Nevada Securities Division Issues Cease and Desist to Wyoming Company

CARSON CITY — The Secretary of State’s Securities Division has issued a cease and desist order to a Wyoming company doing business in Nevada to stop selling shell corporations registered with his office because it is a securities violation.

Secretary of State Ross Miller says the sale of Nevada corporations and limited liability companies (LLCs) includes the sale of stocks or shares, and is therefore regulated by Nevada’s securities statutes and regulations.

“The sale of securities by an unlicensed broker or dealer is a clear violation of our securities statues,” said Miller in a Friday press release. “Every corporation has stock or shares representing ownership, so in order to sell the corporation you have to sell the stock or shares. It’s not illegal to do that, but it is illegal to do so without a license.”

Miller said his office will continue to investigate other possible criminal violations related to this type of activity.

The Chief Administrator of the Securities Division, Carolyn Ellsworth, says the Division will also be investigating possible fraudulent and misleading claims regarding the value of the shell companies in this case as well as future investigations.

“Many times when these corporations or LLC’s are sold, the buyer is told that simply because the entity was formed and registered a few years ago, it has more value because it’s an ‘aged’ corporation,” said Ellsworth. “Buyers are sometimes told that the aged nature of the entity makes it more valuable for things like getting a line of credit, or just general credibility. It does not, and so that’s a serious misrepresentation.”

The issuance of the Cease and Desist Order is part of an ongoing effort to address abuses of the Nevada commercial filing statutes and regulations.

In addition, corporate entities registered in Nevada and the formation agents and registered agents representing those entities will be the focus of the new Corporate Ownership Fraud Task Force that was announced this week by Miller.

The Task Force will investigate registered Nevada business entities that are suspected of being involved in illegal activities including tax evasion, money laundering, securities violations, and the marketing of shell or shelf companies for fraudulent and/or deceptive purposes.

Miller has appointed former criminal prosecutor Tera Ames as his Special Liaison to the Task Force which will also include Special Agent in Charge Paul Camacho from the Internal Revenue Service, and John P. Kelleher, Chief Deputy Attorney General of the Attorney General’s Bureau of Criminal Justice Fraud Division.

The Task Force will use shared resources and information to target possible criminal activity.

“We have a unique law in Nevada which allows us to demand a list of beneficial owners of any entity registered in Nevada that is suspected of illegal activities,” said Miller. “We plan to use that law aggressively, which is why I’ve brought in a criminal prosecutor to be my liaison to the Task Force.”

Miller said that although the problem is not rampant, there are cases of individuals and entities falsely promoting Nevada as a safe haven for criminal activity.

The IRS recently took aggressive action against individuals involved in asset protection schemes in Nevada. In July, William S. Reed, Richard Neiswonger, and Wendell Waite were indicted on federal charges of defrauding the U.S. Government, mail fraud, wire fraud, conspiracy and money laundering.

Additionally, criminal fraud relating to disguised corporate ownership has long been a focus of the IRS and was once again named as one of the IRS’ 2011 Dirty Dozen Tax Scams.

In these schemes, corporations and other entities are formed and operated for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing.

The Task Force’s investigations will be backed by an aggressive prosecutorial effort by the Nevada Attorney General, according to press release this week.