Saturday, August 22, 2009
FBI Protects Fortune 500
"Just before dawn last October, around 50 federal law enforcement officials mustered in front of a six-story Beaux Arts townhouse on Manhattan's Upper West Side. ... For at least 15 years [Dina] Wein Reis [DWR] had made a fortune by allegedly gulling dozens of consumer product giants, including Proctor & Gamble, Unilever, and Hershey, in exquisitely orchestrated scams. ... [DWR] was arrested on charges of conspiracy and wire fraud. After fainting, she was escorted by FBI agents to a hospital for evaluation. There she was arraigned, fingerprinted, photographed, and sent to federal lockup. Five associates of [DWR] were also arrested for their alleged involvement in the fraud ring. ... The feds needed two huge moving vans to haul away the trove. The job wasn't finished until three the next morning. The federal agents were utterly overwhelmed by the quantities of loot. Recalled Dennis Halliden, the FBI special agent supervising the case: 'It was like King Tut's tomb.' ... For sheer dollar damages, her alleged thievery cannot come close to matching that of a Bernard Madoff or R. Allen Stanford. She didn't steal outright, fudge the books, run a Ponzi scheme, or leave investors destitute. She didn't rob charities. ... Here's how it worked: [DWR] persuaded executives to sell her merchandise at huge discounts, promising to include the products in knapsacks or boxes of free samples to be handed out at schools, senior centers, Native American reservations, or military bases. ... But there was no National Distribution Program, according to the deposition of a senior [DWR] lieutenant. It was a fantasy. Instead, [DWR] and her team sold nearly all of the goods to middlemen, who sold them to big retail chains, grocery stores, and wholesalers. ... Diversion is not necessarily illegal ... . But the way [DWR] did it was fraud, prosecutors say. ... [DWR]. it appears, is a person who thrives on complexity and illusion. ... The government seeks to recover $20 million in losses, but exactly how much money [DWR] garnered from trickery is unclear. ... [DWR] struck out on her own around 1991, when she launched her own company, Collegiate Marketing. ... Collegiate promised to distribute the samples in knapsacks and tote bags for students in college bookstores. ... The first lesson: Litigation could be tiresome and costly, but in the end it was just a nuisance. Two sources familar with the civil and criminal investigations said [DWR] was recorded later by an employee telling her staff that litigation was only a cost of doing business. ... Dennis Halliden, an FBI special agent in Indianapolis, read a small article about the [Walgreen] suit in a local paper. ... A month earlier, [Irvin] Nathan had gone to the [DOJ] fraud section, which had also begun to pursue the matter. Halliden became the lead investigator in the case. ... In one corner stands a lineup of aggrieved multinational companies; in the other corner, a self-made woman, a prayerful philanthropist, a mother of three. To which there is a likely government rejoinder: Free markets wither when trust is broken", my emphasis, James Bandler at Fortune, 17 August 2009.
It's hard to sympathize with DWR or her victims. If the facts are as stated, DWR is a crook. So? It used to amaze me how readily the DOJ prosecutes when a Fortune 500 company is the victim as opposed to the perpetrator. That's how it is. DWR's actions are not new. They harken back to a 1960's scam, National Student Marketing. DWR even chose a similar name for one of her operations. As for litigation as a cost of doing business, that's how it is for all enterprises. Would say Goldman Sachs do business the way it does, if Goldman's senior executives thought they would go to prison? This also reminds me of the way Clyde William Engle, subject of a 1984 Fortune article, does business. 50 feds. Wow. Were they busting the Cali drug cartel? If 50 feds busted the DWR mob, how many feds would Goldman take? At least a brigade.