Nevada lawmakers react to secretary of state’s weak business safeguards

State lawmakers want to take action to combat the filing of fake business documents with the Nevada secretary of state in response to a Las Vegas Review-Journal investigation that found the agency’s weak safeguards allow scammers to take over businesses and exploit their assets.

“This is a perfect example of something that shouldn’t happen and there should be protections in place,” said Assemblywoman Shannon Bilbray-Axelrod, D-Las Vegas, a member of the Assembly Government Affairs Committee.

She said she is considering a bill during the next legislative session to address the problems uncovered in the story, but she needs to study the issue more before specifying a reform plan.

Bilbray-Axelrod said she believes the issue is “something that the Legislature is going to have to take up” because it is a serious concern and needs “many eyes” reviewing it.

Secretary of State Barbara Cegavske’s office said in a statement Tuesday that it “will continue to discuss the laws and processes relating to this office with the business community, the Business Law Section of the State Bar Association, the Nevada Registered Agents Association and legislators in preparation for the Legislative Session as we have done in previous sessions. Many of the safeguards reported are part of the rewrite of the Commercial Recordings filing system that is currently under development.”

The secretary of state’s statement also noted that it is a category C felony in Nevada to file a false or fraudulent business document and that state law allows scammers to face civil penalties.

Assemblywoman Maggie Carlton, D-Las Vegas, agreed that the Legislature should act. She questioned why the secretary of state has not implemented password protections to prevent fraudsters from gaining access to business filings.

“I would think since someone has identified the problem we should fix it,” said Carlton, the vice chair of the Assembly Commerce and Labor Committee.

At least five other states allow business owners to establish passwords or personal identification numbers for their companies and documents cannot be uploaded for those companies without them, the Review-Journal found.

“This situation exposes a serious problem that needs to be addressed,” State Sen. Yvanna Cancela, D-Las Vegas, said in an email. “Nevada’s businesses should trust our state’s systems. I’m hopeful Secretary Cegavske and her team will take immediate and necessary measures to preserve business confidence in our state.”

Legislator a victim too

Assemblyman Chris Brooks, D-Las Vegas, said he discovered in December that his name was listed as a registered agent for a company he did not recognize. He said he asked the secretary of state’s office for help and was directed to file a complaint. Six months later he has not heard a response and his name remains listed as a company representative.

“If I am having such an issue, how hard is it for other Nevadans who are trying to negotiate this process?” he asked. Brooks said the secretary of state has a responsibility to fix the problem.

Assemblyman Nelson Araujo, D-Las Vegas, who is running against Cegavske this year for secretary of state, said he plans to make the lack of protections a campaign issue. Cegavske is a Republican and a former state lawmaker.

“This is going to be a top priority,” Araujo said.

The secretary of state needs to take responsibility for this problem and make immediate changes so that business owners are not victimized, he said.

Araujo said he supports establishing passwords for businesses and upgrading the secretary of state’s alerts to business owners when a document has been filed for their company. He said the messages should be more detailed than they are now.

The assemblyman also wants to explore the feasibility of expanding the agency’s authority to challenge the accuracy of business documents filed with the office.

Secretary of state officials said they do everything in their power to prevent the filing of deceptive business documents, but they do not have the authority to question the information submitted in filings. While a couple other states do have that power, Chief Deputy Secretary of State Scott Anderson said the Legislature and the local business community have generally opposed giving the office that authority because they view it as creating “a barrier to commerce.”

Cara Clarke, spokeswoman for the Las Vegas Metro Chamber of Commerce, said the chamber is concerned about the issues raised by the Review-Journal’s reporting and wants to ensure that the secretary of state has a “safe and trustworthy system.”

She said the chamber has been in contact with the secretary of state and Assembly Speaker Jason Frierson, D-Las Vegas to discuss the issue. The chamber is focused for now on facilitating a conversation between policymakers and business owners about what the right course of action should be for Nevada.

Frierson said he plans to propose a bill to strengthen the secretary of state’s authority to investigate fraud and seek help from the attorney general’s office if additional action is necessary. But he noted that the secretary of state’s office already has the ability to adopt regulations to prevent the filing of fake records and it has not expressed a need for greater authority.

A surprise online

Not everyone, however, is convinced that changes are necessary. Assemblyman Al Kramer, R-Carson City, said he does not want to implement changes to the secretary of state’s filing system that could hinder business development.

“You don’t want to cripple business to prevent felonies from happening,” he said.

Kramer said he might consider some changes but he first would want to know how often companies are scammed and how potential changes could impact other businesses.

The Nevada secretary of state has no process for seeking out fraudulent filings. It typically learns about them from complaints.

But sometimes business owners do not know they have been scammed.

Jimmy Wike of Mesquite said he logged onto the secretary of state’s website to check the ownership records for two limited liability companies he owns after reading the Review-Journal’s story on Sunday. To his surprise, he discovered that he recently had been removed as the officer of an LLC that holds more than 4 acres of undeveloped commercial property in Mesquite.

Wike said he contacted the police and the secretary of state and is trying to figure out what happened.

“Hopefully I catch this before any damage is done,” he said.

Contact Brian Joseph at bjoseph@reviewjournal.com or 702-387-5208. Follow @bjoseph1 on Twitter.