ALAN F. GREGGO
Since the creation of Internet auctions, internal theft as a cause of loss to businesses has exploded. According to a CNBC segment that aired a while back, reporters estimated that online e-fencing was a $37-billion-a-year business — and it's only grown since then. It is much more profitable and less risky for criminals to sell stolen merchandise on the Internet. An unscrupulous employee can stock his own Internet business from his employer's shelves; without proper detection and prevention measures, such activity can go on for months and years.
The crime of e-fencing occurs when employees or boosters steal merchandise from a retail store or distributor and offer it for sale on Internet auction Web sites or through their own online store. A booster is a person who shoplifts goods after they have been displayed in a store, as opposed to an employee who steals merchandise from the stock room.
Internet auction Web sites have increased the viability of selling stolen products by offering fencers a far safer method than taking the loot to pawn shops, swap meets or selling it out of car trunks. The Internet allows the thief a level of anonymity that in-person transactions can't offer. Experienced and crafty Internet sellers will not provide their real identities to auction Web sites when they create accounts for the purpose of selling stolen products. Luckily for investigators, e-fencing is a new enough trend that not all the players have the necessary prowess to conceal their identities, even when they try.
Fabio Benifico was an Italian citizen employed as the shipping manager in a U.S. distribution warehouse of Mille Grande — an Italian high-fashion design house. He was one of the last employees to have access to sealed shipments before they were placed on the truck and sent to stores. Fabio was a family man, and his family moved with him to the United States a year and a half ago. He had been selected by Mille Grande's leadership to come to the United States to learn more aspects of the business. Fabio was being groomed to take on more responsibility, and the company tradition was to immerse up-and-coming employees in the U.S. corporate culture so they could learn new skills and diversify their approach to business. Fabio was living the American dream; an expensive dream, but it was his dream come true. He loved his new house and enjoyed devoting time to his favorite hobby — computers. However, acquiring both the home and the computers ran up the family's expenses and became a source of stress for Fabio.
Mille Grande was a purveyor of fountain pens, watches and fine cologne for men and women; the products were typically sold in upscale designer boutiques. Not far from Fabio's warehouse Sarah Gray, a sales employee in a Mille Grande boutique, happened to be looking around an online auction Web site one day and noticed high-end cologne, watches and fountain pens for sale, so she copied down the seller's information. She thought it was interesting that the online seller lived in the same city from which her shop's Mille Grande shipments came.
At the time, I was working as the head of Mille Grande's loss prevention department, so Sarah called me to report what she had found online. When I asked her what she suspected, she said that she didn't know if there was anything improper about the auction site, but that it just looked odd to her that someone so close to the corporate distribution center was auctioning off Mille Grande products.
After copying down the details Sarah could provide, I contacted Scott Pilson — a seasoned investigator who had been with Mille Grande for more than eight years — and assigned him the case. I was confident in his abilities, especially because he had worked Internet investigations in the past. We checked out the auction site together, and it did look suspicious. We both knew that not only was this seller unauthorized — Mille Grande did not sell their products for less than the manufacturer's retail price — but we also suspected the merchandise was most likely stolen; Mille Grande did not believe in selling through auction sites. We were shocked that this Web site had 44 items up for auction dating back six months. The seller's transactions prior to six months ago were not available to the public. The big question was — where and how were the products leaking from the company?
I asked Scott to fill out a seller's information request on the auction site, and he discovered that the seller was registered as Fabio Benifico. That name struck a chord with me. I had been to the warehouse in the last year and met a new shipping manager from Italy named Fabio, but I was not sure of his last name. It was apparent that we needed to do more digging into this connection, so I asked Scott to meet me at the Mille Grande warehouse and distribution center.
The next day, Scott and I arrived in the warehouse parking lot and drove around the back of the building near the loading docks. The door was propped open and no employees were in sight. Once we went inside, we signed in and met with the warehouse manager. We conducted an assessment of the warehouse and found that employees were not being subjected to random purse, lunch bag and backpack searches, as mandated by company policy. Scott also discovered that the camera system for the building was unplugged and not being used. These were significant violations of the company policy and Mille Grande's basic fraud prevention program. I discussed the matter with Scott and we concluded that merchandise could easily have been stolen directly from the warehouse — by the very employees responsible for protecting it. It was time for a more detailed investigation.
During our visit I confirmed that the shipping manager was Fabio Beni-fico. He had two employees under him who helped load and unload trucks. The products that Mille Grande shipped into the warehouse from Italy consisted of high-end colognes, pricey fountain pens and Italian-made watches with fine Swiss movements — expensive merchandise that was easily concealed. I could not believe that there was no security lock-up for the merchandise after it was received.
We learned that the two employees who worked for Fabio both left for lunch at the same time every day, leaving Fabio alone. It was during the second half of the day that outbound shipments were routed to Fabio's area to be sealed and addressed to one of the boutiques or department stores. He had complete and unchecked access to the merchandise before it went onto the truck. Scott began searching the shipping log for reports from stores that their shipments had shortages. Sure enough, that shipping log was kept up by none other than Fabio. A quick review confirmed our suspicions: It was loaded with reports of shortages.
I accessed the Internet to search for other auctions that were offering Mille Grande's products and found only a few individual offerings of one or two items. None matched the complexity and variety of Fabio's auctions. His included the company logo, product cases and warranty information. The other auctions looked like used personal items that the owners were trying to sell. Fabio's auction had 44 brand-new items with original packaging and warranty information. I contacted the company's wholesale and marketing divisions to ensure we had no other authorized sellers.
Scott and I organized the evidence and prepared to interview Fabio Benifico. We had the Internet auction Web site's seller information reports, the shipping log, and the obvious lack of controls in the warehouse as evidence. However, we were lacking our piece de resistance — a purchase from Fabio's auction site to confirm the theft. So Scott went to Fabio's Web site and placed a bid on a bottle of cologne. This extended our investigation a few days, but the delay was worth it. Fabio had no idea we were onto his scheme and the Internet transaction could not be erased.
Before interviewing Fabio, I spoke to personnel in Mille Grande's human resources and legal departments. I wanted to make Martin Jumper, our Human Resources (HR) director, aware of the investigation and to get an understanding from him about any of Fabio's potential performance issues. He also provided me with Fabio's application and hiring documents to review — I was looking for his level of education and interests in hopes of building a rapport with him early in the interview. My meeting with Martin also gave me an opportunity to read through the results of his preemployment background check, which can sometimes provide valuable information.
Next I spoke to a staff attorney, Angela Bishop, to ensure that my investigative techniques had not exposed the company to unnecessary risk. This step is particularly important in investigations that will likely result in prosecution and potential public relations or media coverage. I also asked Scott to review with Angela any extraordinary investigative techniques he used, such as the use of covert cameras or purchases of stolen product for evidence gathering.
Scott won the auction for the cologne; when it was delivered, we verified that the sender's address on the parcel was Fabio Benifico's home address. The cologne was boxed and shrink-wrapped in original company packaging. It was the best evidence we had in the case. We were ready to conduct the interview.
I contacted Fabio's supervisor to let him know Scott and I would be interviewing Fabio and gave him the reasons for the interview. I knew that if Fabio's boss told him to cooperate with Scott and me — both strangers to Fabio — he would be more likely to comply. Plus, it was a simple courtesy to let the supervisor know we'd be coming.
The interview was scheduled and I was going to act as the witness while Scott ran the show. "Good afternoon, Fabio, I'm Scott Pilson with the loss prevention department here at Mille Grande," Pilson said as Fabio entered the small office for his interview. Scott covered the usual introduction and the reason for the interview.
"So Fabio, tell me about this auction Web site Fabio's Fabulous Accessories for Less. It's registered in your name at your home address and it sells Mille Grande watches, pens and colognes." Fabio just stared at Scott, apparently unable to talk. "I'm not so interested in what you are selling today, but how many auctions you have had in the past; how much would you estimate you have earned?" Scott was using a time-tested approach in confessions. He didn't ask Fabio if he'd committed a wrongful act; that would have led to a denial by Benifico. Scott assumed that Fabio had done it, so he just wanted to know how much he had sold.
"A . . . a . . . about $9,000," said Fabio. Based on his experience, Scott knew he was getting a soft admission from Fabio. He tried to further develop the admission by saying, "Tell me how often you removed merchandise from this building to post it on the Web." Again silence. Fabio just stared at the ground. Scott did not speak, but allowed the silence to work on Fabio. And notice that Scott didn't ask whether Fabio had removed merchandise; he asked "how often?"
After a few minutes Fabio said, "I only sold merchandise that I received with my employee discount coupons. My wife also bought a lot of merchandise and she didn't need it, so I was selling it to recover some of the money." Fabio looked down and would not make eye contact with Scott. Fabio denied that he was stealing; Scott, like most experienced interviewers, expected that to happen.
Scott tried to help Fabio rationalize about the facts of his new life in America and the long hours he was working. Scott told Fabio that the interview was his opportunity to explain exactly what happened truthfully so the company could understand why he did it. Pilson said that — although he could appreciate that a few items might have been family purchases — based on the value and condition of the merchandise on Fabio's auction, there was more to the story. He asked Fabio again, "How often did you remove merchandise from the shipments?" There was dead silence in the room. Fabio glanced up quickly and then looked back down at the floor.
"Shall I rephrase the question for you?" asked Scott. Fabio mumbled, "No . . . I mean . . . I take some every week." Scott thought about how big the loss was. He guided Fabio through a complete admission by outlining Fabio's need to support his expensive lifestyle, computer hobby and house payments. Fabio explained that it was just too easy to place some merchandise in his lunch cooler and carry it out at the end of shift. He removed the items from the outbound shipments before he sealed them. Pilson asked if he thought he would be caught, but Fabio said he was by himself a lot in the dock area and he never believed anyone would find out about it. Fabio did not think Mille Grande's management would have the Internet knowledge needed to discover the auction Web site, let alone connect him to it. He did not realize that other employees were taught awareness and integrity. They were the eyes and ears of the company, and passed along tips to loss prevention either in person or by way of the company's abuse hotline.
Fabio wrote a statement outlining his whole scheme. He confessed to stealing approximately $20,000 worth of Mille Grande merchandise and selling it on the Internet, but he said he made much less than the manufacturer's suggested retail price because he auctioned products off for the highest price he could get. We asked Fabio to sign the auction Web site's release of records form to allow us access to the complete history of Fabio's Fabulous Accessories for Less. Fabio agreed.
I submitted the release form to the online auction hosting service to access a complete report of Fabio's activity from the time he opened his auction site. This step was necessary because most Internet auctions limit the amount of information that a buyer can access about the seller. We could see from the Web site only a few months of activity and estimate the amount of theft activity from Fabio's sales, but we were sure we did not have the whole story. Even though he admitted to stealing $20,000, we were pretty confident the auction history would reveal a much higher total.
The disposition and prosecution of this case was next on our minds, so we contacted Martin in HR again and explained Fabio's confession. Martin reviewed the circumstances with Fabio's manager and they decided to terminate Fabio for theft and violation of company policy for illicitly selling Mille Grande merchandise. They communicated the termination to Fabio and mentioned that they viewed his scheme as running a business from within the business and using the company's warehouse to stock his Internet auction Web site.
We summoned the police department and explained the investigation to the responding officers. They placed Fabio under arrest and obtained a search warrant for his house. The police returned merchandise worth just under $1,000 to us, which they discovered in Fabio's home. The police waited to formally charge him until the auction Web site's release was returned with the complete history of Fabio's business. When we received the records, the police charged him with $61,500 in theft — the auction site returned an additional nine months of sales history and we were able to prove $40,500 more in product stolen at our suggested retail price.
Fabio pleaded guilty to grand theft and embezzlement and was sentenced to five years of incarceration and ordered to make restitution of $60,000 after he was released. But the former employee only served 12 months of his sentence and after that was released for good behavior. As long as he makes his restitution payments, he will be on probation. If he stops paying back his loss, the judge promised him the comfort of his jail cell again.
Note
Lessons Learned
Internet auctions can make it easy for employees to fence stolen products. Retail businesses should consider purchasing Internet crawling software that uses key trademark information to track down illicit sales of the company's assets. Also, having an Internet-savvy investigator on staff with the knowledge needed to investigate these crimes was worth the expense.
Each Internet auction service has its own rules and regulations for cooperating with investigations. Some hosts only cooperate with law enforcement officers and will not turn over information to loss prevention practitioners. The auction's release form, when signed by the suspect employee, is an effective tool in gaining necessary information.
I also learned to appreciate our employees as the best providers of information. This case began with an inside tip, so to encourage similar behavior in the future I recommended to management that Sarah receive a monetary reward for uncovering this large theft.