A Canadian reseller defrauded 3Com Canada in order to purchase products from Tech Data Canada at significant discounts and will be forced to pay the networking vendor US$6.5 million, an Ontario Superior court has ruled.
by Judge Russell Juriansz marks the end of a 14-day civil trial that unraveled a complicated series of transactions that began in late 1999 involving Zorin International, a defunct Toronto reseller, and 5,000 pieces of 3Com equipment. 3Com said Zorin had requested discounts via e-mail so that it could fulfill orders in China and Australia for switches and hubs. Zorin’s principals, Dominic Sicilia and Sam Marotta, denied that an e-mail attachment outlining the list of equipment was authored by its sales manager.
3Com said the award may be the largest reseller fraud judgement ever issued in Canada.
In his judgement, Judge Juriansz called the defendants “”disgraceful”” and “”wanton”” and found Zorin, Sicilia and Marotta severally liable for conspiracy to deceive 3Com.
3Com senior corporate counsel Martin Mahoney said the vendor was “”thrilled”” by the judge’s ruling, which he said proved its internal practices were successful.
“”We felt very confident that the judge would find in our favour because the documented evidence was overwhelmingly against the defendants,”” he said. “”Our practices are to retain relevant information concerning various sales and in so doing we were able to look back at the various files that individual employees had collected.””
Sicilia said he would be conferring with his lawyers over the next few days to prepare an appeal to a higher court.
“”I feel that it’s really gross injustice that’s occurred here,”” he said. “”There were many, many areas that couldn’t be explained, and (I) felt that I would be fine in this decision. I was very shocked in the way the judge ruled.””
At press time, Marotta had not returned a phone call from ITBusiness.ca requesting a comment on the ruling.
Mahoney said it was too speculative to suggest 3Com would refine the way it qualifies resellers under its channel program or introduce more checks and balances to avoid these kind of situations.
“”I’m not sure that anything could have prevented the extent of the fraud that was perpetrated by the defendants in this case,”” he said. “”These were completely fabricated invoices, as well as false representations in e-mails. I’m not sure that any amount of request for additional disclosure would have allowed them to come clean with respect to the fraud that they were committing.””
Sicilia maintains the e-mail attachments at the centre of the trial did not come from Zorin.
“”There were documents that we never created, that weren’t ours. No one knows whose they were,”” he said.
Zorin had also filed a third-party complaint against Tech Data, but the judge found no liability on the distributor’s part, Mahoney said.
The award was calculated by the level of the discounts that Tech Data provided to Zorin. In turn, 3Com provided that same amount in rebates to Tech Data. The judgement was that all three defendants — Zorin, Moratta and Sicilia — were jointly liable, which means that each of them is responsible for the full judgement.
This is the second court case this year to pit 3Com Canada against one of its resellers. In April, an Ontario superior court ruled that Vaughn, Ont.-based Intelligent Decisions Inc. created phony government purchase orders to justify $4.4 million in special discount pricing for 3Com equipment in 1999.