Who Can I Hold Liable if My Business is Hijacked?

It’s an obvious question.

In the event an identity thief logs onto my local secretary of state website, hijacks my company and takes out a huge loan that I have to spend months or even years of my life contesting, who can I hold liable for my pain and anguish, not to mention my costs?

There has to be someone. Right?

Right?

Well, actually, no. In practice, it is extremely difficult in cases of business hijacking to hold any one entity accountable.    

This is why monitoring your information with Company Alarm is so vital. Because if you miss that your company has been hijacked and the criminals scamper off with a large sum of cash, there’s really little you can do.  It’s up to you to secure your business.

You can't sue the state

As we’ve said many times here at Company Alarm, state governments typically lack the legal authority to verify the accuracy of business documents filed with them. That’s why identity thieves can hijack companies: The states have to accept their fraudulent filings, so long as the forms are filled out correctly and they pay the necessary fees. 

Because this loophole is baked right into the business registration system, states generally have verbiage that holds themselves harmless in the event something inaccurate is filed.

So, right off the bat, you can’t sue the state if your business is hijacked. The law won’t let you.

You aren't likely to always get law enforcement interested

But what about the criminals themselves? you ask. Surely the authorities will hold them accountable.

Not exactly.

Most states have warnings on their business registration websites saying that you file such documents under the penalty of perjury. That language establishes it is a crime to file fraudulent business documents.

Here’s the warning in my home state, from the Colorado Secretary of State:

“Causing this document to be delivered to the Secretary of State for filing shall constitute the affirmation or acknowledgment of each individual causing such delivery, under penalties of perjury, that the document is the individual's act and deed, or that the individual in good faith believes the document is the act and deed of the person on whose behalf the individual is causing the document to be delivered for filing, taken in conformity with the requirements of part 3 of article 90 of title 7, C.R.S., and, if applicable, the constituent documents, and the organic statutes, and that the individual in good faith believes the facts stated in the document are true and the document complies with the requirements of that Part, the constituent documents, and the organic statutes.

“This perjury notice applies to each individual who causes this document to be delivered to the secretary of state, whether or not such individual is named in the document as one who has caused it to be delivered.”

Tough sounding, right? The only problem is most law enforcement agencies are hard pressed to investigate most reports of business identity theft.  Why? It comes down to available resources and, in some instances, not being aware of the true, pervasive nature of the crime.  Also, like other Internet-born crimes, identity thieves enjoy a layer of anonymity and take advantage of jurisdictional hurdles that all law enforcement agencies face.

In the vast majority of cases, when a fraudster can be identified, it comes down to “prosecutorial discretion” – that is, does your local district attorney have the resources and/or the ability to file a criminal case. And, since most law enforcement officials across the United States don’t really get business identity theft, the answer is no.

In my experience working on various criminal investigations where strong evidence of criminal misconduct was learned and sent on to a jurisdiction outside of mine, the authorities there had little to no interest in pursuing these cases, simply because they didn’t understand business identity theft. 

It is sometimes maddening, but incredibly common. If your business is hijacked, don’t count on the criminals facing justice. It just doesn’t happen all that much.

Lenders have a great excuse

So if you can’t sue the state and you can’t expect the criminals to go to jail, surely you can go after the third parties who lend the criminals money in your business’s name or who buy your stolen assets, as in the case of Company Alarm’s founder Andy Pham. Right?

You’d think so. I mean, in the case of a lender who gives a chunk of cash to an identity thief, the lender should have done a better job vetting to make sure the identity thief was the bona fide owner of your business. Often time in cases like this the lenders are incredibly sloppy, making lending decisions based on incomplete information or easily verifiable wrong information.

The only problem is that in the case of a business hijacking the lenders have a trump card: The official document from the state saying the identity thief is the bona fide owner of the business.

Never mind that the state can’t verify the accuracy of the information submitted to it or that the business registration system is so flawed that the state can’t even guarantee the accuracy of the information it presents. If the state document said the business identity thief owned your company, that’s all the lender really needs to rely on to avoid liability.

After all, it is an official document.

Circular logic at its finest

If you stop to think about it even for a second, you’ll see how twisted the logic is. The state has no authority to verify the accuracy of the information it receives, so it can’t be held liable for inaccuracies in its official documents. The lenders rely on official state data, so they can’t be held liable either.

It’s a never-ending circle of finger pointing, with ultimately no one to blame.

In the event you are a victim of a business hijacking, the best you can reasonably hope for in most cases is that a lender will waive the debts incurred by the identity thieves and your credit will get cleared up. That’s the absolute best. You‘re never going to be able to get justice or be made whole for all the time and effort you spent clearing your name. 

Those are simply expenses you’re going to have to eat, a burden you’re just going to have to bear.

Once again, that’s why Company Alarm’s services are so vital. You don’t want to clean up after you’ve been a victim of business identity theft. That’s going to come out of your pocket and your time.

You want to prevent it from ever hurting your business. That’s why you need someone to monitor your business information on file with the state. That’s why every business needs Company Alarm.