John L. Smith

Nevada's incorporation laws pave way for another fraud case

It turns out William S. Reed's "bulletproof" plan to help clients conceal assets in Nevada corporations wasn't made of Kevlar, after all.

Authorities contend his scam was constructed of pulp paper and Internet illusion, and for starters cost consumers nearly $19 million, all while using Nevada's loose laws of incorporation as a personal shill.

Reed, Richard Neiswonger and Wendell Waite were indicted last week on federal charges of defrauding the federal government, mail fraud, wire fraud, conspiracy and money laundering in connection with an IRS criminal investigation into the activities of a company called Asset Protection Group.

The IRS investigation was assisted by the group's prolific Internet promotion and the publication of Reed's own book, "Bulletproof Asset Protection."

With variations on a fraudulent theme that trace to 1998, APG promised participants in its Nevada incorporation program that they would be virtually free from showing asset ownership, revealing profits or paying taxes.

In addition, Reed & Co. "endorsed, marketed, and profited from a scheme" that also helped participants "disguise corporate ownership services with associated bank accounts," place "friendly liens" to encumber businesses and sell the fraudulent "business opportunities" to the public.

Reed himself created more than 2,550 companies.

Participants paid up to $10,000 apiece. Reed, a part-time Las Vegan, became the sole signatory on 619 accounts at Nevada First Bank that processed $63 million in anonymous deposits. He sent another $11 million into offshore accounts, according to the indictment.

That's not to mention the $152 million in fraudulent "friendly encumbrances" he helped generate.

In all, the IRS and U.S. attorney's office allege Reed and his friends owe more than $13 million in taxes while APG's clients are good for another $14 million.

Nevada's incorporation laws have long been considered among the most liberal in the country, but the state's promoters have countered most criticism by posturing that even the slightest strengthening of those statutes would be bad for business creation.

Bad, as opposed to being known nationally as a corporate safe harbor for rip-off artists, tax cheats and shady dealers.

In June 2006, the intergovernmental Financial Action Task Force produced a voluminous study that singled out Nevada, Delaware and Wyoming as case studies of states whose flimsy corporate statutes made investigating money laundering, income tax fraud and other cases extremely challenging.

Nevada's laws essentially provided a welcome mat for business owners seeking anonymity.

Perhaps out of a sense of embarrassment, and with some members of Congress calling for national reform, Nevada officials responded with legislation in 2007 that cinched up some of the loopholes.

"We have become the second most popular filing jurisdiction behind only Delaware because we are very business friendly," Secretary of State Ross Miller says. "However, with that successful promotion of a business friendly atmosphere, we have definitely attracted some bad actors. We've tried to be aggressive to weed out the bad actors."

Let's see if we can spot the bad actors in the Reed case. His company left little to the imagination, promising customers concealment from all authorities, even under oath in a courtroom.

APG advertisements touted, "Use a Tax Savings Nevada Corporation to: ... sidestep taxes ... move your personal income to multiple Nevada Corporations owned by separate extended family members to take advantage of the lower corporate tax rates on the first $50,000 of any corporate income."

Another pitch: "Don't wait until you're the defendant in a lawsuit or the target of an IRS investigation to consider protecting your assets.

"Better to have your assets where the IRS can never seize them or know about them.

"What a judge can't find, he can't seize. And, when asked about your assets, you want to be able to say, 'I don't have any assets,' not 'I've got assets -- but you can't get them.' "

And there's: "Who Should Have a Tax Savings Nevada Corporation? The obvious answer is anyone whose combined business and personal taxes are cutting deeply into income. If you look at the money and think, 'I could do so much more with that than they will,' you need a Tax Savings Nevada Corporation.

"Block the IRS from levying your wages or seizing your property.

"Dispose of cash so it's positively untraceable, yet immediately available."

Those who bought APG's Nevada pitch and package not only paid thousands for misleading information, but they set themselves up for criminal investigation.

After reading those and many other sales pitches, and given the state's long and mostly shabby history of corporate governance, who can really blame them for being confused about whether Nevada businesses were subject to federal tax law, or, for that matter, whether the Silver State was even one of the official 50?

At the risk of being labeled as being bad for business, which of these is worse:

■ Scammers who pimp Nevada's easy corporate statutes for millions of dollars?

■ Or the state's long tradition of inaction that has helped to facilitate the tawdry transactions?

John L. Smith's column appears Sunday, Tuesday, Wednesday and Friday. Email him at Smith@reviewjournal.com or call 702-383-0295. He also blogs at lvrj.com/blogs/Smith.

Trending topics:

• Asset Protection Group
• Financial Action Task Force
• Nevada First Bank
• Richard Neiswonger
• Ross Miller
• Wendell Waite
• William S. Reed

Comments

Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background.

1. Native Nevadan Jul. 11, 2011 | 1:19 p.m. Report Abuse

   Sounds like another utopian dream of regulating away stupidity. Hey, I have an idea . . . let's continue to make so many regulations that the average person cannot jump through all of the government's hoops before he or she runs out of money. We won't have any job creation, but at least we won't have scammers taking advantage of stupid and/or greedy people. Oops, I guess we already have the zero job creation.

2. signet1 Jul. 11, 2011 | 8:05 a.m. Report Abuse

   What as Wendell Waites role? He seemed like a decent CPA. The advertising for this package should of been approved by the State. If I was a Fed and saw this advertised package my eyelids would pop. Almost sounds like a bait and switch advertising scheme to lure the big fish into a pool for the IRS. Good Story about the effects of advertising and greed.

3. Waldo.Lydecker Jul. 10, 2011 | 9:32 a.m. Report Abuse

   Ross Miller states "we've TRIED to be aggressive to weed out the bad actors." Is he brainless? "Tried" to be aggressive? And what happened? He failed to be aggressive? Some will say this is nitpicking, but the choice and formulation of words is emblematic of Ross Miller's though process. Maybe he's taken too many blows to the head in his "Make-Me-Feel-Like-A-Real-Tough Man" hobby...UFC Sweaty Men Grabs. Maybe if this Favorite Son spent less time on Twitter pushing Shane Victoriano for the All Star Game, and more time introducing legislation to plug these tax loopholes and corporate scammers, we would have more money in Nevada's coffers. Until then, it's Romper Room time for Nevada's Little Lord Fauntleroy.

4. xfmrhsd Jul. 10, 2011 | 9:21 a.m. Report Abuse

   Good report John, always want to know about these idiots. By idiots I mean the marks of these scammers. But please stop blaming lack of regulation when it is simply stupidity of the marks that truly makes this stuff possible. "If it sounds to good to be true, it is."

5. pmmart Jul. 10, 2011 | 6:19 a.m. Report Abuse

   Someone tells me that if I give them ten thousand of my hard earned dollars they will show me how to avoid paying part of my tax bill to uncle sam and I say?
   
   After I either stop laughing or telling them to get out...W.C.Fields ain't getting me this time!
   
   I wonder if the IRS is getting the names of the people who bought into the 'plan' and IF they are will they follow up on those names?
   
   IF I were one of the many I would have trouble sleeping while waiting for the mailman or the knock on the door!