Evidence is mounting showing that Wyoming, LLC’s secrecy laws are being used for fraud

There’s a new spin-off on exploiting Wyoming’s trust laws, which give business entities some of the strictest privacy rules in the country, and this time it comes with a mix of filing laws for limited liability companies (LLC).

In recent years, Fremont County Assessor Tara Berg said she has been investigating an influx of out-of-state companies filing with the state as LLCs at addresses in her county. Wyoming has some of the most lenient private business filing laws in the country and some of the lowest associated fees for LLCs: $65.

Practices like these have given rise to the term “cowboy cocktail,” a term that describes the way people and companies can spend and move their money in near-complete secrecy.

An out-of-state company is not allowed to do business in Wyoming until it receives a certificate of authority from the Wyoming Secretary of State. Non-resident owners must appoint a registered agent with a physical address in Wyoming to comply with legal and state requirements.

But what happens if that company doesn’t actually do business in Wyoming and may be using that record to hide information about itself from other state governments?

That’s the dilemma Berg is concerned about.

“I just feel like it’s right, wrong and indifferent, something needs to change in the way we do this and how we ask for it,” Berg told the Legislature’s Committee on Corporations, Elections and Political Subdivisions on Monday .

Over the course of a quarter, Berg’s office sent more than 200 business verification letters to addresses to confirm business relationships, and from those, 20 received responses from homeowners saying their addresses had been used without permission.

A tangled web

One was a 95-year-old man from Dubois who expressed concern that someone was trying to steal his identity.

Another was Lander resident Christy Kimber, who had her Precision Dirt Works business address hijacked by a mysterious Ubazone Ecom LLC. Kimber told Cowboy State Daily she would like to see the state conduct more checks to ensure a business is actually using the address it claims to be associated with.

“I don’t understand how someone can just parade around like they own it and file it with the secretary of state,” Kimber said. “It’s just very frustrating.”

Berg revealed that a vacant lot behind Lander state Sen. Cale Case’s personal business is also being targeted, with no actual address associated with it.

Other fake addresses were used by properties owned by the City of Shoshoni and Wyoming Catholic College.

Rep. Jeremy Haroldson, R-Wheatland, said he considers this activity “high-level fraudulent” and plans to investigate it at the local level.

As Berg researched Ubazone further, she navigated a maze of third-party LLC registration companies based in Casper and Cheyenne that all circled together. She told Cowboy State Daily that Casper’s company Republic Registered Agent LLC was most behind the fraudulent use of addresses.

Berg said what also drew her to the activity was the filing of a significant number of COVID-19 business claims by people who did not have a business registered with them with the state.

Some know about it

In late 2022 and early 2023, Berg’s office noticed a significant increase in the number of businesses registered at one specific address in Lander, which was listed as the primary address.

Their initial investigation revealed that there was an actual homeowner and registered agent at the property who told Berg’s staff that he could not provide any information about the businesses associated with his address, none of which were actually his or located there goods. He also called this business arrangement for Berg’s staff an “afterthought.”

Further investigation revealed an escalating trend of third-party companies listed at this address, she said, with 26 in 2019, 77 in 2020, 79 in 2021, 119 in 2022 and 216 in 2023. In the first quarter of 2024, 34 companies registered at this address. . A total of 551 different companies are now registered at the address.

Berg said there is an even more egregious example in Sheridan for an address with about 800 businesses associated with it. In that city alone, 16,000 businesses were registered so far this year, a highly questionable amount considering that only 19,235 people live in the city.

Berg said the Lander man did not want to talk to her about the companies registered at his address, a rejection she had no problem with. What she did find concerning is that situations like this raise the question of what it means to be a registered business agent in Wyoming.

In conversations with the secretary of state, Berg was told that if people formally file an affidavit with the state that their address has been used unlawfully, the state will dissolve the company.

However, studies like the one Berg conducted are not conducted across Wyoming because many evaluators do not have the staff or resources to do what she did. That’s why she wonders how many people know their address is being used and, if so, know they need to file an affidavit about it.

There is no address lookup option on the Secretary of State’s website that would allow property owners to determine if their address is being used if they don’t already know it is. Also, determining who will prosecute this matter and under what jurisdiction it falls is unclear at best, she said.

What is the motivation?

There are a few likely reasons for companies to register their business in Wyoming even if they don’t actually do business in the state.

The most basic is to conceal their identity, as Wyoming’s LLC laws allow third parties to file on behalf of a company.

The other is evading paying taxes.

Brenda Henson, Wyoming’s director of revenue, told Cowboy State Daily that she finds it highly suspicious that many businesses in Wyoming file sales tax permits, but the vast majority never remit sales taxes.

“It gives them credibility as a Wyoming company and there’s really nothing we can do,” she said.

This has resulted in her department sending thousands of notices to these companies, which remain unanswered.

Also, Georgia law firm Smith Barid explains on its website that even a single-member LLC is entitled to charge sole order protection in Wyoming. What that means is that if a judgment is entered against a member of a Wyoming LLC, the judgment creditor cannot enforce any distribution of the LLC’s assets and will be liable to pay income taxes on all of the LLC’s income, even if these are not paid out. .

Tax expense

Berg said she doesn’t necessarily want the state to change the $65 rate, but wonders based on what she’s seen whether the lenient laws come at the expense of Wyoming taxpayers.

“I’m not saying we might not be able to keep some of our business. I’m saying I see a huge overload of files that we can’t get a handle on,” Berg said. “While the revenue looks good, I don’t know exactly what that does to the state of Wyoming.”

But the income may not even be as virtuous as it seems.

Any business that registers in Wyoming must report its business assets for tax purposes. Operating expenses for Wyoming-based businesses are based on the appraised value of their property and assets. For out-of-state businesses, their fees remain at $65 because it is not possible for the state to assess their properties.

“Is that fair?” she questioned the committee.

When he contacted Wyoming Discount Registered Agent Inc., a third-party LLC agent associated with the Lander address, owner Adolph Stankus of Nevada, refused to provide Berg with any information about the actual people running businesses associated with the address, but told her he would forward the requested tax information to them, but she refused.

Berg said that of the companies that have moved to Wyoming, about 800 in Fremont and Sheridan counties came from Nevada.

There is a similar service based in Sheridan called Wyoming Registered Agent Services LLC, with 16,941 businesses at the address.

Berg doesn’t believe agents like Stankus are doing anything illegal, but says real businesses in Wyoming are being disadvantaged when it comes to their tax burden.

Rep. Mike Yin, D-Jackson, disagreed, pointing to Wyoming state law, which says an LLC’s main publicly traded office must be the company’s actual headquarters. Wyoming law provides that a registered office must also be a Wyoming address which must be a physical location where the registered agent of the business entity or an individual with an agency relationship can accept services for the business.

For this reason, Yin believes that all the files Berg referred to are fraudulent and can be dissolved by the state.

Responsibility

Case said Wyoming could pass legislation requiring out-of-state businesses to prove they are connected to the addresses they list, and on Monday he organized an informal working group to further investigate the issue. Berg said the state could do this with documents such as a deed or lease or permission to use an address.

Cheyenne attorney Scott Meier warned the commission against violating personal civil liberties if it makes changes to the law based on the issue. When he acts as a registered agent for his clients, Meier says he lets them know they are not allowed to use his address as a principal place of business. He said Wyoming business tax return forms could be better clarified on this point.

But when Case pressed, Meier agreed that the deliberate use of incorrect addresses is fraudulent.

“That’s clearly more than just a mistake,” Meier said. “It’s possible, but… I would be very suspicious of that too.”

Secretary of State Chuck Gray has approached the issue more aggressively than the previous administration, conducting at least 12 random corporate audits per quarter, which he says has led to some important findings. He encourages state assessors and any member of the public to contact his office immediately if they discover fraud.

“This is a major priority of our government,” he said.

Leo Wolfson can be reached at [email protected].