Stop Business Identity Theft in Nevada?
Title companies are responsible for vetting real estate transactions, according to Jody Grover, president of Southern Nevada operations for Ticor Title. It is important to verify property ownership. “If you own your property in an LLC and then somebody fraudulently puts their name as the managing member, that would give them the authority – fraudulently – to sell your property.”
Officials in the secretary of state’s office say they do everything within their authority to prevent the filing of false documents, however, their power is limited by state law. According to the office of the secretary of state, there are few complaints about false claims.
In a statement released by the secretary the state it was stated that it would be “disingenuous” to place the blame with the agency for loans issued or land sold as a result of fraudulent business filings because it is up to the lenders and buyers to do their due diligence.
Cegavske commented in an interview that there will be people who are not willing to play by the rules. “We try to find them as we can. We look for them as we are able.”
The secretary of state does not have the legal authority to challenge the accuracy of the business documents filed in the office. Staff can only ensure that the documents are filled out properly. The people filing do not have to show identification, and notarized documents are not required. Nevertheless, the secretary of state is allowed to adopt regulations that will prevent the filing of false documents.
Nevada is behind other states in the ability to protect against business identity theft. According to the agency, there is not a process to initiate a search for false records. Typically, the office learns about fraudulent records through complaints from the public. However, business owners are reluctant to admit they have been scammed, according to experts.
Between 2015 and 2017, there were 173 complaints over falsified filings. The secretary of state only found evidence of fraud in one case. Under Nevada law, it is a category C felony to file fraudulent business documents.
The office is permitted to refer complaints to the Nevada attorney general for civil or criminal prosecution. However, according to the attorney general, no referrals were made between 2015 and 2017.
What Should Be Done to Stop Business Identity Theft in Nevada?
In response to the investigation sought by the Las Vegas Review-Journal, lawmakers want to make changes to combat the filing of false business documents.
Assemblywoman Shannon Bilbray-Axelrod is considering a bill for the next legislative session. She is a member of the Assembly Government Affairs Committee. However, she would like to do more research on the issue in order to formulate a plan.
She believes the issue is a serious concern that many eyes will have to review to make changes that will safeguard business from identity theft.
The agency released a statement saying that it “will continue to discuss the laws and processing relating to this office with the business community, the Business Law Section of the State Bar Association, the Nevada Registered Agents Association, and legislators in preparation for the Legislative Session as we have done in previous sessions. Many of the safeguards reported are part of the rewrite of the Commercial Recordings filing system that is currently under development.”
Assemblywoman Maggie Carlton wondered why the secretary of state had not implemented password protections to deter fraudsters. There are at least five other states that allow business owners to use passwords or personal identification numbers. They cannot upload documents without it.
By Jeanette Smith
Las Vegas Review-Journal: Weak safeguards make Nevada companies easy targets for fraud
Las Vegas Review-Journal: Nevada lawmakers react to secretary of state’s weak business safeguards
Image Courtesy of Chris Coleman’s Flickr Page – Creative Commons License