Tuesday, May 10, 2016
Allegedly Bilked Thousands of Businesses of More Than $50 Million by Billing for Exorbitantly Priced Light Bulbs and Cleaning Products That Were Never Ordered; Authorities Ask Public for Help in Locating Missing Defendant
Baltimore, Maryland – A criminal complaint was filed charging Brian Keith Wallen, age 52, of Lutherville, Maryland with mail fraud arising from a nationwide fraudulent telemarketing scheme designed to ship unwanted and vastly over-priced light bulbs and cleaning supplies to thousands of businesses and non-profit organizations, including churches, schools and homeless shelters. The complaint was filed on May 4, 2016 and unsealed today.
The criminal complaint was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Kevin Perkins of the Federal Bureau of Investigation, Baltimore Field Office; and Postal Inspector in Charge Maria L. Kelokates of the U.S. Postal Inspection Service - Washington Division.
“We are asking for the public’s help in finding Brian Wallen,” said U.S. Attorney Rod J. Rosenstein. “Mr. Wallen reportedly left a note referencing his death, but law enforcement is still searching for him.”
According to the affidavit supporting the complaint, Wallen and others operated principally operated out of Maryland and Florida, and used a variety of company names to disguise the existence of the scheme and confuse victims. The conspirators used a company dubbed Midway Industries, as well as other related companies (collectively, the shell entities) to distribute products and collect the money from victims through fraud. Wallen owned and/or managed in part all of the shell entities, and oversaw the Reisterstown-based operations. Wallen, along with others, personally handled the accounts of large, repeat victims.
The affidavit alleges that from about 2010 to 2014, Wallen and others in the shell entities (collectively, the conspirators) telephoned authorized representatives of businesses and non-profit organizations, purportedly on behalf of individual shell entities. The authorized representatives were often maintenance employees. During these phone calls, the conspirators falsely stated that: the victim businesses had an existing business relationship with the shell entities; the purpose of the call was to provide an updated phone number or to send catalogues; and that the shell entities would send a “half box” of light bulbs, when in fact there were never any half boxes. The “half box” was a deceptive technique used to understate the volume and price of shipments, and disguise unwanted future shipments.
According to the affidavit, during the initial calls, conspirators regularly promised national store gift cards to the authorized representatives to induce them to place initial orders, or to provide to the shell entities additional company information or personal information, like the authorized representatives’ home address and personal phone number. The conspirators used the cell phone numbers and/or birthdays of the authorized representatives as “purchase order” numbers in order to lend legitimacy to later collections efforts. If the maintenance employee inquired about price, the caller falsely stated that he or she did not have the price in front of them, but that it would be at the corporate discount. In fact, the shell entities did not offer a corporate discount.
As long as the victims continued paying the shell entities’ invoices, the conspirators misrepresented in subsequent calls that the balance of the victim’s order or “regular seasonal order” had recently been shipped, despite no order having been made by the victim business, and no actual shipment having yet been sent. The conspirators called authorized representatives under the guise of different shell entities in order to repeat the process using a product other than light bulbs, often cleaning supplies. The conspirators often denied the relationship between the shell entities when questioned by victims.
The affidavit further alleges that on multiple occasions, when the authorized representative could not be reached by phone, the conspirators would simply send the product to the victim, without the victim placing an order. The conspirators referred to this practice as “just shipping.” Wallen was such a prolific user of the “just ship” method, his nickname within the shell entities was “Ship.” If the authorized representative had quit, been fired, or even passed away, they sent a product to the victim knowing that the victim would be unable to dispute the validity of the order.
According to the affidavit, Wallen and his co-conspirators ordered light bulbs and cleaning supplies from a company located in New Jersey (supplier). They instructed the supplier to ship the products to the victim without an invoice, and to send the invoices directly to the shell entities. The conspirators sent inflated invoices to the billing departments of the victims, which were often different departments from those of the authorized representatives.
The price billed to victims allegedly had no correlation to the product being sent. Rather, the price was determined and/or approved by a supervisor based on what they suspected the victim would pay without detecting the scheme. The invoices were regularly 900% above the prices the shell entities paid the supplier. After a victim had paid one invoice, the conspirators sent invoices to the victim that were sometimes greater than 8,000% above the supplier’s prices.
When victims did not remit payment, the shell entities repeatedly called the victims’ collection departments in order to force them to pay the inflated invoices. If the victim company continued to protest, they were told that the authorized representative was recorded ordering the product. The shell entities insisted that the fact that the authorized representative had provided his home address to receive a gift card indicated that the authorized representative had actually placed an order with Midway. Conspirators recorded the serial numbers of gift cards before they were sent to victims in order to track the balance and use the expenditures by the maintenance employee against the victim companies.
If the victim threatened to contact law enforcement or the Better Business Bureau, the conspirators offered to take back a product at either a discounted rate or for a re-stocking fee that was still substantially greater than the cost of the products purchased from the supplier.
From January 1, 2011 through June 2, 2014, a Federal Trade Commission (FTC) consumer protection database documented more than 500 complaints regarding the shell entities. On July 21, 2014, the FTC filed a civil complaint in federal court in Baltimore, Maryland alleging telemarketing and consumer fraud. The court temporarily enjoined the shell entities, and Wallen individually, from operating the businesses, and froze assets. Business operations were halted on July 23, 2014.
As a result of the fraud scheme, Midway and the shell entities allegedly sent fraudulent invoices to victim companies for more than $100 million and received more than $50 million in payments on those invoices.
Wallen faces a sentence of 20 years in prison.
On April 28, 2016, Wallen was reported missing. The Baltimore County Police Department is currently conducting a missing person investigation. Anyone with information concerning Wallen’s whereabouts is urged to call police at 410-307-2020. http://www.baltimorecountymd.gov/News/PoliceNews/iWatch/Police_Need_Help_Finding_Missing_Lutherville_Man
A criminal complaint is not a finding of guilt. A defendant charged by criminal complaint is presumed innocent unless and until proven guilty at some later criminal proceedings.
United States Attorney Rod J. Rosenstein commended the FBI and U.S. Postal Inspection Service for their work in the investigation. Mr. Rosenstein thanked Assistant U.S. Attorney Sean R. Delaney and Harry M. Gruber, who are prosecuting the case.
Department of Justice
U.S. Attorney’s Office
District of Maryland
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