Fraud Investigators Follow the Money to Delaware
SEC’s fraud investigators are in the midst of uncovering a possible billion-dollar investment scheme. The trail is taking them to Delaware in search of more than 200 Delaware limited liability companies. Delaware Online reports it’s the latest turn in a high-profile case that seems to take advantage of the secret nature of LLC’s in their state around the country. Apparently, dirty money can flow easily through an LLC’s pipeline and fraud investigators want to close that loophole.
LLC Fraud Investigation
Delaware Online says that 235 LLCs “completely ignored” subpoenas that were filed by U.S. Securities and Exchange Commission officials. The subpoenas are hoping to uncover bank account information and ownership of the LLC’s connected to a California-based Woodbridge Group of Companies. It is suspected that the Woodbridge Group is “operating a fraud” on its investors who invested more than $1 billion according to court documents. The article states that Woodbridge told investors the money was loaned through the LLCs to third parties. Woodbridge claims the third parties are repaying interest at a high rate, but the SEC is not so sure that is accurate. Fraud investigators say that identifying the incorporators and owners of the LLCs is critical to conducting a thorough investigation. The article quotes and SEC official as saying, “These LLCs are based in Delaware and Colorado – states that do not maintain or provide public access to ownership, member or shareholder information.”
Not an Isolated Case
Delaware Online sites cases of tax dodgers, embezzlers, drug dealers, and arms traffickers using anonymous companies, based in Delaware and elsewhere, to launder money. Delaware corporations and limited liability companies helped former Trump campaign chairman, Paul Manafort, hide millions of dollars in payments from Ukraine. Both sides of the aisle in Delaware say that the state’s “accommodating business codes” should be more transparent to avoid fraud.
What Can Be Done
According to the article, Delaware’s deputy secretary of state, says one possible solution is for the federal government to create a database of sorts of ownership for all U.S. companies. Kris Knight wants that database to be easily accessed by investigators looking into fraud and terrorism financing.
Knight says there is an act that should make its way through Congress that could help. It’s called The Corporate Transparency Act of 2017 and it was sponsored U.S. Rep. Carolyn Maloney, D-NY. But the article says actual passage of the act is not looking good. The legislation is similar to two bills that failed last year. Some officials, including Knight, say that state lists may be susceptible to hacking and corruption, therefore a federal list would be more secure. Other’s claim the responsibility lies with the state itself. The article quotes John Flaherty, a director at the Delaware Coalition for Open Government, as saying, “We have a long history of ignoring legitimate law enforcement investigations and it does not harbor well for the reputation of Delaware.” It is also noted that incorporation fees and business taxes in Delaware add up to a quarter of the state budget.
Jeffrey A. Newman represents whistleblowers: 1-800-682-7157