25 Mar Business Sellers Beware: Wolf in Buyer’s Clothing
Another group of business buyer-scammers has been convicted. This time it was a father-son team from Farmington Hills, Michigan. They were convicted in federal court in Philadelphia in November 2009 for “a scheme that allowed them to fraudulently gain control” of businesses and “deplete the assets.”
Kenneth and Frank Mitan, along with their co-conspirators Charro Pankratz and Bruce Atherton, repeatedly defrauded business sellers around the United States over several years by answering “business for sale” advertisements and working out terms of purchase. Often using aliases, they’d offer nearly full price and conduct little due diligence. They’d provide stellar (albeit false) personal financial statements and references, and preferred to effect the purchase by stock (or shares) as opposed to assets (which is far more typical).
The exact details of each scam varied, but the end game was always to find a way to take possession of the business (and all its assets, accounts receivables, checking accounts, etc.) without paying any money (or very little) at closing. Sometimes the negotiated terms would require little cash at closing (but payments over time). Other times they’d promise 100% cash at closing, then run into a little administrative problem with their wire transfer but somehow talk the seller into closing on the sale anyway and allowing the buyers to take possession based on the promise to have the payment in a day or so.
The Mitan team, in a matter of days, would sell or remove as many assets as possible, transfer all the cash out of the business, then disappear. The sellers were left with little but a pillaged business. Among their victims was an Arkansas pallet company named Prime-Line, Inc.
In 2006, the members of a group that perpetrated a similar scam on scores of owners of midsize businesses across the United States each plead guilty and went to prison. This group, which included James Robert Nance (also known as Thomas James Alvin and T.J. Alvin), Steven A. Nadroski (also known as Trent Wilson), Donald Nadroski (also known as Don Black and Yaakov Cohen), and Marisa Ponder (also known as Marisa Wolfcale, Jade Hoffman, and Marisa Browning), were the subject of a scam alert that appeared in the July-August 2006 issue of The Business Owner Journal.
Selling a business is complex, time-consuming and risky. Even seasoned business people can and often do make mistakes. When the day comes for you to sell, get expert assistance. Be skeptical, especially if an offer sounds too good to be true. And use competent legal counsel that specializes in business transactions.
Special thanks to business brokerage industry legend Tom West for alerting us to recent developments on this topic.