George S. May Business Blog

Best Buy fraud unveiled

Best Buy has surfaced in the news as federal investigators say the retailer was conned out of $31 million.

The scam was actually quite simple. Basically, a company by the name of Chip Factory, owned and run by husband and wife Russell and Abby Cole, won Best Buy contracts by offering amazingly low bids. They then turned around and charged the company a much higher price for the computer parts. The couple, who are yet to be charged in the case, were said to have been able to make the deals go through without setting off major alarm by the help of former Best Buy employee, Robert Paul Bossany. Last month Bossany pleaded guilty to 29 counts of conspiracy to commit mail fraud and money laundering. Here is how the three managed the scheme, according to the court affidavits:

Chip Factory sold the parts to Best Buy through an online system bidding system run by National Parts. After agreeing to a price, Chip Factory turned around and jacked those prices up, before the transaction was completed. I know what you are thinking: not necessarily rocket-science. Naturally, National Parts saw the changes and questioned the transactions, but Best Buy employee, Bossany eased the concerns and saw to it that the transactions went through. In return, allegedly, Bossany received cash and gifts. It’s unclear how the alleged fraud was discovered, but the investigation involves the Internal Revenue Service, the Federal Bureau of Investigation and the US Postal Service.

In one case, Chip Factory won a contract for 20 computer parts at $42 each, beating out the next lowest bid of $72. Then Chip Factory allegedly charged Best Buy $571 per part to fill the order.

I have to say, this case seriously puts the people running Best Buy’s accounting department in question.

First of all, how on earth could a Mom-and-Pop computer equipment retailer possibly provide parts at such a drastic discount from the rest of the bidders. Take the above example: The difference between paying $42 and $72 is about a 71%. No one ever thought to put that in question?

Secondly, how on earth did the Best Buy accounting department not notice a difference in the agreed $42 and the charged $571? Somebody was definitely sleeping on the job.

On the other hand, the Coles, reportedly, have made a killing in the meantime. The Coles dutifully reported $15.5 million in income between 2003 and 2007, $14.2 million of which investigators say resulted from fraud. During that time, they also managed to purchase a Ferrari coupe, Lamborghini convertible and 9 other luxury cars, worth about $2.8 million in total. Investigators have seized all of the aforementioned vehicles for the time being.

The fact that the Coles have not been charged to date should definitely cause worry within their household, especially since their ‘insider’ has already admitted guilt. I can almost guarantee that investigators dangled a lengthy sentence in front of Bossany’s face only to follow it up with the old: “well, if you help bust the big guys, we’ll make your sentence much more lenient”. Once their informative clearly spills all the details of the scheme, the Coles should definitely be listening for a knock on their door.

This case has been going on for sometime now and I am quite surprised that it has not called for more media attention. Then again, Best Buy may have been doing its best to keep such a scam on the ‘down-low’ as a story like this is likely to get the wheels turning inside the brains of other less-well-to-do employees and dealers.

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