Hardware technology companies fighting the grey market have been heartened by the guilty plea of an Ohio man in a U.S. court to federal criminal charges of defrauding Compaq Computer Corp. of $2.5 million in equipment shipped to Canada.
“Our partners need to understand we are going after
these people,” said Derek Smith, vice-president of channel sales and marketing for Hewlett-Packard Canada, which now owns Compaq.
“And it’s important for Canadian resellers to understand we’re going after resellers in other parts of the world to help them out in the Canadian marketplace.”
This week three co-defendants of the man who pleaded guilty earlier this month, Leroy Anthony Sallee, are standing trial in Boston on charges relating to alleged offences in what prosecutors are trying to prove was a multi-million dollar scheme to defraud Compaq.
Sallee, 44, pleaded guilty to mail and wire fraud and interstate transportation of property taken by fraud involving a phony purchase order sent to Compaq last year for hardware, according to a news release from the U.S Attorney’s Office in Boston.
The purchase order said Case Western Reserve University wanted to buy the equipment for a clinical trial of a new drug. But according to the release the gear was destined for re-sale in Canada and England.
The list price for the equipment purchased was over US$5.6 million, but by falsely stating it was being bought by the university and that there was a competing offer from Dell Computer Corp., the price was cut to US$3.14 million.
Prosecutors said Sallee rented a warehouse in Massachusetts, which received the equipment, and re-shipped it to customers in Canada and the U.S.
Those customers weren’t identified.
Sallee faces a maximum sentence on each of the mail and wire fraud counts of five years in prison and a fine of $250,000. The interstate shipment count carries a maximum penalty of 10 years in prison.
To fight what it says is a US$20 billion problem worldwide, several members of the IT industry created an Anti-Grey Market Alliance to fight the acquisition and sale of brand-name computer equipment through unauthorized distribution channels. Often the gear bought in one country is sold in another to hide its origins.
Founding members of the group are 3Com, Cisco Systems, Compaq, Hewlett-Packard, Juniper Networks, Nortel Networks and Xerox Corp.
In a study for the alliance released recently, KPMG LLP concluded the grey market “is a convenient source for legitimate distributors to obtain and distribute products” by abusing incentive, price protection and warranty programs.
Few vendors have addressed corporate codes of conduct or employee training specifically focused oncatching grey market activity, the report adds.