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Best Buy Gets Swindled


Low-tech scam takes big-box giant for a ride.

Best Buy (BBY), known for its competitive prices on consumer electronics, thought it had found a hot deal on computer parts.

But federal investigators say the retailer was swindled out of $31 million.

Robert Paul Bossany, a former Best Buy employee who lives in Minnesota, pleaded guilty last month to 29 counts of conspiracy to commit mail fraud and money laundering, the Chicago Tribune reports.

Investigators allege that Bossany was the inside man, but have not yet charged Chicago area residents Russell Cole and his wife Abby, who allegedly masterminded the multi-million dollar online bid-rigging scheme.

The alleged scam was surprisingly simple, calling Best Buy's accounting controls into question. Chip Factory, a company owned and run by the Coles, won Best Buy contracts by offering amazingly low bids. They then turned around and charged the company a much higher price for the computer parts.

According to affidavits filed in support of search warrants in Chicago and Minneapolis, vendors sold the parts to Best Buy through an online system run by National Parts, which issued a purchase order through the same bidding system through which Chip Factory jacked up its price. National Parts sometimes questioned the transactions - but concerns were allegedly eased by Bossany, who received cash and gifts from the Coles.

In one case, Chip Factory won a contract for 20 computer parts at $42 each, beating out the next lowest bid of $72. But Chip Factory then allegedly charged Best Buy $571 per part to fill the order.

Red Flag Number 1: The difference between paying $42 and $72 is about a 71%. Someone should have asked: how can the low-bidder make money at this price?

Red Flag Number 2: The difference between paying $42 and $571 is about 1,259%. Someone should at least have asked: Is this a typo?

"When Best Buy solicited bids for computer parts, Chip Factory would submit fraudulently low bids with no intention of providing the parts at the bid price," federal investigators said in the affidavits. "Indeed, contrary to its representation, Chip Factory often did not even have the parts available to ship."

The Coles dutifully reported $15.5 million in income between 2003 and 2007. Investigators charge that $14.2 million of that total resulted from fraud.

The Coles' attorney told the Chicago Tribune the couple "did not engage in a fraud against Best Buy…We intend, at this point, to present evidence to the contrary if they're ever charged."

Bossany, the alleged insider, is almost certain to cooperate with the prosecution in exchange for lenient sentencing. If so, the Coles may have trouble ahead.

In the meantime, investigators have seized the Coles' Ferrari coupe, Lamborghini convertible and 9 other luxury cars, worth about $2.8 million in all. So far, the couple has kept its $1.9 million house in suburban Deerfield.

It's unclear how the alleged fraud was discovered, but the investigation involves the Internal Revenue Service, the Federal Bureau of Investigation and the US Postal Service. Best Buy fired Bossany last October, suggesting the company finally caught up with him.

You can bet Best Buy will say as little as possible about how the alleged scam came undone, because somewhere, there's an aspiring criminal mastermind reading all about it and thinking, "I could do better."
No positions in stocks mentioned.
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