Beware Shell Companies

By Charles K. Trainor

Have you ever seen a con artist play the shell game on a street corner? Scammers seemingly hide a pea under one of three nutshells. Moving the shells around swiftly, the operator asks a player to bet on which shell is hiding the pea. Of course, the mark loses because the operator deftly replaces the pea under a shell not chosen. The scam has been around for centuries. Hieronymus Bosch, a Renaissance artist, depicted the scam in his painting “The Conjurer.” The painting illustrates how people are tricked when they lack alertness and insight.

The shell game has not disappeared. Today’s fraudsters use sophisticated cons to victimize school districts across the country. Instead of nutshells, scammers use companies. Instead of stealing a pocket full of coins, the target is millions of taxpayer dollars. Rather than a pea, companies hide their true ownership and function. Shell companies are a serious threat to district finances when internal controls are weak and board oversight is lax.

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