Friday, September 03, 2021

West L.A. Man Sentenced to 4 Years in Prison for Running Massive Telemarketing Scheme that Targeted Businesses and Charities

           SANTA ANA, California – A West Los Angeles man was sentenced today to 48 months in federal prison – plus an additional 28 months of home confinement – for orchestrating a decades-long, multimillion-dollar telemarketing scheme that defrauded more than 50,000 victims, including small businesses and charities, by posing as their regular supplier of printer toner and selling them toner at greatly inflated prices.

          Gilbert N. Michaels, 79, was sentenced by United States District Judge James V. Selna, who also ordered him to pay a criminal fine of $200,000.

          In December 2019, at the conclusion of a six-week trial, a federal jury found Michaels guilty of one count of conspiracy to commit mail fraud, 10 counts of mail fraud and five counts of money laundering.

          Michaels owned and operated IDC Servco and Mytel International, companies that, with the assistance of boiler room operators, fraudulently sold toner to businesses, charities, and other organizations throughout the United States. Michaels’ companies handled the billing and shipping of the toner, and charged the boiler rooms at or above retail prices for the toner they were selling to victims. Michaels provided price catalogs to the boiler rooms to use in making sales that listed the price of the toner at up to five to 10 times the retail price. Many of the victims already were receiving toner at no additional charge pursuant to their contracts for their copiers and printers.

          The telemarketers told victims 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 businesses and organizations signed order confirmation forms, which prompted IDC to ship toner to victims and send invoices that demanded payment at the inflated prices.

          When the victim businesses realized they had been scammed, they called IDC 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 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 often forced to pay significant “restocking fees.”

          Over one six-year span, victims were induced to send more than $126 million to the telemarketing scammers.

          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 and they were required to provide oversight to “independent sales companies.” Michaels violated these court orders by working with and providing financing to the supposedly independent boiler rooms that were engaged in deceptive and fraudulent practices, even though IDC received hundreds of thousands of complaints from victims claiming they had been defrauded.

          Six other defendants were also found guilty along with Michaels in December 2019. Those already sentenced are:

  • James R. Milheiser, 54, of Huntington Beach, who owned and/or controlled Material Distribution Center, PDM Marketing, Bird Coop Industries, Inc., and Copier Products Center, and who was convicted of conspiracy and mail fraud, was sentenced to 30 months in federal prison; and
  • Francis S. Scimeca, 56, of Woodland Hills, who owned Supply Central Distribution, Inc. and Priority Office Supply, was sentenced to three years in federal prison for his convictions for conspiracy and mail fraud.

          The following four defendants will be sentenced in the coming months:

  • Leah D. Johnson, 57, of Ignacio, Colorado, who owned Capital Supply Center and LJT Distribution, Inc.;
  • Jonathan M. Brightman, 54, of Westlake Village, who owned Copy Com Distribution, Inc.; Independent Cartridge Supplier; and Corporate Products;
  • Sharon Scandaliato Virag, 56, of West Hills, who owned XL Supply, Inc.; and
  • Tammi L. Williams, 46, of Chino Hills, who was the office manager at Elite Office Supply, and worked at Specialty Business Center, Rancho Office Supply and Select Imaging Supplies.

          The four defendants pending sentencing were found guilty of conspiracy. Johnson and Brightman also were found guilty of mail fraud.

          The United States Secret Service, the FBI, the Huntington Beach Police Department and the Orange County District Attorney’s Office investigated this matter, with assistance from the Federal Trade Commission.

          Assistant United States Attorneys Gregory W. Staples, Bradley E. Marrett, and Benjamin D. Lichtman of the Santa Ana Branch Office are prosecuting this case.

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