Three Florida residents were sentenced to federal prison for their roles in a $200 million baby formula fraud scheme that began some nine years before the current shortages.
Johnny Grobman, 48, Raoul Doekhie, 53, and Sherida Nabi, 57, were each sentenced to 18 years in prison with U.S. Court Judge Roy K. Altman also ordering them to forfeit fraudulently obtained profits, which they used to buy a $9 million mansion, a 48-foot yacht and several properties outside the United States.
The federal prosecutors in the U.S. District Court for the Southern District of Florida said the trio convinced manufacturers to sell them the products at reduced prices. They even received up to 60 percent discounts in some cases by claiming that they had a government tender to purchase the formula on behalf of the impoverished country of Suriname in South America.
However, instead of shipping the formula to the South American nation, the trio sold the baby formula for the full price in the U.S., raking in record profits between 2013 to 2018.
It was not until their 13-day trial in February 2020 that the trio was found to have no contact with the Suriname government and the judge found the trio guilty of several crimes such as conspiring to commit wire fraud, money laundering, conspiring to obtain pre-retail medical products worth $5,000 or more by fraud or deception, theft of pre-retail medical products and smuggling goods from the United States.
Grobman requested a new trial, which Judge Altman denied.
Attorneys for the three have not made any comments about the case, although court records confirmed that all of them are now in custody. However, there was no reason given for why the sentencing took place over two years after the convictions, and at a time when the U.S. is dealing with a nationwide infant formula shortage due to manufacturing issues at Abbott Laboratories' Michigan plant.
Florida trio used a business practice known as diversion in baby formula scheme
Court documents showed that the trio negotiated steep discounts from their victim companies by pledging to redistribute the products in Suriname. This wasn't the case, however, as they actually intended to sell the goods in the U.S. at a substantial markup price. This is a business practice known as diversion.
Doekhie and Nabi, a married couple, set up a company called the Tropical Marketing & Distribution N.V., which is based out of Suriname. They then created a website for a fictional entity called the Suriname Tender Office to "support their false misrepresentation that they had a government tender for the victim companies' products.
Grobman, meanwhile, was listed as the manager of Nutrisource I LLC and J Trading LLC. He was also a registered agent of Vejota Holdings LLC, all of which show the same principal address in Aventura, Florida. (Related: Baby formula is loaded with GMOs - Avoid these brands.)
Court filings show that they were able to conceal their schemes by fabricating purchase orders, covertly shipping the products abroad, then immediately bringing them back, which is a practice commonly known as U-turning or filling dummy cargo containers with sheetrock and falsifying export documents.
When the products are returned to the U.S., court records state that Grobman would submit false shipping documents to U.S. Customs agents.
A fourth man, Edgar Torres, received a reduced sentence of 25 months for cooperating with the government against Doekhie, Nabi and Grobman. In the scheme, Torres acted as president and registered agent of Le Mare Transport, a freight forwarding company based in Medley, Florida.
Torres testified that they would swap out the cargo containers of baby formula with sheetrock that was the same weight as the product they were supposed to be exporting to Suriname. They would then replace the etched cargo seals, which the manufacturers installed to prevent tampering, using a special machine that could carve identical markings to avoid detection by customs officials and the companies.
It is through their fictitious companies that Grobman and Torres sell the infant formula to U.S. distributors, then they would split the profits with Doekhie and Nabi.
Prosecutors claimed that about 60 companies were defrauded between March 2013 and December 2018.
However, the scam began to unravel in 2017 after one of the manufacturers refused to do business with the group after a truck driver alerted them about possible delays with their products. (Related: FDA questioning baby formula industry, contemplates its relevance.)
"The fraud perpetrated by these defendants is nothing short of egregious. The 18-year prison sentences reflect the seriousness of the defendants' crimes," U.S. Attorney Juan Antonio Gonzalez said in a statement.
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