How scammers use Arizona's lax LLC laws to steal money
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State law makes it easy for scammers to set up fraudulent businesses and difficult for victims to notice identity theft, an Axios Phoenix investigation found.
Why it matters: Lax LLC incorporation regulations have enabled bad actors to steal funds from Arizona residents — often senior citizens they believe are less likely to notice the online crime.
How it works: When scammers get their hands on a victim's personal banking information, they sometimes set up an LLC in the victim's name.
- Scammers can use the new LLC to open a business bank account under the same name.
- They can then transfer money from a victim's personal account to the phony business account without the victim knowing.
Threat level: Security experts tell Axios Phoenix this has become a common scheme across the country because of the ease of opening an LLC.
- Starting an LLC can be done entirely online through the Arizona Corporation Commission by paying a $50-$85 fee. There's no ID check.
- Banks often don't scrutinize LLCs the way they would individuals, according to the Identity Management Institute, an organization that certifies security professionals.
Zoom in: 84-year-old Tucson resident Sue Giles says she caught onto such a scam after receiving marketing letters about her business, "Real Estate Giles LLC," a business she had no knowledge of.
- Her son searched the Arizona Corporation Commission and found the LLC, which listed Giles as the sole member along with her home address.
- They then looked at Giles' bank account and found transfers totaling more than $10,000 to a business bank account for "Real Estate Giles."
When Giles reported the theft, her bank worked quickly to refund the stolen money and close her compromised account.
Yes, but: The corporation commission did not exhibit the same concern, she says.
- Giles' son was told the only way to close the fraudulent LLC was to pay a $70 fee, which he ultimately did.
What they're saying: The corporation commission refused to comment on LLC fraud, but corporations division assistant director Joey Ordoñez tells Axios that state law outlines policies for opening and closing LLCs.
- In other words, any change to the process would have to come from the Legislature.
The big picture: Eva Velasquez, CEO of the nonprofit Identity Theft Resource Center says the LLC issue speaks to a broader tension between convenience and security.
- As government and private entities work to make it easier to navigate bureaucracy by offering online services, they sometimes open consumers up to vulnerabilities, she says.
Between the lines: The scammers in Giles' case appear to have used Bizee — an online platform that helps businesses incorporate LLCs — to set up the fraudulent business with the Arizona Corporation Commission.
- Bizee co-CEOs Nick Siha and Dustin Ray said in a statement that the company has a team of employees dedicated to identifying fraud and routinely notifying government agencies about potential fraud.
What we're watching: Bizee has called on state and federal authorities to take "immediate and decisive legislative action to curb illegal identity theft."
- "The lack of progress in this matter is disheartening, yet we remain hopeful that our engagement will catalyze the much-needed attention and action to address this pervasive problem," Siha and Ray said.
Mary Ann Miller, an executive adviser for identity verification platform Prove, says banks, government agencies and businesses need to revamp their standards to verify an applicant's identity.
- It's no longer enough to just ask for a Social Security number or other identifying information, she says.
Reality check: There is no active legislation to address this problem in Arizona.
The bottom line: "All the time I'm thinking, 'What do people do that don't have smart sons that are willing to take their time and help dear old mom?' It's beyond upsetting," Giles tells Axios Phoenix.