Undisclosed ownership change.(selected topic)(Fast Break Bicycles)

While a change in business ownership does not necessarily mean that the business will be operated with fraudulent intentions, such new circumstances can be a warning sign of fraud. Unscrupulous new owners take advantage of the business good credit history to set a fraud in motion, particularly if they neglect to tell suppliers that they recently bought the firm.

Fast Break Bicycles, a retailer and repairer of bicycles, opened its doors in the early 1990s. Ten years later, the store was acquired by new management, who promptly changed the firm's emphasis and began phoning in unsolicited orders to manufacturers of small appliances, clocks and jewelry. The new owners explained that they intended to open a new store and therefore needed these new product lines.

A credit reference from a reputable bicycle manufacturer reported prompt payment experiences with the company going back many years. Given these good omens, many manufacturers shipped. What these suppliers failed to take into account was that the new management had just taken control from the previous owners, and had not established their own payment track record.

Things went smoothly at first, but suppliers began to get concerned when the principals could not be reached at the business. One creditor sent a sales rep to examine Fast Break's premises, and discovered the business appeared to have been unoccupied for some time. The store had no front entrance, just a back door. The sales rep found a man sitting near the rear door, but he was evasive when asked where the merchandise had gone.

Shortly thereafter, the business closed down completely and some creditors decided to file an ...