Yes, this is illegal, and a felony criminal fraud. What do you think happens to the person that now holds the title? They just get to shrug their shoulders and say "oh well, I guess I got out smarted?"
There are some very good criminal defense lawyers here on Avvo that are in your area. I suggest you build a realtionship with one as it sounds like you will need one sometime soon.
The law firm of Natoli-Lapin, LLC (Home of Lantern Legal Services) offers our flat-rate legal services in the areas of business law and intellectual property to entrepreneurs, small-to-medium size businesses, independent inventors and artists across the nation and abroad. Feel free to call for a free phone consultation; your inquiries are always welcome:
DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.