Background Context

• • The CO Secretary of State maintains an online business filing system for the public to register companies and verify active entities. Accuracy is crucial to prevent fraud.
  • In 2022, the Secretary reduced the fee to form a new LLC from $50 to $1 to help small businesses still recovering from the pandemic. The credit was funded by an $8M appropriation.
  • Defendant had a history of running fraudulent credit services businesses and is believed to be involved with selling “aged shelf corporations” to customers seeking to rebuild credit.
  • In May 2023, the Secretary noticed a surge of suspicious filings from foreign IP addresses all using the same Northglenn property address and Andrade as the registered agent.
  • An investigation confirmed Andrade lacked permission to use the Northglenn address and was ineligible to serve as a registered agent, pointing to a mass fraud scheme.

Why It Matters

• • Fake business filings make it difficult for consumers to verify a company’s legitimacy or contact principals with concerns, enabling fraud.
  • Registering thousands of bogus entities under one address without consent deceives the public and facilitates business identity theft.
  • Exploiting fee credits intended to help real small businesses deprives legitimate CO entrepreneurs of support while enriching bad actors.
  • Selling fraudulent aged entities allows unscrupulous buyers to access credit and contracts they don’t qualify for, damaging the marketplace.
  • The mass scale of fake filings undermines the integrity of and public confidence in the Secretary of State’s business records.

FAQs

• • How did the Secretary uncover the fraudulent filing scheme? An unusually high volume of filings from foreign IPs all using the same CO address flagged the suspected fraud.
  • What made Andrade’s use of the Northglenn address illegal? He didn’t have the property owner or occupant’s consent to list it as a place of business or agent address.
  • Why couldn’t Andrade serve as registered agent for the entities? In Colorado, registered agents must either reside or maintain a physical office location within the state’s borders.
  • What’s the harm in selling “aged shelf corporations” to others? It helps buyers misrepresent their business history to fraudulently access credit and contracts.
  • Why did the AG prioritize this case if the fake entities were just “on a shelf”? The huge volume of bogus filings undermined the integrity of CO’s business records.

Elements of the CCPA Claims

• • Deceptive Trade Practice (§ 6-1-105(1)(ppp)): Using an address in business filings without the property owner/occupant’s consent.
  • Knowing/Reckless Fraud (§ 6-1-105(1)(rrr)): Knowingly or recklessly engaging in unfair, deceptive or fraudulent practices.
  • False Representation: Claiming an individual is authorized to accept service for an entity when they aren’t a proper registered agent.
  • Significant Public Impact: A fraudulent filing pattern that misleads the public and facilitates misuse of the corporate registration system.
  • Acquiring a Benefit: Obtaining fee credits, entity assets, or other perks through deceptive means without legal entitlement.

Proving Deception & Public Harm

• • Affidavits from the Northglenn property owner and occupant stating they never authorized Andrade’s use of the address constitute strong evidence he deceived the public.
  • CO’s registered agent eligibility rules are well-established – claiming agent status while not residing or officing in-state demonstrates knowing fraud.
  • The volume, speed and foreign sourcing of Andrade’s filings support that he acted knowingly as part of a larger fraudulent scheme.
  • Fake filings at this scale undermine the state registration system, enable business identity theft and credit fraud, and divert resources from legitimate enterprises.
  • Andrade’s history with credit service scams and sale of dubious aged entities illustrates the direct consumer harm and unjust gains from his conduct.

FAQs:

• • Does the CCPA require proof that someone relied on the deceptive info? Deception itself is legally punishable if it could deceive an average person, even without proof anyone was actually misled.
  • Did Andrade make false filings or just facilitate them? He’s responsible as the incorporator and registered agent applicant attesting to the filings’ accuracy under penalty of perjury.
  • How are fee credit recipients harmed by fake filings? The credits come from limited public funds, so fake entities deplete money meant for real small businesses.
  • Can entities be dissolved just for a bogus address? Yes, courts can dissolve entities to remedy deceptive trade practices or other fraudulent conduct.
  • Why does unjust enrichment justify higher penalties? Restitution prevents wrongdoers from profiting off misconduct even if victims’ losses are hard to quantify.

Relief Breakdown

• • Dissolution Process: Entities will be wound up, claimants notified, and articles of dissolution filed with the Secretary of State pursuant to CO law.
  • Compliance Plan: The permanent injunction gives the CO AG authority to monitor Andrade’s future conduct and business filings for legality.
  • Penalty Breakdown: $20K in civil penalties to deter misconduct, $20K for state’s attorney fees, $35K in unjust enrichment to disgorge illegal gains.
  • Third-Party Impact: Notice helps mitigate potential fraud from buyers of fake entities but doesn’t directly unwind or penalize those transfers.
  • Enforcement Teeth: Contempt powers enable the AG to bring violations back to court for further punishment, fines, or even incarceration.

Settlement Benefits & Limitations

• • Dissolving the fake entities helps clear the Secretary of State’s records of fraud and prevents further abuse of the bogus companies.
  • Banning Andrade from forming non-compliant entities protects the public from future scheme and forces him to strictly follow the law.
  • Making him pay $75K in penalties, fees and disgorgement punishes past fraud, funds enforcement efforts, and removes Andrade’s ill-gotten gains.
  • But the agreement doesn’t unwind or penalize transfers to third parties who may still try to exploit the fake entities, so some risk remains.
  • And while the AG can enforce the deal terms, preventing similar mass business filing fraud may require broader systemic reforms.

FAQs:

• • How long will it take to dissolve 15,000+ entities? The process will likely unfold in phases but wrapping up such a large volume could take many months to several years.
  • What if Andrade violates the formation ban? The AG can haul him back into court to enforce the order’s terms and seek punishment for any contemptuous conduct.
  • Where will the $75,000 in payments go? The funds will likely support future anti-fraud enforcement efforts and consumer protection initiatives, or victim restitution if ordered.
  • Can transferred entities still defraud people? Notice gives buyers a duty to update their info, but some may ignore it, resell entities, or use them unlawfully themselves.
  • What can CO do to prevent the next mass fraud? Potential ideas: ID verification for filers, pattern detection algorithms, reporting suspicious activity, harsher penalties.

Questions: Legit or Fraud?

• • 1. An incorporator lists a P.O. box as the entity’s principal address:
    • A) Totally legit – it’s a valid mailing address
    • B) Probably fraud – LLCs and corps need a physical office
    • C) Depends – it’s fine if they do some business there
    • D) Legit for an online-only company
  • 2. A registered agent uses the address of their own home:
    • A) 100% fraudulent – agents need commercial offices
    • B) Completely legit if it’s their bona fide residence
    • C) A grey area – homes are OK if identity-verified
    • D) Always illegal for an LLC or corporation
  • 3. A CA resident serves as registered agent for a CO company:
    • A) Perfectly fine – the agent just needs a deliverable address
    • B) Suspicious – most states require in-state agents
    • C) Clearly fraud – a foreign agent is never allowed
    • D) Legit only if they have a CO mailing address
  • 4. A formation company offers “credit repair” via aged LLCs:
    • A) Great deal – older entities boost your financials fast
    • B) Clever service – businesses need credit history to thrive
    • C) Sounds like a scam – legit options exist to build credit
    • D) Depends on your risk tolerance – read the fine print
  • 5. A company you paid has the wrong address on its state filing:
    • A) No big deal – mistakes happen, just ignore it
    • B) Contact them to correct it before assuming fraud
    • C) They’re crooks – demand a full refund and call the cops
    • D) Not your problem unless they ripped you off

Answers: Legit or Fraud?

• • 1. B) P.O. boxes are a red flag since registered entities need a physical place of business, barring exceptions.
  • 2. B) A registered agent can use their actual home address if they reside there and are generally available to accept service of process.
  • 3. B) CO and most states require registered agents to have an in-state residence or business address, so foreign agents raise suspicion.
  • 4. C) “Repair” via aged entities is often a credit-washing scam – build legit business credit with vendor accounts, secured cards, and on-time payments.
  • 5. B) Errors alone aren’t proof of fraud but failure to fix them is a red flag – report any uncorrected inaccuracies to the state if disputes arise.

Disclaimer

The legal analysis provided in this article on the Colorado Attorney General’s lawsuit and settlement in the Andrade business filing fraud case is for informational purposes only and not formal legal advice.

For counsel on suspected business filing fraud or deceptive trade practices specific to your situation, please consult a licensed attorney in your state.