It was supposed to be the biggest retail theft case they’d ever cracked.
Los Angeles County sheriff’s detectives boasted to the press of a massive bust after storming a Vernon warehouse in June 2010 and hauling away about 50 truckloads of allegedly stolen razors, batteries and other merchandise worth some $5 million.
But now, 2½ years later, charges have never been filed. Instead, a jury unanimously concluded last month that the seizure of merchandise from XYZ Distributors Inc., a seller of secondhand goods, was unreasonable. It also found that detectives defamed XYZ and ordered the investigators to pay the company $548,000 in damages. The county will likely satisfy the judgment.
Court documents say detectives ended their investigation of the company in September 2010. That’s when a judge ordered the Sheriff’s Department to return all of the merchandise it had seized, along with company computers and $48,000 in cash also taken during the raid.
XYZ said its business had been crippled by the months-long seizure of between 60 percent and 85 percent of its inventory, and sued. The company was unable to pay creditors due to a lack of cash flow, saw its eBay and PayPal accounts frozen, lost clients and took a reputational hit.
Though XYZ has now been awarded a jury verdict in U.S. District Court in Los Angeles, its attorneys said the company is still reeling. XYZ claims it has swung from an average annual profit of $1.9 million over the five years prior to the raid to a money-losing enterprise, and last year estimated that revenues were cut in half. It was forced to sell its 26,000-square-foot Vernon warehouse last year to pay off creditors and to lease a smaller 12,000-square-foot warehouse in Bell.
“The damage to the business was so much more,” said XYZ attorney Shab Kerendian. “Different segments of the business got destroyed and they were not able to get it back.”
Though XYZ’s merchandise was ordered returned before the Sheriff’s Department could legally assert ownership after confiscation, critics charge that law enforcement agencies have increased incentives to seize assets first and ask questions later. That’s because agencies can raise money by auctioning seized goods. With budgets shrinking, seizures are on the rise in Los Angeles and across the country. Even if criminal charges are never filed, authorities can auction seized property under civil asset forfeiture laws, which require a lower burden of proof than criminal convictions.
Last year, asset forfeitures by the Sheriff’s Department totaled $7.1 million, up 176 percent from 2007. That amount was the most for a non-task-force local agency in the country.
The department denied it sought to profit from sales of the goods seized at XYZ. Spokesman Steve Whitmore said it stood by the actions of Sgt. Jim Anderson and Deputy Jeffrey Jackson of the department’s detective bureau.
“It’s no motive,” he said. “What we do is we enforce the law, and if we think something is illegally sold or illegally attained, we confiscate it.”
Bait merchandise
Recently filed court documents have revealed more information about how the unusual saga unfolded.
The investigation was triggered when a group of alleged narcotics users was arrested in early 2010 for shoplifting personal care items in Santa Clarita. They told authorities they sold stolen goods to a fence on Sixth Street in downtown Los Angeles. Authorities had previously been told of the fence’s existence by representatives at grocery chain Vons, which commissioned a private 2007 investigation that resulted in allegations that the fence bought stolen goods and sold them to XYZ.
Undercover detectives then sold purportedly stolen batteries and razors, provided by representatives from Target Corp., to the fence. They tracked the bait via GPS to XYZ and then raided the warehouse on a June morning in 2010. There they recovered six cases of the bait merchandise.
However, they also saw boxes of over-the-counter drugs, diapers, lotions, makeup and other goods stacked floor to ceiling. Representatives of Vons, Target, Albertsons, Wal-Mart and Walgreens were present and they identified many of them as commonly stolen items.
Detectives, who had a list of more than 30 commonly stolen brand names, apparently assumed many of those goods might have been stolen, too. They decided to cart off more than half of the inventory in the huge warehouse so they could figure out whether those goods had been stolen. They also seized tens of thousands of dollars in cash and company computers.
As a result, the haul was much larger than anticipated. It took them two to three days and 50 truckloads to cart it all away. Local news reports quoted detectives as saying it was the biggest case they’d ever cracked, that XYZ was probably moving stolen goods across state lines and that they believed the operation could be tainted with drug money. Target provided trucks to move the seized merchandise, while CVS representatives agreed to warehouse the confiscated products in Ontario.
XYZ executives, however, have maintained they never knowingly purchased stolen items. The bait merchandise had been purchased from a jobber, or middleman, and they have no way of knowing where he got his stuff.
Co-founded in 1992 by Iranian immigrants Fred and David Partiyeli, XYZ buys discounted goods such as overstock, returns and products in old packaging from manufacturers, retailers and other sources – including jobbers, who connect them with goods suppliers.
Industry experts have said it is difficult to move the large amount of product that XYZ does – it claimed annual sales of between $12 million and $16 million in the years leading up to the raid – by relying on stolen goods. Indeed, the company has dealt with at least one apparently legitimate supplier, having sued Milford, Conn.’s Retail Service Associates Inc. in 2009 over delays in receiving an order worth about $253,000.
XYZ’s owners, who were interviewed and photographed more than a year ago by the Business Journal, declined to comment for this article.
Outcome
More than two months after the raid, a judge found that the seizures exceeded the scope of the original warrant and ordered everything to be returned. At the time, sheriff’s investigators had run into delays in inventory processing and had not yet determined where the seized merchandise had come from, according to court depositions.
Nor, court documents further reveal, had they begun examining the company computers. The department’s computer analysts were dealing with a backlog of cases and detectives were negotiating to have them shipped to a Target crime lab in Minnesota for examination.
As for the allegations reported by local media about drug money, investigators did find a substance believed to be narcotics and sent it for testing, but no charges were ever filed, according to court documents. XYZ’s attorneys said it tested negative.
Sgt. Anderson, reached by phone, claimed that press accounts of the raid were inaccurate and indicated charges could still be filed, saying that the investigation had not stopped in 2010. He declined further comment.
The Sheriff’s Department, on the other hand, appears eager to put the raid behind it. The county was dropped as a defendant before trial, meaning the judgment is technically against the individual detectives, but the department will still pay the damages.
“We think it’s an appropriate but regrettable award,” Whitmore said of the half-million-dollar verdict. “I believe that this now is going to be put to bed on all fronts.”
But XYZ’s attorneys, who wanted damages of more than $5 million, are mulling an appeal. They said the company could still go out of business because of law enforcement mistakes.
“That can wind up having severe consequences for legitimate businesses,” said John Burton, another of XYZ’s attorneys. “They didn’t get everything they asked for but they did get the main thing they asked for, which was vindication.”
