The indictment was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Kevin Perkins of the Federal Bureau of Investigation, Baltimore Field Office; and Postal Inspector in Charge Terrence P. McKeown of the U.S. Postal Inspection Service - Washington Division.
"Based in Maryland, the defendants allegedly cheated thousands of American businesses out of more than $50 million through a sophisticated scheme that involved sham sales of light bulbs and cleaning supplies," said U.S. Attorney Rod J. Rosenstein. "According to the allegations, company employees followed a script that included sending unsolicited supplies, lying to victims, and repeatedly submitting fraudulent bills."
According to the indictment, on March 24, 2003, Midway Industries, LLC and Johnson Distributing, LLC were incorporated in Maryland, each with the stated purpose to engage in the retail sale of light bulbs and cleaning supplies, among other activities. Between July 22, 2008 and April 18, 2014, Wallen and another individual incorporated additional shell entities, in Maryland and Florida. Midway, Johnson Distributing and the shell entities will be collectively referred to here as "Midway."
According to the indictment, at different times the Midway companies were owned, in whole or in part by Wallen, who held the title of CEO. Andrew Stafford held the title of President. According to the indictment, Wallen and Stafford exercised supervision over the practices at Midway.
The seven count indictment alleges that from 2007 through 2014, Wallen, Stafford, and the Midway co-conspirators fraudulently obtained millions of dollars from thousands of victim businesses by deceiving the businesses' into paying exorbitant prices for light bulbs and cleaning supplies, as well as paying for products that the businesses never ordered.
Specifically, the indictment alleges that from about 2007 to 2014, Wallen, Stafford and other conspirators telephoned authorized representatives of businesses, who were often maintenance employees, on behalf of Midway companies. During these phone calls, the conspirators sought to conceal Midway's true locations in Reisterstown, Maryland and in Florida. According to the indictment, during the initial calls, Wallen, Stafford, and the conspirators promised national store gift cards to the authorized representatives to induce them to place initial orders, or to provide Midway with additional company information or personal information, like the authorized representatives' home address and personal phone number. The conspirators used the cell phone numbers and/or birthdays of the authorized representatives as "purchase order" numbers in order to lend legitimacy to later collections efforts.
In addition, during the calls the conspirators allegedly made false statements, including: that the victim businesses had an existing business relationship with Midway; and that Midway would send a "half box" of light bulbs. In fact, the "half box" was a deceptive technique used to understate the volume and price of shipments, and disguise unwanted future shipments. Wallen, Stafford, and the conspirators allegedly did not divulge the price of any products, engaging in a practice called the "price blow-off," falsely telling the victim business that they did not have the price in front of them, but that it would be at the corporate discount. In fact, Midway did not offer a corporate discount.
As long as the victims continued paying the Midway invoices, in subsequent calls Wallen, Stafford, and the conspirators allegedly misrepresented that the balance of the victim's order, or their "regular seasonal order" had recently been shipped, despite no order having been made by the victim business, and no actual shipment having yet been sent. The conspirators called authorized representatives under the guise of different Midway companies in order to repeat the process using a product other than light bulbs, often cleaning supplies.
The indictment further alleges that when the authorized representative could not be reached, Wallen, Stafford, and the conspirators would simply send the product and an inflated invoice to the victim, without the victim placing an order. The conspirators referred to this practice as "just ship." If the authorized representative had quit, been fired, or even passed away, the conspirators sent a product and inflated invoice to the victim business knowing that the victim would be unable to dispute the validity of the order. This practice was referred to by the Midway conspirators as a "down the road." The Midway conspirators regularly sought the approval of Wallen and Stafford, as their supervisors, to engage in the practices of "just ship," or "down the road."
According to the indictment, Wallen, Stafford, and the co-conspirators ordered the light bulbs and cleaning supplies from a company located in New Jersey (supplier). They instructed the supplier to ship the products to the victim without an invoice, and to send the invoices directly to Midway. Wallen, Stafford, and the conspirators then sent inflated invoices to the billing departments of the victims. The indictment alleges that the invoices sent to the victim businesses were regularly 900% above the prices Midway paid the supplier. After a victim had paid one invoice, Wallen, Stafford, and the conspirators sent invoices to the victim that were sometimes greater than 8,000% above the supplier's prices.
When victims did not remit payment, the indictment alleges that the collections department at Midway repeatedly called the victims in order to force them to pay the inflated invoices. If the victim company continued to protest, the Midway collections department made false representations, including that an order had actually been placed with Midway, using as proof that the authorized representative had received a gift card, or provided his home address.
If the victim threatened to contact law enforcement or the Better Business Bureau, Wallen, Stafford and the conspirators allegedly offered to revise the invoice to a discounted rate, or take back a product for either a "re-stocking fee" or "at cost," which was still substantially greater than the cost of the products purchased from the supplier.
The indictment alleges that as a result of the fraud scheme, Midway sent fraudulent invoices to victim companies for more than $100 million and received more than $50 million in payments on those invoices.
Wallen and Stafford each face a maximum penalty of 20 years in prison for the mail fraud conspiracy and for each count of mail fraud.
The guilty pleas of co-conspirators Robert Chesser, age 46, of Dundalk, Maryland; Brandon Johnston, age 38, of Catonsville, Maryland; Alan Landsman, age 36, of York, Pennsylvania; Steven Phillips, age 64, of Pikesville, Maryland; Brandon Riggs, age 34, of Baltimore; and Thomas Wishon, age 54, of Cockeysville, Maryland, were also unsealed today. All six have all pleaded guilty to conspiracy to commit mail fraud in connection with their roles in the scheme, and are awaiting sentencing.
An indictment is not a finding of guilt. An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.
The FBI is offering a reward of up to $5,000 for information leading to the location and arrest of Brian Keith Wallen. Anyone with information concerning Wallen's whereabouts is urged to call the Baltimore office of the FBI at 410-265-8080.
Anyone who believes they may have been a victim of this fraud scheme is asked to complete and submit the Midway Victims Form to the email or mailing address on the form. Additional information can be found at the U.S. Attorney's Office website.
United States Attorney Rod J. Rosenstein commended the FBI and U.S. Postal Inspection Service for their work in the investigation. Mr. Rosenstein thanked Assistant U.S. Attorney Sean R. Delaney and Harry M. Gruber, who are prosecuting the case.