Dismissal Denied: $250 Million Coupon Fraud Case Goes On

A massive coupon fraud case that’s already dragged on for eight years, will drag on for at least seven months longer. A federal judge has denied two defendants’ motion to dismiss the case, over their concerns that it’s simply taken too long to go to trial.

Bruce and Steven Furr are among eleven defendants named in the government’s 2007 criminal indictment against former executives and associates of International Outsourcing Services. IOS was once the country’s largest coupon processor – a go-between that collected and sorted coupons from stores, and secured reimbursement from manufacturers. But federal prosecutors allege that the eleven men conspired to skim some $250 million from manufacturers by falsely submitting unused coupons and keeping the extra money for themselves.

So much time has passed since the initial indictment, though, that attorneys for Bruce Furr argue that he’s developing dementia and can no longer adequately testify on his and his son Steven’s behalf. Meanwhile, the lead defendant’s attorney passed away before the case even made it to trial. Former IOS CEO Chris Balsiger says he’s trying to secure new representation, and is arguing for a delay of the scheduled October trial date.

But the Furrs say the case has been delayed long enough. The father and son, both former IOS executives, argued that the years-long process of bringing the case to trial violated the law and their Sixth Amendment right to a speedy trial.

Judge Charles N. Clevert, Jr. ruled this week that it was “a close call”, acknowledging that eight years “is an extremely long time for a criminal case to be pending.” But he denied the Furrs’ request for dismissal, citing the sheer complexities of the case.

“The government indicated at one point early in 2007 that it held over ten tons of physical evidence in warehouses and had already provided defendants with 116,000 pages of discovery,” Clevert wrote in his ruling. He also found the Furrs partially to blame for the delays in their own case. The pair made hundreds of privilege claims for IOS documents, on top of the thousands that their co-defendants made – each and every one of which had to be reviewed by the court. Therefore, Clevert concluded, “getting the case to trial within the one-year threshold would have been extraordinary.”

The allegations in the case are pretty extraordinary as well.

The 27-count indictment alleges that IOS executives “gained financially by submitting as many coupons as possible for reimbursement – regardless of whether the coupons had actually been used to purchase the products listed on the coupons.” The accused allegedly worked with coupon brokers, who would arrange for “chop crews” to cut out mass quantities of coupons from inserts, which were then put into cement mixers to make them look used.

In addition, the indicted executives are accused of falsely telling retailers that legitimate coupons were denied reimbursement – and then pocketing the manufacturers’ actual reimbursement for themselves. They’re also charged with obstructing justice and interfering with an investigation that began in 2003, by pressuring witnesses not to cooperate and by concealing and destroying company financial records.

The indictment lists a number of specific incidents, involving five manufacturers and six retailers, in which IOS submitted millions of dollars worth of coupons on behalf of the unsuspecting retailers. But IOS was tripped up by the fact that the coupons either weren’t distributed in the region where the stores did business, or were for products that the stores didn’t even carry. CVS, H-E-B, Food Lion, Hannaford, Winn-Dixie and the former Kash n’ Karry had no idea of the scheme, the indictment read, as manufacturers like Kimberly-Clark, S.C. Johnson, Sargento and Unilever dutifully reimbursed IOS for coupons that were never clipped or used by any shopper.

But those were far from the only retailers and manufacturers allegedly victimized. 23 of the country’s largest consumer packaged goods companies, including Procter & Gamble, Kellogg, General Mills and PepsiCo, filed a lawsuit in civil court, seeking restitution for the quarter billion dollars that IOS is accused of taking from them over a ten-year period. That case is currently on hold, pending the outcome of the criminal case.

IOS, which once had thousands of employees and hundreds of millions of dollars in annual sales, eventually collapsed under the weight of the allegations and sold off all of its assets in 2008. Meanwhile, four defendants – including Lance Furr, a third member of the Furr family charged in the case – have already entered guilty pleas.

And the man who was once in charge of it all vehemently denies all of the allegations. Former CEO Balsiger, who once famously described the entire coupon industry as a “lying, cheating, dirty business,” is vowing to ultimately sue the government for malicious prosecution.

But first, it will be up to a jury hearing the case this fall to decide just how lying and cheating a business the coupon industry really is.

Background image source: Flickr/Carol Pyles