The Case of the Missing Dealer
Last we met in this blog, I was talking the building blocks of finding a company. The message of that post was to find a company, you had to know what kind of company it was. I said in the lead up there:
Let’s look at verifying a business identity. Now, there’s really two questions here, does a business exist and does it do business. We’ll also leave the, does a business do business, to another day.
And today I ran across an article from Automotive News. It told the story of six banks in Georgia that “suffered $1.7 million in losses, not at the hands of 80 customers, but to seven people posing as dealerships.” The article adds, “The loans, ranging from $25,015 to $50,000, were approved for dealerships registered by the Georgia Secretary of State. Yet the stores, according to an Aug. 16 statement by the state's Department of Justice, "had no employees, no cars, no car lots, and no dealership licenses.”[Emphasis added.] So, let’s not leave to another day, how to verify a business, because at least some people need a bit of help in this area.
Let us concede that there is no substitute for “boots on the ground” or picking up a phone. And as Occam and his razor would say, the simplest approach is usually the best. That said, there are often aggravating factors that keep us from these easy answers. The target can be far away from us; we may need the answer before we have time to get there, or a drive-by (so to speak) is not useful for instance due to security. How do we know that a business exists without ringing up a sale?
Let us also concede that it is often not possible to fully confirm a business exists. In many cases, there will be things that show the business exists and other areas where the answer is fuzzy. And we’re talking, as in the above example, where we at least have a company on paper. Is it more than a set of papers filed away in someone’s cabinet?
The first thing I look at is the website. And the first thing someone is going to do, probably, in setting up a fake business after filing the papers, is to set up a website. Still, there are clues or leads at least on the website. For instance, how much background does the website give. Does it give the names of management and biographies of the management. If there are pictures on the site, what does a Google image search show? Again, start with the simplest answer, if there’s a copyright page or legal page, what company is named?
I have an engagement where I am looking at a company’s international distributorship, and this company sells in nearly every part of the world. One of the things we do each time is look up the company on Google Maps. I just checked on a company in Sri Lanka, and I could find the company’s address on Google Maps, could find a image of the building at the company’s address, and I could look at the other buildings around where the company’s address is. Think of all the things we can see from whether the company is in a residence or commercial building and the overall nature of the area.
When you have a business address, you have at least two other obvious things to do. First, you can attempt to see who owns the real property at this address using public records. Second, you can use various databases to see who else is at the address. You may learn that the address is a mail drop location such as a UPS franchise. It may be an attorney’s office, where there are many businesses formed.
The above article noted that the businesses were registered with the Secretary of State but did not otherwise have licenses. Only some businesses need licenses. But if they do, do they have? Businesses from sports agents to electrical contractors need specialized licenses. Do not skip looking.
We expect active businesses to have a website. We expect them to have a physical location. If they are in a regulated or licensed area, we expect them to have the appropriate license. We expect them to have other indicia of activity. Have they ever been featured in the press, and we mean press that are not press releases? Does LinkedIn show people working for them or having had worked for them? Have they been sued. Do they have any loans evidenced by UCC filings?
A site visit can tell you so much. Not just looking for signs. How large is the parking lot. How many people seem to be there. What are the license plate numbers of the cars parked in the reserved spaces? Are there equipment or machines present? If nothing else, get the phone number of the landlord to make a subsequent call.
Still, as we said, it is often impossible to make a site visit. Not the least, no one is sending us to Sri Lanka for a basic check. We have to be able to draw a sense from our online sources and public records if a business exists. There is often no one clear answer, no one piece of evidence that proves a company is real. We put together all the evidence and from there, draw the best inference we can. We should be able to tell a bank when not to send money to a fake dealership.