Kansas Firearm Distributor Charged in Glock Scandal

[Armorer-at-Law]

http://www.fbi.gov/kansascity/press...d-kickbacks-to-glock-executives#disablemobile

Note that because this is an FBI press release, there is no copyright.

This is illegal because it is stealing from Glock. "Blue label" Glocks are sold at a significantly lower price because they are intended to be initially sold only to a law enforcement agency. By buying under false pretenses (and Glock employees getting kickbacks to help with the scam), they stole from Glock. Same as a store clerk giving "friends and family" (or some such) discount when it's not proper and geting a kickback for part of the discount.

Kansas Firearm Distributor Charged with Paying Bribes and Kickbacks to Glock Executives
U.S. Attorney’s Office June 04, 2014

District of Kansas (316) 269-6481

TOPEKA, KS—A Kansas firearms distributor was indicted today on federal charges of paying more than $1 million in bribes and kickbacks to executives of the company that manufactures Glock pistols, U.S. Attorney Barry Grissom said.

John Sullivan Ralph, III, 40, Olathe, Kansas, who was owner of Global Guns & Hunting Inc. of Olathe, Kansas, doing business as OMB Guns, is charged with one count of conspiracy, 11 counts of wire fraud, and 10 counts of money laundering.

The indictment alleges Ralph secretly paid executives of Glock to receive preferential treatment over other distributors of firearms, including directing potential customers to his company, giving his company priority access to limited products, steering government contracts and sales to government agencies of firearms and accessories to his company, and providing confidential Glock information to him.

The following co-defendants are charged with the same counts as Ralph:

James “Craig” Dutton, 42, Acworth, Georgia, who was the assistant national sales manager for Glock. The American headquarters of Glock Inc. is in Smyrna, Georgia.

Lisa Delaine Dutton, 42, Acworth, Georgia, who was Craig Dutton’s wife, and who formed a company called Supreme Solutions LLC. She is alleged to have concealed payments of bribes and kickbacks.

Welcome D. “Bo” Wood, Jr., 65, Oviedo, Florida, who was the Eastern Regional Manager for Glock.

Paula Ann Wood, 63, Oviedo, Florida, who was Bo Wood’s wife, and who formed a company called Tropical Marketing & Consulting LLC. She is alleged to have concealed payments of bribes and kickbacks.

According to the indictment, most of Glock’s pistols are sold to independent firearm distributors who have contracts with Glock to resell its pistols. The allocation of Glock pistols was important because the demand frequently exceeded the supply.

Glock created two different sales channels for purposes of licensing its distributors. One channel was for sales to law enforcement agencies. Independent distributors were authorized to resell Glock pistols to law enforcement agencies within a specific geographic territory. The other channel was for the commercial market. Distributors of commercial market products were not restricted to a particular geographic area.

Glock used a Universal Product Code to differentiate pistols that were sold for resale to law enforcement agencies (blue label products) from pistols sold for resale to the commercial market (red label products). The price list for pistols intended for resale to law enforcement agencies is lower due to the fact law enforcement agencies routinely buy in bulk and are often subject to bidding processes.

The indictment alleges Wood and Dutton provided Ralph with equipment and software to allow him to convert firearms sold with the law enforcement discount (blue label) to firearms sold at the premium price to the commercial market (red label). Ralph is alleged to have sold at least 14,000 pistols to commercial buyers—including Cabela’s—which Glock sold to Ralph for resale to law enforcement agencies.

The indictment alleges that from 2003 to 2009, Ralph used the U.S. Postal Service to send and receive approximately 140 bribes and kickbacks that were delivered to defendants Lisa Dutton and Paula Wood. Between 2009 and 2011, the indictment alleges, Ralph used wire transfers to send approximately 80 bribes and kickbacks.

Upon conviction, the crimes carry the following penalties:

Conspiracy: A maximum penalty of 30 years in federal prison and a fine up to $1 million.

Wire fraud: A maximum penalty of 30 years in federal prison and a fine up to $1 million on each count.

Money laundering: A maximum penalty of 20 years and a fine up to $50,000 on each count.

The FBI investigated. Assistant U.S. Attorney Richard Hathaway is prosecuting.

 

[BuckRub]

This sort of thing has and is in every part of almost all business. Money Rules.

 

[shooterdownunder]

I get the bribery charges and associated wire fraud, but where has the money laundering charges come from?

Also selling the discounted LEO pistols at retail would seem to be more a a civil breach of contract suit rather than a federal crime. (note I understand I'm not an expert at american law so correct me if I'm wrong there.)

 

[Skans]

I have no sympathy for Glock. This kind of thing wouldn't happen if Glock simply put one price on each of it's products, regardless of whether 1 or 1000 are purchased, and regardless of WHO purchase the product.

 

[WyMark]

I get the bribery charges and associated wire fraud, but where has the money laundering charges come from?

Ms. Wood and Ms. Dutton set up and ran companies whose sole purpose was to launder the illegal payments and proceeds of the fraud.

 

[arizonaopa]

blue label buyer

Skans, with all respect to you, I can see Glock's business model making sense. If you offer a discount to LEOs and military through the blue label program, you will more likely get a sale with more to come. I am a retired Army NCO who is eligible to buy blue label Glocks. In my case, I have purchased them with no intent to resell them later. For the military people, I feel that Glock's blue label offer is a salute to the service we have provided and continue to provide.

As to the individuals who have been indicted, I hope they are fined to the maximum and sentenced to the maximum time in jail. I believe they have committed a federal criminal act since the weapons they purchased and then resold at the higher price were obtained under fraudulent circumstances. When it comes to dealing with firearms, fraud is a federal crime. IMO.

 

[Will Beararms]

Heads need to roll for allowing this to occur in the first place.

The marketing strategy is sound. The internal auditing is terrible.

 

[DaleA]

-paying more than $1 million in bribes and kickbacks to executives of the company that manufactures Glock pistols.

Wow. Color me naive. I didn't think there was that much profit margin that a distributor would have a million to spread around like that.

I think it would be fascinating to know the 'business' side of the firearms industry especially S&W with all the corporate maneuverings that have gone on with that firm. Anybody know of a book on S&W that would cover it? I realize this is about Glock but I'm more interested in S&W.

 

[Pond James Pond]

regardless of whether 1 or 1000 are purchased

I can't think of any mass production industry that doesn't work on the premise of a lower unit price when the product is bulk purchased.

Was the over the counter retail price for the Beretta 92 the same as the unit price paid by the US army when signing for supplies to all infantry?

If so, then the US got royally had.

 

[Skans]

I can't think of any mass production industry that doesn't work on the premise of a lower unit price when the product is bulk purchased.

There are gun manufacturers that set one price for their guns whether you buy one or many. I believe Boberg operates on that principle. Regardless, as a consumer, I don't care. I feel like I'm subsidizing government by paying a higher price. So, if I can find a way to purchase a Glock at the price government gets them, I will, and I won't have any problem telling others how to do this as well. FYI, by doing so, I am not breaking any laws - in other words, this is a Glock problem, not a consumer problem. Like I said, I have absolutely no sympathy for Glock (and in fact a little grin on my face) for Glock getting their nose caught twisted in vice over what I consider an predatory pricing strategy.........payback.

 

[Pond James Pond]

Is Beretta one of those who price the same, one and for all?
If not, do you give them grief about their pricing policy?

I ask this simply because I am sure that Glock is not the only one to alter prices depending on the numbers in question, and so I want to understand how Glock is more guilty.

Do Boberg even do mass orders on the scale of Glock and Beretta?

 

[tipoc]

There is nothing illegal about the "red" and "blue" sales codes and pricing. All major firearms manufacturers with large leo and military sales utilize similar formulas as do defense contractors.

There is a good deal wrong and illegal with a scheme like the one folks are indicted for above. Two Glock executives and their spouses have been charged as well as the indicted distributors. They have not been found guilty though.

Paul Barrett detailed the substantial profit margin Glock has had in his book on Glock. It should surprise no one that millions can be siphoned off nor that Glock executives take kickbacks. It's not the first time.

Anybody know of a book on S&W that would cover it? I realize this is about Glock but I'm more interested in S&W.

That book doesn't exist. At least not yet.

tipoc

 

[zincwarrior]

Without getting into it and detail this feels like a civil suit issue not a crime. What am I missing?

EDIT: kickbacks of course are illegal (Thanks Rockefeller!) and that may be what the actual charges are about.

 

[tipoc]

On why it's a federal crime. The UPC codes and the use of mail to transfer the illegally gained funds make it a crime. Granted the mail fraud charges are often tacked on but they are real.

UPC codes are those computer codes on the sides of the boxes on consumer products and commodities shipped. They are coded for the product inside and are protected by law to prevent fraud.

Glock has a dual price structure for it's guns. A Model 17 intended for law enforcement or military sale is priced lower than one for the commercial market. That status is reflected in the UPC codes.

What the distributors and Glock execs are suspected of and indicted for is diverting guns intended for leo sale (and priced lower), changing the codes and selling them at the higher commercial price. In some cases as special runs. They more than doubled the price by doing this. They then split and pocketed the difference. This was robbing from Glock and defrauding consumers.

They also created companies to record the illegal income to hide it as clean profit by setting up dummy companies to "launder" the money.

Because it involved altering the codes, interstate commerce, use of the mails, etc. the Feds were involved. Allegedly multiple felony crimes were committed. Federal crimes not civil. The buyers of the guns were overcharged for them and Glock was harmed. It's illegal to set up a front company to launder money as well.

This is why it's not just a civil matter or a case of Glock firing a couple of execs and distributors.

tipoc

 

[Nathan]

Was the over the counter retail price for the Beretta 92 the same as the unit price paid by the US army when signing for supplies to all infantry?

If so, then the US got royally had.

What you say makes sense, but I would bet it is WRONG.

Typically military contract goods are a bought at a premium. The model is something like: Beretta is set up to make a million pistols per year. To supply a one time order of 1 million military guns, they need to expand for the contract only, build those guns and then go back to normal production. That is a premium.

Also, the military usually reviews the specs and testing and makes their own requirements. . .That is a premium.

They also want specific packaging, multiple worldwide delivery locations, tons of their own paperwork filled out, etc. . . premium.

"Blue Label" Glocks are non-premium planned production. Excess is sold to first responders, retired, etc. They are marketing them to police to increase market penetration. All good reasons to discount.

 

[Skans]

If not, do you give them grief about their pricing policy?

I am not actually giving Glock any grief about their pricing policy. They, and any other manufacturer, can price their wares anyway they want - I completely understand this. As a consumer, however, I don't necessarily like it. I don't have to like it! So, when I see a company get all twisted up because consumers figured out a way to buy guns for the same price they sell them to the government, I LIKE IT.

Please take note - no one is talking about prosecuting consumers who purchased these "discounted" glocks. It does not appear that any end consumer was involved in paying kickbacks or bribes. Also, gun manufacturers aren't the only ones who have this problem There are big "gray markets" for Omega, Tag, and other Swiss made watches. In fact, the Omega I have been wearing for the last 20 years is a gray market watch. No sense in spending another $1,000 for nothing since there isn't a chance this watch will be worth much after I'm done with it!

 

[Departed402]

As an example of prices from the blue label dealer my agency uses on Glock 17 prices:

Civilian: $519.00
Individual Officer: $398.20
Agency: $362.00

Assuming they charge about the same as our supplier, they have anywhere from $121 to $157 to gain per gun. A nice little profit margin.

 

[tipoc]

So, when I see a company get all twisted up because consumers figured out a way to buy guns for the same price they sell them to the government, I LIKE IT.

In the case we're looking at consumers did not "figure out a way" to get themselves a better deal. Here it was kinda the opposite.

The accusation here is that some distributors, in cahoots with some Glock execs, sold the less expensive guns to consumers at the higher commercial price and pocketed the difference. Both Glock and consumers were defrauded.

How much money was involved we don't know yet but enough that two husband wife combos are accused of setting up two separate dummy companies to launder the profit. This was money that came out of the pocket of consumers so I don't see the gain in any of this to the average gun buyer.

tipoc