By: Hopewell Darneille
Executives of Wellco Enterprises were sentenced earlier this month for their role in a rather brazen scheme to defraud the Government by flouting the sourcing restrictions imposed by the Trade Agreements Act and the Berry Amendment. The executives were among the six defendants originally charged in an 11-count indictment including conspiracy to commit wire fraud, eight counts of wire fraud, major fraud against the United States and smuggling. The case serves as a reminder of how seriously the United States Government takes country of origin requirements.
The defendants included: Vincent Lee Ferguson (former president and CEO of Wellco); his sons Matthew Lee Ferguson (former senior vice president of sales) and Kerry Joseph Ferguson (former director of marketing and communications); his daughter, Stephanie Lynn (Ferguson) Kaemmerer (former operations manager); Neil Streeter (former vice president of government contracting); and Matthew Harrison Martland (former director of distribution and logistics).
Wellco was a manufacturer and supplier of military and other rugged footwear, including combat boots for the U.S. armed forces. According to the 11-count indictment filed in September 2016, the Department of Defense paid Wellco more than $138 million for military footwear between from 2006 through 2012. The Government contended that total included at least $8 million of boots marketed and sold between December 2008 and August 2012 to the U.S. government, government contractors and the public “that were falsely represented as “Made in the USA.”
According to prosecutors, the scheme originated as part of a turn-around plan proposed by Vincent Ferguson. Among other things, the plan called for Wellco to aggressively pursue sales to the U.S. government. The indictment alleged that Ferguson and the other defendants conspired to import boot uppers and insoles for military-style boots from China and pass them off as domestic products.
More particularly, Wellco had originally directed its Chinese manufacturer to include the American flag and/or “USA” on the labels of certain boot uppers and to omit any reference to the actual country of origin. According to a DOJ press release, this strategy was aimed at appearing compliant with certain domestic content preference laws, including the Trade Agreements Act and the Berry Amendment
But when two shipments of these deceptively marked uppers were detained and seized by the U.S. Department of Homeland Security’s Customs and Border Protection, the conspirators doubled down and ordered the Chinese facility to stitch tear-away “Made in China” labels in Wellco boot uppers. Wellco’s U.S. employees charged with affixing the boot soles were then instructed to remove and replace the “Made in China” labels with new ones claiming the boots were “Made in the USA.”
All six defendants pled guilty earlier this year. First, Martland, who entered into a plea deal implicating the other defendants, was sentenced to six months probation. Shortly thereafter, four other defendants were sentenced — Matthew Ferguson to six months in prison; Kerry Ferguson to six months in prison; Streeter to five years probation; and Kaemmerer to five years probation. The patriarch, Vincent Ferguson, will be sentenced later this year.
The lesson? Crime does not pay, at least not indefinitely. And when your actions come to light, you may be the one paying with probation or jail time. Avoid the risk by ensuring strict compliance without resorting to fraud.
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