The fraud allegations aimed at Japan-based Mt. Gox, formerly the world’s biggest bitcoin exchange, have exposed the possible use of a shell company in Delaware in a way that law enforcement authorities have been concerned about for years.
Mt. Gox filed for bankrupcy a month ago in the U.S. and Japan. Founder and CEO Mark Karpeles claimed hackers overwhelmed the site and stole the company’s entire inventory of customers’ bitcoins, worth roughly $540 million. Some of those customers are alleging Mt. Gox wasn’t hit by hackers but concocted the story as a ruse to defraud them.
Reuters reported that CEO Karpeles had registered a company in Delaware called Mutum Sigillum. (The name is Latin for “worthless little symbol.”) The company left practically no paper trail about itself or its ownership. But, according to Reuters, Karpeles used Mutum Sigillum to transact with a U.S. bank via Dwolla, an online payment network, and “real money” flowed through the Delaware company.
Delaware, along with a few other states, allows foreigners to register new corporations without having any presence in the United States, using agents as conduits for the corporate owners.
The agents usually keep no records, such as tracking the company’s true beneficial owner. When law enforcement officials need the ownership information, the agents typically provide only the name of the overseas entity designated to receive correspondence on behalf of the company.
Mutum Sigillum was registered by Vincent Allard, a French Canadian lawyer who for the past 13 years has been living in Dover, Delaware. He runs a business with his daughter that acts as a registered agent for Delaware corporations.
When Reuters called Allard for comment, he said he hadn’t heard of Mt. Gox’s bankruptcy and would have nothing to offer investigators if they were to question him about it.
A study in 2012 by researchers from Brigham Young University, the University of Texas and Griffith University (Australia) found that the United States was the second easiest country after Kenya in which to incorporate a shell company. Nearly half of the U.S. jurisdictions surveyed (48 percent) didn’t ask for proper identification and 22 percent did not ask for any identity documents at all to create a shell company. A copy of the study can be downloaded in pdf here.
In August 2013, Senator Carl Levin (D-MI) introduced a measure to eradicate the use of shell corporations with hidden owners. And six months ago, G-8 leaders agreed to tackle the issue of shell companies by requiring owners to identify the beneficial owners who ultimately control and profit from these businesses.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.