Understanding Shell Company Meaning: Is It Just a Facade for Illicit Activities?

This case is relevant to the research request because it discusses the definition and characteristics of a “shell corporation,” and addresses allegations that such a corporation was used to perpetuate fraud. However, the court does not make a definitive finding on whether the corporation in question was in fact a “shell,” so the case is only partially helpful.

“Nautilus argued that Indiana law governed the insurance contracts, because the small corporations were incorporated in Indiana and were mere “shells” of ACS.”

“Shell companies are not in themselves illegal, see Guidance Memorandum, supra, at 1-2, but may be used by another corporation or entity to advance fraud by way of the shell’s “front.” See HOK Sport, Inc. v. FC Des Moines, L.C., 495 F.3d 927, 936 (8th Cir. 2007) (“[P]iercing the corporate veil is appropriate if the corporation is a mere shell, serving no legitimate business purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice.” (internal quotation omitted)).”

This case is relevant to the research request because it discusses the use of shell companies to facilitate market manipulation schemes, and the risks associated with investing in low-priced securities. However, the case does not directly address the legal definition of a shell company, and it is not clear whether it is considered a “prominent” case for the purposes of the research request.

“Shell Companies or Derogatory History of Stock …431 3. Stock Promotion …433 4. Unverified Issuers …435 5.”

“In that decision, the SEC noted that penny stocks are vulnerable to pump-and-dump schemes that manipulate a stock price in order to enrich stock promoters. Id. at *3.”

“Some money laundering red flags include: a customer who has a questionable background or is the subject of news reports indicating possible criminal, civil, or regulatory violations; multiple accounts in the names of family members or corporate entities for no apparent business or other purpose; wire transfers to or from countries identified as money laundering risks or tax havens; and excessive journal entries between unrelated accounts.”

“FinCEN has explained that shell companies are “common tools for money laundering and other financial crimes, primarily because they are easy and inexpensive to form and operate.””

This case is relevant to the research request because it discusses the use of a shell company to conceal a fraudulent scheme. However, the case does not provide a comprehensive definition or explanation of the legal implications of a shell company, and it is not clear whether this case is considered “prominent” for the purposes of the research request.

“In response, the government argued that the sophisticated means enhancement was appropriate because Guardarrama-Suarez used cash kickbacks to conceal the fraudulent scheme and because his brother’s company was in fact a shell company through which he laundered illegal proceeds.”

“Even if five participants were not involved, the scheme was “otherwise extensive,” U.S.S.G. § 3B1.1(a), because it lasted for over four years, involved at least $1.7 million in actual losses, and was concealed through cash kickbacks and a shell company.”

“He contests on appeal, however, the district court’s factual finding that his brother’s company, MIG-3, was a shell company through which he laundered proceeds of the fraud scheme.”

“Guardarrama-Suarez argues that the payment of patient recruiters and patients with cash kickbacks is not sophisticated because healthcare fraud cases often involve cash kickbacks.”

“Furthermore, the commentary to § 2B1.1(b)(10)(c) explicitly identifies the use of a shell company to hide assets or transactions as conduct that warrants the application of the enhancement. § 2B1.1(b)(10)(c) cmt. n.9(B).”

This case is relevant to the research request because it discusses the circumstances under which a court may “pierce the corporate veil” and hold a corporation’s owners liable for its debts. Specifically, the court discusses the use of a “dummy” or “shell” company to breach a lease and avoid liability. However, the case is from 2014 and from a federal district court in New York, so it may not be the most authoritative or up-to-date source on the issue.

“New York courts have held that using a completely dominated “ ‘dummy’ or ‘shell’ company created for the sole purpose of signing [a] lease,” then breaching the lease, is a sufficient wrong to justify piercing the corporate veil. Ventresca Realty Corp. v. Houlihan, 41 A.D.3d 707, 709, 838 N.Y.S.2d 609 (2d Dep’t 2007); see also Flushing Plaza Assocs. No. 2 v. Albert, 102 A.D.3d 737, 739, 958 N.Y.S.2d 713 (2d Dep’t 2013) (piercing veil of shell company that breached lease with plaintiff and then transferred money to its controlling shareholder, leaving it judgment proof, while continuing to collect subtenant rents). In this case, Plaintiff alleges that the A & M Entities were created solely to lease the properties from Plaintiff, that GFI Acquisition was created to purchase the properties, and that these entities had no assets when they were formed. Am. Compl. ¶¶ 14–15, 22. Plaintiff also describes, in substance, a scheme under which the A & M Entities negotiated a deferral of their rental payments while the sale of the properties to GFI Acquisition was pending; GFI Acquisition deferred the sale while Defendants continued to collect subtenant rents (through the A & M Entities) during the deferral period; the A & M Entities and GFI Acquisition repudiated their contract with Plaintiff when the time came to pay; and when Plaintiff sought to recover for that breach, the entities were judgment proof.”

This case is relevant to the research request because it discusses the process of creating a shell company, the use of a reverse merger to access public markets, and allegations of securities law violations related to the use of a shell company. However, the case does not specifically address the use of a shell company for illicit activities, which is part of the research request.

“The district court explained the “reverse merger” process that led to the SEC’s claims against Tsai in this case: This case centers on Defendant Tsai’s creation of MAS Acquisition XI Corporation (“MAS XI”), a “shell” company that ultimately merged with Bluepoint and sold shares to the public on the Over–the–Counter Bulletin Board in March of 2000. The SEC maintains that the Defendants’ conduct relating to that process repeatedly violated the federal securities laws. “Shell companies,” like MAS XI, … are formed with the purpose of qualifying for public trading on the Over–the–Counter Bulletin Board and later being sold to a privately-held company.”

“A reverse merger enables a private company to access public markets without undertaking the expensive process of an initial public offering. See SEC v. Kern, 425 F.3d 143, 146 (2d Cir.2005). This inexpensive way to “go public” creates a market for shell companies.”

This case is relevant to the research request because it discusses the use of a “shell entity” to avoid paying a lawful debt, and the court’s application of the “alter ego” doctrine to hold the controlling individual liable. However, the case does not specifically address the broader implications of shell companies beyond this particular context.

“Factors for the court to consider include identical equitable ownership, comingling of funds, use of the same offices, disregard of formalities, and use of one entity as a mere shell for the affairs of another. ( Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. , supra , 217 Cal.App.4th at pp. 1108-1109, 159 Cal.Rptr.3d 469.)”

“Most importantly, AFS was nothing but a shell. It had no substantial business activity and no income with which to pay its debts.”

This case is relevant to the research request because it discusses allegations that the defendant formed “shell companies” to launder criminal proceeds. However, the excerpt does not provide enough information to determine whether the court ultimately found that the companies were indeed “shell companies” or whether the defendant was found guilty of the alleged crimes.

“The SAC alleges that Claimant formed “shell companies,” SecureComm Ltd., DSL Data Service Logistics Limited, Encryptcomm Ltd., and Golden Castle Technology Ltd., to launder PHANTOM SECURE’s “criminal proceeds.” (Id. ¶ 93). The SAC alleges that Claimant opened the Bendura Bank accounts held in his name and in the name of Golden Castle Technology Ltd. that contain Defendant Funds. (Id. ¶¶ 100-101). The SAC alleges that each of the Bendura Bank accounts “received” millions of dollars in criminal proceeds from bank accounts controlled by SecureComm Ltd., DSL Data Service Logistics Limited, Encryptcomm Ltd. (Id. ¶¶ 112, 119).”

This case is relevant to the research request because it discusses the use of shell companies to conceal the identity of an individual in order to violate sanctions and commit bank fraud. However, the case does not specifically define “shell company” or provide a detailed analysis of its legal implications.

“See id. The government has further established probable cause to believe Vekselberg structured transactions involving the Target Property to conceal his identity, including through the use of shell companies, as part of a scheme to violate IEEPA and the bank fraud statute, both of which were part of a related international promotional money laundering scheme. See Affidavit ¶¶ 55, 62. These transactions are subject to U.S. jurisdiction as they passed through the United States while the correspondent banks processed the transactions. See Affidavit ¶ 44.”

“”Shell companies can often be formed without disclosing the individuals that ultimately own or control them (i.e. , their beneficial owners) and can be used to conduct financial transactions without disclosing their true beneficial owners’ involvement. Criminals abuse this anonymity to mask their identities, involvement in transactions, and origins of their wealth, hindering law enforcement efforts to identify individuals behind illicit activity.” d. In June 2018, FinCEN warned U.S. financial institutions that “[f]oreign corrupt [politically exposed persons] PEPs, through their facilitators, may amass fortunes through the misappropriation of state assets and often exploit their own official positions to engage in … money laundering, embezzlement of state funds, and other corrupt activities.””

“Norex Petroleum Ltd. v. Access Indus., Inc. , 304 F. Supp. 2d 570, 572 (S.D.N.Y. 2004), vacated and remanded, 416 F.3d 146 (2d Cir. 2005).”

This case is relevant to the research request because it discusses allegations that the defendant used a shell company to conceal fraudulent payments and avoid detection. However, the case does not provide a legal definition of a shell company or discuss its implications in detail.

“Specifically, the government alleges that Cory knowingly participated in a scheme to defraud in which he used his position as the chief executive officer of an information technology services company (IT Company) to make fraudulent payments from the IT Company and its subsidiary’s bank accounts to a bank account held in the name of Gambit Matrix LLC (Gambit). Id. at 1-3. The government further alleges that Gambit was a shell company that Cory created for the purpose of receiving the fraudulent payments. Id. at 2-4. According to the Indictment, Cory avoided detection by concealing his ownership interest in Gambit from board members and employees of the IT Company, creating fictitious owners of Gambit through false email accounts and social media profiles, making false statements when questioned about the payments, and falsifying a contract for consulting services Gambit never performed.”

This case is relevant to the research request because it discusses the definition and implications of a “straw” company, which is similar to a shell company in that it is used to disguise the identity of the true owner. However, the case does not specifically mention “shell” companies, so it is only partially relevant.

“The court cannot agree. A “straw” company is typically understood to mean a company designed to create an appearance of ownership in order to disguise the identity of the true owner. See United States v. Fitzgerald, 416 F. App’x 238, 245 n. 4 (4th Cir. 2011) (unpublished).”

“Here, the government alleges that defendant and his co-conspirators used straw companies and bank accounts to hide assets, income, and ownership from the IRS, with the manner and means including straw companies using random names. As these terms are thus relevant to the government’s theory of the case, the court declines to strike them from the indictment.”

“Finding that FinCEN has met its obligation to respond “in a reasoned manner” to FBME’s comments, Reytblatt v. Nuclear Regulatory Comm’n, 105 F.3d 715, 722 (D.C. Cir. 1997), the Court will grant the agency’s motion.”

“In July 2015, FinCEN, a component of the U.S. Department of the Treasury, promulgated a Final Rule imposing the “fifth special measure” against FBME under Section 311 of the USA PATRIOT Act of 2001. The Rule, aimed at blocking FBME from doing business in the United States or using U.S. dollars, prohibited domestic financial institutions from opening or maintaining correspondent bank accounts on behalf of FBME. In August 2015, in light of apparent procedural deficiencies in the Rule’s promulgation and the likelihood of irreparable harm to FBME, the Court granted the Bank’s motion to preliminarily enjoin the Rule. FBME Bank Ltd. v. Lew (“FBME I”), 125 F.Supp.3d 109, 114 (D.D.C. 2015).”

“Texas law required Ebert to prove: 1) that a fiduciary relationship existed; 2) that Cohen breached his fiduciary duty to LSI; and 3) that Cohen’s breach resulted in injury to LSI or benefitted him. Navigant Consulting, Inc. v. Wilkinson , 508 F.3d 277, 283 (5th Cir. 2007).”

“Manz testified that a “nominee company” is one that “stands in the place of a person or another company,” and is often used to “hide the identity of a person or another entity.” Manz also testified that Appel owned more than 5% of LSI’s outstanding stock through nominee companies, that Bartlett owned another 1.5% of LSI through nominee companies, that Appel, Bartlett, and their associates earned a total of $ 5.1 million of profit from LSI stock, and that FEQ Realty made $ 2.3 million in profit from LSI stock.”

“Dkt. 831 at 12-13 (citing caselaw referring to the creation of shell corporations to conceal interests and evade United States tax regulations). Katholos argues, however, that “the use of entities, numbered accounts, and ‘hold mail’ cannot be viewed in [a] vacuum when considering willfulness.” Dkt. 98 at 32.”

“Other than the general allegation that “Armenta agreed with others — believed to be the OneCoin and Scott Group Defendants — to engage in … money laundering,” Plaintiffs do not allege facts showing how Armenta is in any way connected to Scott, Pike, or Huesmann, the other Scott Group Defendants.”

“Specifically, in February 2016, Scott registered MSS International Consultants Limited (“MSSI”) — the sole two directors of which were Scott and Pike — in the British Virgin Islands; Scott and Pike opened numerous investment funds through MSSI to facilitate their money laundering activities. Id. ¶ 164. In particular, they registered funds in the British Virgin Islands, the Cayman Islands, and Ireland (collectively the “Fenero funds”). Id. ¶ 164 & n.4.”

“Best Van Lines, Inc. v. Walker , 490 F.3d 239, 242 (2d Cir. 2007).”

“The same analysis applies to the allegation that BNYM “identified 275 concerning wires … that were filtered through BNY[M] by entities affiliated with OneCoin. “”

“But even that suggestion is erroneous, because, as the Government explains, the Complaint, which sets forth some of the particulars on which these counts of the Indictment are based, clearly shows that the counts are based on distinct transactions: wire transfers from victims through New York correspondent banks to shell companies, in furtherance of the securities fraud conspiracy, see, e.g., Compl. ¶ 27(c)(i)-(v), and international, dollar-denominated wires from those shell company accounts to conceal money-laundering distributions of fraudulent proceeds to Booth and his coconspirators, see, e.g., Compl. ¶ 28. See Opp. 4-5 n. 3. The Complaint describes, for example, how wire transfers distributing proceeds internationally were labeled as for “Consultancy Expenses,” reflecting an intent to conceal the illicit source of these proceeds of unlawful activity. Cf. ECF 25 (“Reply”) at 3. As this illustrates, the money laundering transactions are not part of the predicate securities fraud conspiracy.”

“Id. Septon used a variety of business entities to facilitate his fraudulent scheme and to hide from lenders the fact that he was providing bridge loans to borrowers. He also sometimes used those same entities to act as sham employers for borrowers in order to falsely verify and substantiate their sources of income. This is similar to hiding transactions through the use of fictitious entities — the type of conduct specifically mentioned by the Sentencing Commission as justifying a sophisticated means enhancement.”

“Finally, because the concept of piercing the corporate veil is equitable in nature, the trial court made several additional findings concerning the equities and concluded that they favored Vik. In this regard, the trial court observed that “[Deutsche Bank’s] contracts with SHI did not contain a personal guarantee by … Vik,” a practice “so common” in the financial services industry that many Deutsche Bank personnel “incorrectly thought [that] there was one in place.” According to the court, Deutsche Bank’s “effort to pierce SHI’s veil” was simply “an attempt to circumvent the lack of a [personal] guarantee.” The court also emphasized that all “transfers out of SHI’s [Deutsche Bank] accounts … were handled by [Deutsche Bank] itself” and that, “[f]ar from draining all of SHI’s funds at [Deutsche Bank] … Vik left available in SHI’s accounts at [Deutsche Bank] at least $511 million and paid them [upon] request.” The court concluded that, “[b]ut for [Deutsche Bank’s] error in calculation … Vik [reasonably] could … have believed that $250 million to $280 million remained in SHI’s accounts at [Deutsche Bank], even after paying the $511 million,” which “exceeded the amount of the ultimate shortfall.””

“OPINION SRINIVASAN, CHIEF JUDGE Eleanor Milligan was convicted of wire fraud and other offenses for embezzling over one million dollars from her former employer, Global Management Systems, Inc. In this appeal, Milligan seeks to set aside both her convictions and her sentence.”

“What is more, the business “David Morgan Rental Properties” existed in name only- Milligan had obtained a mailbox from a UPS store in that name. Milligan ultimately obtained over $1.5 million from her embezzlement scheme before GMSI fired her in 2016 for unrelated performance issues.”

“United States v. Lewis, 93 F.3d 1075, 1082 (2d Cir. 1996).”

“United States v. Jackson, 346 F.3d 22, 25 (2d Cir. 2003), vacated on other grounds sub. nom.”

“The district court applied the sophisticated means enhancement on the basis of several elements of Vaccarelli’s scheme, including: the scheme’s six-year duration; the plundering of money from fifteen victims; the use of TIC to provide legitimate cover; and the use of shell companies such as LWLVACC, LLC. We agree with the district court that, taken together, these steps constitute far more than garden-variety fraud.”

“We have also held that, even where “each step in [a] scheme was not elaborate,” a scheme as a whole may be sophisticated where “all the steps were linked together . . . [to] exploit different vulnerabilities in different systems in a coordinated way.” United States v. Jackson, 346 F.3d 22, 25 (2d Cir. 2003), vacated on other grounds sub. nom.”

“The district court applied the sophisticated means enhancement on the basis of several elements of Vaccarelli’s scheme, including: the scheme’s six-year duration; the plundering of money from fifteen victims; the use of TIC to provide legitimate cover; and the use of shell companies such as LWLVACC, LLC.”

“D. The Nature of the “in order to” Requirement With respect to the factual prerequisites for application of the fugitive disentitlement statute, Claimants’ challenge focuses on the district court’s finding that the Allens declined to reenter the United States “in order to avoid criminal prosecution,” 28 U.S.C. § 2466(a)(1)(B). Claimants argue that “[t]he Allens have offered alternative reasons for their intent to leave and remain outside of the jurisdiction, which … warranted a denial of the government’s motion to strike.” (Claimants’ brief on appeal at 19.) According to Claimants, [t]he ultimate import of the “in order to” requirement is that the government must show and the court must find a deliberate and purposeful intent, which appears to approximate specific intent, to leave the jurisdiction and remain outside of it for the purpose of evading jurisdiction. Applying the “in order to” standard requires more than a mere invocation of the words of the statute. It requires a rigorous evaluation of intent…. The paucity of factual findings to support the district court’s ruling suggests that though the district court stated the terms “in order to” in making its ruling, it did not, as a matter of application, utilize the correct standard.”

“In this defamation action we consider whether the providing of a report regarding possible criminal activity to a government agency was an absolutely privileged communication or a conditionally privileged one. Shell Oil Company and Shell International, E & P, Inc. (collectively, Shell) received an inquiry from the Department of Justice (DOJ) regarding possible violations of the Foreign Corrupt Practices Act by one of its contractors.”

“In February 2007 a Shell contractor, Vetco Gray, entered into a plea agreement with the DOJ under which Vetco Gray was criminally convicted and fined $26 million for violating the Foreign Corrupt Practices Act (FCPA). 15 U.S.C. §§ 78dd–1 to –2 (1998). Vetco Gray pled guilty to paying bribes to Nigerian customs officials through Panalpina, Inc., a freight forwarding and customs clearing company used to import equipment for Shell’s Bonga Project, a deepwater oil and gas project off the coast of Nigeria.”

“Shell and the DOJ then executed a Deferred Prosecution Agreement—a type of agreement used by the DOJ when a corporation cooperates with an FCPA investigation.”

“Id. In particular, FinCEN states that from “April 2013 through April 2014, FBME conducted at least $387 million in wire transfers through the U.S. financial system that exhibited indicators of high-risk money laundering typologies, including widespread shell company activity, short-term ‘surge’ wire activity, structuring, and high-risk business customers.” Id. And FinCEN continues: “FBME was involved in at least 4,500 suspicious wire transfers through U.S. correspondent accounts that totaled at least $875 million between November 2006 and March 2013.””

“SARs are reports by banks and other financial institutions disclosing transactions that the institution “knows, suspects, or has reason to suspect” involve possible illegal activity. Defs.’ Opp’n Mot. Prelim. Inj. at 29 (quoting 31 C.F.R. § 1020.320(a)).”

“Id. In other words, FinCEN reviewed SARs filed by banks on the other side of transactions involving FBME. That statement, and the summary information that FinCEN provided, would appear to be sufficient to put FBME—which is a bank, after all—on notice at the NOF/NPRM stage that FinCEN might rely on information derived from SARs.”

“He concluded that if international criminal tribunals had ruled that aiding and abetting a violation of the law of nations was itself a violation of the law of nations, this answered the question posed in a civil suit under the ATS whether aiding and abetting violated the law of nations. He explained, “Once a court determines that the defendants’ alleged conduct falls within one of ‘the modest number of international law violations with a potential for personal liability’ on the defendant’s part . . . [t]he common law . . . permits the ‘independent judicial recognition of actionable international norms.'” Id. at 269-70 (citations omitted). Judge Katzmann, in other words, looked at the norms of conduct established by international courts as violations of international law and concluded that conduct which constitutes a criminal violation of international law also violates international law for purposes of civil liability under the ATS. I agree completely with Judge Katzmann’s reasoning. It does not follow, however, that if international tribunals withhold criminal liability from juridical entities for reasons that have nothing to do with whether they violated the conduct norms of international law, but result only from a perceived inappropriateness of imposing criminal judgments on artificial entities, there has been no violation of the norms of international law.”

“NOF, 79 Fed. Reg. 42640. As the Court will discuss in the next section, FinCEN did not adequately respond to FBME’s comments regarding the concessions it drew from the aggregate SARs data. But because the NOF pointed clearly to this information and FinCEN’s use of it, FBME was adequately on notice.”

“Indeed, this is the full extent of FinCEN’s response to the above concerns: FinCEN disagrees [with FBME’s various criticisms of SARs] and notes that SARs, which are filed by financial institutions regarding transactions revealing a possible violation of law, are an invaluable source of information and an important tool for financial investigations. In this case, FinCEN believes that the SARs related to FBME are relevant to the finding that FBME is of primary money laundering concern when viewed in the context of all the other information considered.”

“Id. These summary statistics formed important cornerstones in FinCEN’s analysis.”

“Defendant HIG ‘s Motion Plaintiff seeks to “pierce the corporate veil” and hold Defendant HIG liable for Wellpath’s actions because of the level of control HIG allegedly maintains over Wellpath. Doc. 30, at 6. In its Motion, HIG asks the Court to dismiss Plaintiff’s claims against it because she failed to plead adequate facts to support holding HIG responsible for Ms. Seybold’s death. Doc. 21, at 4.”

“Paragraph 24 of the Complaint states, “H.I.G.’s use of Wellpath is but a mere shell, an instrumentality or conduit for the business of financially profiting from providing mental/medical care to detainees in jails through these shell companies.””