Ken Mitan is in jail. Thank goodness. He has stripped and destroyed many businesses, and likely destroyed lives in the process. Here is a newspaper article about his latest scams:
The short of it is this: Mitan approaches a company that is for sale (usually valued at a few million) with a slick story. For a few years he used his own name, and then aliases. He would offer close to full price and not ask any tough questions. He would want to close quickly and structure the deal as a stock sale, and on closing day would have a problem with his wire transfer, but would promise to have the money wired the next day. A stock sale means he gets the company lock, stock and barrel, including checking accounts, receivables, etc. Mitan then immediately proceeds to take the cash out of the business, collect AR, and sell assets that can be sold immediately. This can take a few days so he brazenly tells the owner that things are fine. By the time the owner realizes what is going on, Mitan runs and the company is often beyond recovery.
I first learned of Ken Mitan three years ago. He had approached Tim Rogers, a business intermediary in
Good thing, because a year later, Mitan approach Jeff Brown, another business broker in Sacramento, asking about a $5MM food processing business Jeff was representing. Mitan, under an alias, had good looking financials and even a web site. Jeff figured it out because, like most scams, it just seemed too good to be true and Jeff started asking questions.
How to do protect yourself against this sort of scam? For one, you just don’t get buyers (see my post, “There Are No Stupid Business Buyers”) that say they have lots of money and don’t ask tough questions. Also, for this scam to work well, it has to be a stock sale. Usually buyers do not want a stock sale (they prefer an asset sale), so having a buyer fully embrace a stock sale should raise some questions. Finally, rushing to a quick close without the buyer putting serious effort into due diligence just doesn’t happen. At least it hasn’t happened to me, and I would really wonder about any buyer that did that.
In summary, if it looks too good to be true, it probably is!