Company uses homeless as ‘straw men’

Richard Fritzler Sr., president of a Nevada resident agent company that has criticized “corporate mills” that help people establish corporations without disclosing ownership, said under oath that he paid homeless people to serve as “straw man” owners of Nevada corporations.

In November, when members of the U.S. Senate subcommittee on Investigations were contemplating legislation to curtail corporate secrecy, Nevada Corporate Services’s Fritzler said any such laws would damage only “those that focus on cheating” and denied his company fell among that group.

“This (potential) legislation is quite clearly targeted at those that focus on cheating,” Fritzler told the Review-Journal in an e-mail then.

“This proposed legislation will have no effect on ourselves or our clients, since we don’t operate in the targeted area,” Fritzler said. “However, I imagine that it could be devastating to those ‘corporate mills’ that run outrageous ads preying on the uninformed.”

Two bills now before Congress, and two before the Nevada Legislature, may close some of the loopholes that make Nevada famous as a place to incorporate anonymously and conceal ownership.

Meanwhile, the Review-Journal has learned of a federal case, settled in Texas in 2005, in which Fritzler, who was then identified as president of Nevada Corporate Services, gave a deposition in 2004 admitting to running a corporate mill, forming multiple corporations. To conceal the true ownership of companies to which assets would be transferred, Nevada Corporate Services created multiple, fractional owners whose stock was actually controlled by the true owners.

Richard Fritzler Jr., also identified as Richard Fritzler II, was deposed too, but he cited the Fifth Amendment privilege against self-incrimination rather than answer relevant questions, according to public records. Because of the limited information Nevada requires corporations to disclose, no public record shows which Fritzler, if either, is now president of Nevada Corporate Services.

Fritzler’s deposition contains this following exchange between a government-appointed attorney and Fritzler.

Question: In fact, you went to literally people off the street and got them to agree for a small fee to be nominal shareholders in the company in name only: is that right?

Answer: That is correct.

Question: And you would give homeless people $10 in exchange for their agreement to become shareholders in a company, is that right.

Answer: In some cases.

Question: In many cases?

Answer: Many cases.

The shareholders in name would in every case provide a power of attorney which the organizers would give to those who actually controlled the company.

All but a few states allow corporations to register without identifying corporate owners, said Scott Anderson, Nevada deputy secretary of state for commercial recordings at that time. But he added that Nevada also permits two other, unusual, legal proceedings. Under one provision, resident agent employees may sign as nominee officers and directors, which means they are not necessarily the real officers or directors. However, they can open bank accounts and even get federal tax ID numbers. In addition, Nevada and Wyoming are the only states that allow corporate stock to be held in bearer form, which means the stock belongs to whoever possesses it, Both conditions make it particularly easy to conceal the actual ownership of Nevada corporations.

In February, Sens. Carl Levin, D-Mich., and Norm Coleman, R-Minn, both members of the Subcommittee on Investigations, and Sen. Barack Obama, D-Ill, introduced a bill to create the “Stop Tax Haven Abuse Act” which would require that agents forming corporations know the true owners. Levin has sought to make such agents subject to the anti-money-laundering provisions of the Bank Secrecy Act. A tax bill, S. 681, requires entities which form companies to exercise “due diligence.”

In the current Nevada Legislature, Assembly Bill 25 introduced by Assemblyman Bernard Anderson, D-Washoe, would authorize the secretary of state to “adopt regulations prescribing procedures for correcting certain fraudulent or false records filed with the Office of the Secretary of State.”

Senate Bill 242, introduced by state Sens. Mark Amodei, R-Reno/Carson City, and Terry Care, D-Clark, would adopt a version of the Model Registered Agents Act, which formally recognizes the growing industry of corporations formed specifically to provide legal corporate addresses for corporations which do not necessarily do business there. That bill as it now stands, Care said would close few loopholes. It would make corporate filings simpler and encourage making those filings in a more timely manner, he said.

Scott Anderson, Nevada’s deputy secretary of state for commercial recordings, said it remains uncertain whether the final draft of any Nevada bill will address the central issue of using “straw man” or “nominee” officers to conceal the identities of those actually controlling a company.

“We’re looking at the possibility of adding some regulatory language that would … address the issues that have come up including the nominee officer issue.”

Care said he had tried to address “straw man” officers in another bill this session, but was unable to devise a definition of a nominee officer that would be legally effective.

Fritzler’s 2004 deposition was compelled by court order in a case filed by the Federal Trade Commission against Assail, a telemarketing company organized in Nevada but operated from St. George, Utah.

Assail contacted consumers known to have poor credit and offered them credit cards, but during the sales pitch subtly converted the offer to provide a stored-value card backed by the consumer’s own money, thus providing no credit. In the process, the customers were deceptively induced to buy telephone calling plans, auto or household insurance plans, or other products, and their bank accounts were debited for these products. Consumers were often debited $175 for the “credit card” and $50 to $100 for each of the other products.

Nevada Corporate Services was not accused of directly participating in the scam, but of setting up corporations which Assail used to conceal the ultimate recipients of the money derived from its activities.

Assail and its owner, Kyle Kimoto of Las Vegas, ultimately agreed to pay a $106 million monetary judgment to the FTC and to desist. An FTC press release said “Richard Fritzler Sr. and Richard Fritzler II, along with their company, Nevada Corporate Services Inc., avoided a contempt hearing by agreeing to pay $300,000 that the FTC alleged they had received for helping Kimoto hide” funds that Kimoto should have disclosed in reaching a settlement with the FTC.