Business-for-Sale Scam Destroys Businesses
Ken Mitan is in jail. Thank goodness. His business-for-sale scam destroyed many businesses, and likely destroyed lives in the process.
The short of it is this: Mitan approached a company that was for sale (usually valued at a few million) with a slick story. 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—meaning he would get the company lock, stock and barrel, including checking accounts, receivables, etc. On closing day would have a problem with his wire transfer, but would promise to have the money wired the next day.
Mitan then immediately proceeded to take the cash out of the business, collect AR, and sell assets that could be sold immediately. This could take a few days so he brazenly told the owner that things were fine. By the time the owner realized what is going on, Mitan ran and the company was often beyond recovery.
I first learned of Ken Mitan three years ago. He had approached Tim Rogers, a business intermediary in Sacramento, and tried to work his scam. Tim smelled something funny, did some research, and found out how he operates—which was hard to do at the time because Mitan would sue anyone that publicized anything negative about him. Tim found a business owner that was fighting Mitan and had written down his story, and Tim distributed that information privately among his peers on the West Coast.
Good thing, because a year later, Mitan approach Jeff Brown, another business broker in Sacramento, asking about a $5 million food processing business Jeff was representing. Mitan, under an alias, had good looking financials and even a website. Jeff figured it out because, like most scams, it just seemed too good to be true, and Jeff started asking questions.
More articles from AllBusiness.com:
- 6 Business Loan Scams and How to Spot Them
- Is It Okay to Inflate Your Income on a Credit Application?
- What a Profit and Loss Statement Reveals About Your Business
- Don’t Risk Your Sales Career at a Holiday Party
Protecting your business from getting scammed
How to do protect yourself against this sort of scam? For one, you just don’t get 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!
