Williams Sonoma $20 Million Fraud

Buckle up because this gets creative. Eric Marsiglia was vice president of engineering, projects, planning, facilities, and real estate for Williams Sonoma, a large retailer specializing in cooking and kitchen items. Marsiglia is accused of running a pair of schemes to defraud his employer.

In his position, Marsiglia was responsible for finding potential commercial real estate properties for Williams Sonoma. He would work with landlords and commercial real estate brokers on lease terms. These terms typically included broker commission rebates designed to be paid back to Williams Sonoma.

Marsiglia created a shell company with a pair of co-conspirators. The firm was named REM Group, LLC and Marsiglia represented that REM was affiliated with Williams-Sonoma and rebates should be paid to REM. As a result, Williams-Sonoma was overcharged for real estate leases because rebates were directed to REM. Marsiglia and his co-conspirators are alleged to have collected $5.9 million with this scheme.

Marsiglia also came to an arrangement with another co-conspirator, Michael Podhurst. Podhurst worked for a forklift and supply chain company. He later founded a storage and materials handling company. Podhurst came to an agreement with Marsiglia in which Williams Sonoma’s business would be directed to companies Podhurst worked for or controlled, in exchange for kickbacks to Marsiglia. As a result, $48 million in business was directed to Podhurst-associated firms and Marsiglia collected $12 million in kickbacks. The indictment alleges Marsiglia’s schemes netted as much as $20 million.

We say that collusion is hard to find, but clearly, some people do get caught. The charges include the commonly seen wire fraud charge, but Marsiglia and Podhurst also got charged with money laundering. This investigation was run by the IRS so it’s possible that the fraudsters didn’t pay taxes or that their activity triggered a money laundering investigation.

Kickbacks are illegal because they affect the ability of employees to make unbiased decisions in the best interests of their organization. The individual is acting in their own interest, not their employer’s. The practice is also considered anti-competitive because it subverts an unbiased bidding process. Kickbacks differ from referral commissions in that they are secretive and typically non-disclosed. In some cases, even referral commissions are illegal. For example, the Federal Anti-Kickback Statute [42 U.S.C. ยง 1320a-7b(b)] prohibits the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business involving any item or service payable by the Federal health care programs

Kickbacks from vendors are typically seen in buyer-type roles where an employee has a lot of discretion to select a vendor. Often these frauds are exposed via a tip. Strong vendor controls and regular vendor reviews can help prevent or identify kickbacks. Bidding controls for large projects can help as well.

%d bloggers like this: