Last week, a federal jury found seven people guilty of conspiracy and mail fraud for participating in a decades-long, multi-million dollar telemarketing scheme that targeted thousands of small businesses and charities.
During a seven-week trial in United States District Court, the jury heard evidence that members of the conspiracy – going as far back as 1988 – bilked more than 50,000 victims by posing as their regular supplier of printer toner and selling them toner at greatly inflated prices. Over one six-year span, victims were induced to send more than $126 million to the telemarketing scammers.
The defendants found guilty are:
- Gilbert N. Michaels, 77, of West Los Angeles, who orchestrated the scheme, and who owned and operated IDC SERVCO, a Culver City-based business that sold toner to small businesses, charities (such as Easter Seals Disability Services and the United Way), schools, churches, city governments and other entities in the United States and Canada;
- James R. Milheiser, 53, of Huntington Beach, who owned and/or controlled Material Distribution Center, PDM Marketing, Bird Coop Industries, Inc., and Copier Products Center;
- Leah D. Johnson, 54, of Ignacio, Colorado, who owned Capital Supply Center and LJT Distribution, Inc.;
- Jonathan M. Brightman, 52, of Westlake Village, who owned Copy Com Distribution, Inc.; Independent Cartridge Supplier; and Corporate Products;
- Sharon Scandaliato Virag, 54, of West Hills, who owned XL Supply, Inc.;
- Tammi L. Williams, 44, of Chino Hills, who was the office manager at Elite Office Supply, and also worked at Specialty Business Center, Rancho Office Supply and Select Imaging Supplies; and
- Francis S. Scimeca, 54, of Woodland Hills, who owned Supply Central Distribution, Inc. and Priority Office Supply.
Each defendant was found guilty of one count of conspiracy to commit mail fraud. Michaels also was found guilty of 10 counts of mail fraud and five counts of money laundering. Milheiser, Johnson, Brightman, and Scimeca were also found guilty of mail fraud.
In furtherance of the scheme, the telemarketers typically posed as the regular suppliers of the victim companies and told the companies that the price of toner had increased, they had not been notified of the increase, and the victims now had a chance to purchase toner at the previous, lower price. Believing that they were dealing with their regular supplier of toner, employees at the victim companies signed order confirmation forms, which prompted defendant Michaels’ company IDC SERVCO to ship toner to victims and send invoices that demanded payment at inflated prices.
When the victim companies realized they had been scammed, they called IDC SERVCO to complain. The victims were typically told that IDC could not cancel the order or refund money because the victims had signed order confirmation forms. IDC also failed to disclose its relationships to the telemarketing companies that had actually brokered the fraudulent deals.
In many cases, IDC employees threatened victims with collections or legal action if they did not pay an invoice. In the cases where IDC agreed to take toner back, victims were forced to pay significant “restocking fees.”
Most victims received toner at no extra cost as part of their printer or copier service agreements. The telemarketers knew there had not been a price increase for toner, and failed to disclose that the prices they were charged were two to ten times the regular cost of toner.
Another aspect of the fraud was that the telemarketers failed to disclose that they were affiliated with IDC. In a series of court orders dating back to November 1988, Michaels and his companies were prohibited from making false statements – such as that they were a usual supplier of photocopier supplies or that there had been price change – and they were required to provide oversight to “independent sales companies.” Michaels violated these court orders by working with and providing financing to independent sales companies that were engaged in deceptive and fraudulent practices, despite the fact that IDC received hundreds of thousands of complaints from victims claiming they had been defrauded.
Fourteen other defendants charged in this case previously pleaded guilty to federal criminal charges.
United States District Judge James V. Selna has scheduled a May 29, 2020 sentencing hearing, at which time the seven defendants convicted today will face, at least, a statutory maximum sentence of 20 years in federal prison.
The investigation into this toner fraud case was conducted by the Huntington Beach Police Department, the United States Secret Service, the FBI and the Orange County District Attorney’s Office.
This case is being prosecuted by Assistant United States Attorneys Gregory W. Staples, Bradley E. Marrett, and Benjamin D. Lichtman of the Santa Ana Branch Office.