On August 2, 2017, a federal grand jury charged owners of a New Jersey scrap metal company with a 17 year conspiracy to defraud customers out of millions of dollars. The indictment accuses brothers Craig and Joseph Cinelli, co-owners and officers of Cinelli Iron & Metal, Inc. (“CIMCO”), of wire fraud and conspiracy.

Headquartered in Secaucus with three New Jersey facilities, CIMCO purchased scrap metal for resale. The indictment alleges that CIMCO delivered scrap metal containers to jobsites, removed the containers after they were filled, and paid on the type and weight of the material. However, the government says that, instead of paying the agreed-upon price, CIMCO misrepresented the weight and nature of the scrap metal, and thereby knowingly underpaid its victims.

According to the indictment, CIMCO devised a scheme to short actual weights by falsifying scale tickets and invoice documents, to remove scrap metal from containers before weighing and to misrepresent the type and proportions of the product. CIMCO then allegedly resold the scrap metal at an enhanced profit.

CIMCO Chief Financial Officer David Barteck previously pleaded guilty in the U.S. District Court in New Jersey to a federal charge of conspiracy to commit fraud. He estimated that the fraud generated between $9.5 to $25 million in ill-gotten gains. The federal conspiracy and wire fraud counts against the Cinelli brothers each carry a maximum potential penalty of up to twenty years in prison and substantial fines. 18 U.S.C. §§ 1343, 1349.

The CIMCO action alerts the scrap and recycling industry to the susceptibility of honest businesses to clever fraudulent schemes by dishonest actors. Brokers, consumers and others should undertake diligent steps to detect fraud risks and protect their business and reputation. Establish clear and sensible internal guidelines for buying or selling your product; vet thoroughly the people with whom you transact business; implement and maintain strict systems and protocols to detect fraud; verify pertinent representations; visually inspect and analyze the material; require production of missing or incomplete documentation; and, draft specific contractual terms that protect your legal rights. Be prepared to walk away from a deal if something seems amiss, cooperation is grudging or disclosures are lacking.

Although the magnitude of CIMCO’s misconduct was exceptional by its scope and duration, even less ambitious schemes can devastate a business victim. Robust buy/sell protocols, backed by strong agreements and detailed due diligence, help protect your business not only from fraud but from quality, weight and related “errors.”