Yesterday, the SEC announced that it had filed a complaint against a securities professional alleging that he had defrauded "two institutions he solicited to invest in a shell company he controlled whose name was deceptively similar to that of a legitimate private equity fund." (The SEC likes to say that it "charges" defendants, but it has no criminal enforcement power.) The two names in question are "Irving Place III SPV LLC" and "Irving Place Capital Partners III SPV". The former is the defendant's fund and the latter is "a legitimate private equity fund not associated in any way with" the defendant. (I'm somewhat surprised that the SEC would publicly declare any private equity fund to be "legitimate".)
The defendant's LLC in this case was allegedly formed in Delaware. However, what if both entities had been California LLCs? Would the California Secretary of State have accepted "Irving Place III SPV LLC" if there was already an "Irving Place Capital Partners III SPV" on the books?
In the case of LLCs, California has adopted a "distinguishable on the records" standard that differs from the "deceptively similar" standard applicable to corporations. 2 CCR §§ 21001.1 & 21001.2. Under the Secretary of State's regulations, a name is distinguishable on the records if:
(a) A proposed name is distinguishable in the records of the Secretary of State from an existing name when it is not the same as an existing name and, except as provided in subsection (b), contains one or more different letters or numerals or has a different sequence of the same letters or numerals that is plainly recognizable by means of sight by the Secretary of State or a designee of the Secretary of State.
(b) A proposed name is not distinguishable in the records of the Secretary of State from an existing name if the names are the same or differ only in one or more of the following ways:
(1) If the difference between the proposed name and existing name is the existence or absence of business entity identifiers.
(2) If the difference between the proposed name and existing name is the use of upper case letters or lower case letters or the use of superscript or subscript letters or numerals.
(3) If the difference between the proposed name and existing name is the addition or omission of distinctive lettering or typeface, punctuation as defined in Section 21002 (f)(1) or spaces.
A B C LP, AB C LP, A.B.C. LLLP and A-B-C LLLP would not be distinguishable.
Good Time Rest Home, LLC and Goodtime Rest Home LLC would not be distinguishable.
D.R.E.A.M. Limited Partnership and Dream LP would not be distinguishable.
(4) Notwithstanding Subsection (b)(3), a proposed name might be distinguishable from an existing name when the difference between the proposed name and existing name is the addition or omission of a space or spaces so that the proposed name creates a new word or words that have different meanings.
Example: Got Ham LP is acceptable against Gotham, LP.
2 CCR § 21005.5. Clearly, the addition of the business entity identifier "LLC" would be insufficient to render the two names distinguishable on the Secretary of State's records. However, the defendant's LLC name does not include "Capital Partners" and these two additional words would appear to be sufficient to make the two names distinguishable. Given the limited information available to the Secretary of State's office when articles of organization are filed, it is simply unrealistic to expect that it would be able to protect the public from fraudulent or misleading LLC names.