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Friday, Aug 22, 2014
Crime & Courts

Secret Service tracks sophisticated Wal-Mart fraud

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Published:   |   Updated: April 15, 2014 at 10:54 AM

TAMPA — Using phony barcode stickers and counterfeit receipts, five people stole merchandise from Wal-Mart stores from Florida to Texas and conned the retail giant out of more than $100,000 in bogus refunds, authorities say.

The group built on common forms of organized retail theft – known as “UPC switching” – involving fake universal product codes to bring a new level of sophistication to theft by cracking the stores’ receipt codes and forging receipts to get cash refunds, experts say.

“My fear on this one is that it’s going to grow legs unless changes are made within the stores that utilize this type of coding and ... their return policy,” said John Joyce, special agent in charge of the Tampa office of the Secret Service, which investigated the case.

“This one is a bit more shrewd and creative than I’ve seen and heard about,” said Rich Mellor, senior adviser for asset protection for the National Retail Federation.

Wal-Mart spokeswoman Dianna Gee said the group employed tactics she has not seen before. She said the company is always looking for ways to prevent theft and would investigate any changes needed to combat the methods in this case.

According to the criminal complaint and the Secret Service, this is how the theft worked:

The conspirators would hone in on items that were generally similar but often had much different prices – things like extension cords, water filters, golf balls and lawn chemicals. They would buy a high-priced extension cord, for example, and buy or steal numerous lower-priced extension cords. Then they’d copy the high-priced barcode and make stickers to cover the barcodes of the cheaper extension cords.

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Other types of organized fraud rings have put phony barcodes over expensive items and bought the items cheaply, then sold them at a higher price than they paid, but for less than the items sold for in stores. But because the crooks would have to sell the items at a reduced price, the financial gain was limited. And, Mellor said, some major online auction sites started cracking down on sales of goods suspected to be stolen.

So the fraud rings started returning the items to the stores without receipts for store credit on gift cards. They would then sell the gift cards at a discount.

This group, authorities say, figured out how to forge receipts to make it appear they had paid full-price in cash for the expensive items. They even replicated the code numbers on the bottom of the receipts to make the transactions look legitimate and either obtained or forged Wal-Mart-specific receipt paper with emblems on the back. The receipts and phony UPC codes enabled the conspirators to “return” the lower-priced items for higher refunds.

Part of the genius of the operation, Joyce said, was the thieves picked items that weren’t attention-getters; they didn’t try to steal big-screen televisions or computers, for example. And the items were things that most people who weren’t familiar with them couldn’t quickly distinguish between expensive and inexpensive versions.

“If you’re a golfer, you’d know a Titleist Pro V 1 goes for $45 for a dozen; a Top Flight goes for about $8 to $10 for a dozen balls,” Joyce said. “So this is what they would do where they would get a huge return on their investment. And they were smart in one way where they weren’t greedy where they bought the huge-ticket items. But they were greedy where they hit multiple stores. … Instead of doing it slowly, they hit a lot” of stores in a short period of time.

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Richard Hollinger, chair of the criminology department at the University of Florida, said he’s seen a number of instances of UPC switching but was surprised this group figured out how to get cash refunds, something most retailers shy away from.

He said the codes on receipts are supposed to reduce theft by enabling merchants to pull up details of the underlying transactions and find improprieties.

“This one is troubling because it seems to suggest somebody may have figured a way to hack the system or at least replicate receipts that would fool the Wal-Mart transaction system,” he said.

Fighting retail theft, Hollinger said, is “kind of a war game. One step forward and two steps backwards. Criminals get an advantage and retailers think they have the silver bullet and they realize it has problems and they back away from it.”

Hollinger said it’s a “feather in the cap” of law enforcement that investigators were able to unravel the case and arrest the suspects.

Joyce said the investigation started at Wal-Mart when the conspirators made some kind of a mistake and the company’s loss prevention investigators began reviewing security video documenting the bogus transactions.

One of the participants in the scam, whose name is not given, was arrested last year and began cooperating with law enforcement and identified one of the ring leaders as Luis Schomaker, 39, who then lived in Palm Harbor and drove a BMW. The informant wore a wire and allowed investigators to record conversations with Schomaker, who was captured telling the informant to keep Schomaker out of the investigation. “You don’t say anything,” he said, according to the complaint. “Keep your mouth shut.”

At that same meeting, Schomaker gave the informant three fraudulent receipts and barcodes for a television mount, water filter and electrical cord, according to the complaint. Schomaker scanned the documents with an application on his smart phone, but the barcodes wouldn’t scan correctly, so he offered to take the informant back to his house to make new ones.

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Schomaker, who now lives in Texas, has not been arrested, although he is charged in the complaint. Joyce said he couldn’t comment on why Schomaker has not been arrested.

In December, the Pinellas County Sheriff’s Office searched Schomaker’s home and found evidence, including Wal-Mart receipts and sheets of barcodes. After being informed of his rights, according to the complaint, “Schomaker confessed to manufacturing counterfeit barcodes and fraudulent Wal-Mart receipts.” He said he learned the techniques from Robert James Mercer, of Tierre Verde.

Joyce described Mercer as the “brains” of the operation.

In January, Pinellas sheriff’s detectives began secretly watching Mercer, tailing him when he and two other suspects – David Ross Dunn and Sandra Lee Walker – drove to a Wal-Mart on Tyrone Boulevard in St. Petersburg and bought two water filters and two bottles of water for a total of $17.69. A Wal-Mart investigator determined Dunn had switched the water filter barcodes, enabling him to purchase them for $6.87 each instead of their correct price of $97.94 each, according to the complaint.

Later, the group drove to a Wal-Mart on Dale Mabry Highway in Tampa and made a similar purchase, this time buying extension cords worth more than $50 each for $11.88 each, the complaint states. They later took the water filters to a Wal-Mart on West Waters Avenue in Tampa and exchanged them for a cash refund of $209.60.

The complaint details numerous such purchases and refunds observed by investigators in January and February.

In March, agents obtained court authorization to put a GPS tracker on Mercer’s Land Rover. The tracker helped investigators document numerous trips by Mercer to different Wal-Marts to make purchases and returns.

On March 17, Dunn, 29, of St. Petersburg, was stopped for suspected shoplifting at a Wal-Mart on Dale Mabry. Store loss prevention employees had seen her switching barcodes on a water filter and an extension cord, paying $40.42 for items that should have cost $236.88. State criminal charges were filed against Dunn and are pending, according to the federal complaint.

Another suspect, Michael Odhiambo, 31, of St. Petersburg, was captured on store surveillance at a Wal-Mart in Liberty, Texas, trying to obtain a refund using a receipt originally generated during a purchase in Mississippi. Mercer also appears on that Texas video surveillance. Odhiambo also showed up in Wal-Marts in St. Petersburg and Arlington, Texas, making bogus purchases and receiving refunds with Dunn, the complaint states.

Mercer, Dunn and Odhiambo have all been ordered detained pending a federal trial. Walker is free on bond.

esilvestrini@tampatrib.com

813-259-7837

Twitter: @ElaineTBO

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