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IOS logo and coupons

With just over a month to go before a major coupon fraud case goes to trial, two more defendants have agreed to deals that will keep them out of the courtroom – while two of the remaining defendants have lost what could be their last, best bid to delay or prevent the case from going to trial.

Eleven executives and associates of former coupon processing company International Outsourcing Services were named in a 2007 indictment, accusing them of scheming to defraud manufacturers by submitting coupons for reimbursement that were never redeemed by customers. Six defendants had previously reached plea agreements, most recently about two months ago. Now two more have made deals with federal prosecutors.

The first is Steven Furr, the former president of IOS’s North American Operations. He’s agreed to plead guilty to obstruction of justice, for interfering with a grand jury’s investigation of the case.

IOS was once the country’s largest coupon processing company, a go-between that collected coupons from retailers and facilitated their reimbursement from manufacturers. Prosecutors allege that IOS arranged for “chop crews” to cut out large quantities of coupons from Sunday inserts, gave them a spin in a cement mixer to make them look used, then had small, independent retailers submit the coupons to IOS for reimbursement from the manufacturers. Since manufacturers might have become suspicious of such large quantities of coupons coming from small stores, IOS allegedly mixed them in with coupons legitimately submitted by larger clients.

Larger clients, like Food Lion. After the retailer received a federal grand jury subpoena during the investigation, prosecutors say Furr provided “false and misleading information to Food Lion about the volume of coupons billed to manufacturers under Food Lion’s name.” Food Lion had no idea that unredeemed coupons were being billed to manufacurers as having been redeemed in its stores, while the IOS executives and their associates allegedly kept the extra money for themselves.

By agreeing to plead guilty in the case, Furr faces a maximum penalty of five years in prison and a $250,000 fine, plus possible restitution. He will also testify against the remaining defendants, if called.

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Also reaching an agreement with prosecutors is Bharatkumar Patel, a coupon broker who was accused of recruiting small retailers to participate in the scheme. He’s entered into a deferred prosecution agreement, which means he “has taken responsibility for his actions and acknowledged his responsibility for the fraudulent conduct with which he is charged.” His penalty will be determined later.

That leaves three defendants in the case – former IOS sales manager Howard McKay, former IOS information technology chief James Currey and the former CEO himself, Chris Balsiger. And the latter two have just lost their latest bid to have the case dismissed.

A federal judge has upheld a lower court’s ruling, denying Balsiger and Currey’s various claims. They argued, among other things, that the government needed to identify the specific fraudulent coupons they’re accused of submitting, in order for them to prepare their defense. The judge said that’s not necessary, since many of the coupons fraudulently submitted are obvious. For example, according to the indictment, CVS didn’t carry Sargento products – yet Sargento coupons were submitted for reimbursement after supposedly being redeemed in CVS stores.

The judge also rejected the pair’s arguments that by prosecuting them, the government “caused” IOS to fire them – thereby hampering their financial ability to defend themselves.

The case against Balsiger, Currey and McKay is set to go to trial on October 26, just over six weeks from now. Unless, that is, any of them join their eight former co-defendants and settle. Balsiger, for one, insists he has done nothing wrong and has publicly vowed never to settle.

In that case, his accusers will see him in court.

Background photo by rose3694

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