HP today announced it has recovered more than $1.8 million as part of its civil lawsuit against S-Systems and its owner, Leroy Anthony Sallee, over an alleged grey market fraud.
Sallee recently pleaded guilty to federal charges for his participation in an alleged scheme to fraudulently acquire computer equipment at substantial discounts and then resell the products on the grey market - unofficial channels, in other words. The defendant obtained more than $5.7 million in computer equipment for only $3.1 million via misuse of a special educational discount, HP says.
In March 2002, Compaq (then a separate company) filed a complaint in Middlesex County, Mass., against S-Systems and Sallee, alleging that they made false representations to Compaq to fraudulently obtain equipment for Case Western Reserve University in Cleveland that was actually destined for the grey market.
According to the complaint, the alleged fraud began in late February 2002 when Compaq received a large purchase order on letterhead from Case Western with instructions to ship approximately $5 million in computer products to its systems integrator, S-Systems in Tewkesbury, Massachusetts. But when it contacted Case Western for verification of the order, Compaq learned from school officials that the university had not issued the purchase order.
After obtaining a warrant from Massachusetts Superior Court, investigators conducted a raid on a warehouse in Massachusetts leased by Sallee. At that time, Compaq learned that Sallee had already sold some of the equipment. It subsequently discovered that the funds were sent to bank accounts in Ohio where Sallee and S-Systems maintained a business office.
Investigators also found documentation outlining the grey market scheme by Sallee and two individuals not employed by S-Systems or Sallee. Based upon this information, Compaq filed an amended complaint in April 2002, naming two other people as additional defendants in the alleged fraudulent scheme.
HP, now Compaq's owner, filed an Ohio lawsuit in May 2002 to seeking to recover its losses and claim damages against S-Systems, Sallee and one Robert Hill Jr.
Sallee, of Ashtabula, Ohio, plead guilty on July 22 this year in the US District Court, Boston, to 14 counts of mail and wire fraud and one count of interstate and foreign shipment of stolen goods. He faces a maximum sentence of five years in prison on each fraud count, a fine of $250,000, and the seizure of any criminally derived proceeds.
The interstate shipment of stolen goods offence carries a maximum penalty of ten years in prison.
Recovery of more than $1.8 million closes HP's civil case in Ohio against the defendants. The original civil complaint filed by Compaq against defendants in Middlesex County is still pending. ®