Feds Halt Seinfeld Bottle Deposit Scam

December 6, 2017

Let me take you back to 1996. To the Seinfeld show. To what was known then -- and now lives on in legend -- as the two-part "The Bottle Deposit" episode.  Part One opens with Peterman arranging to have Elaine bid on John F. Kennedy's golf clubs and moves on to involve Jerry needing to have his car repaired. More importantly for Seinfeld fans, the episode involves a debate between Newman and Kramer as to whether you can arbitrage the New York State five-cents-bottle-deposit-refund by tendering cans and bottles in Michigan, which offers ten cents per item. Kramer explains that it's an old strategy (one that he tried but failed at) and says that the flaw is in the transportation costs, which cancel out the extra nickel of profit. Newman can't get the idea out of his head and realizes that the heavy flow of mail for the upcoming Mother's Day holiday requires sorting in Saginaw, Michigan. Why Saginaw? Hey, it's Seinfeld and you just have to accept the idiocy.  In any event, Newman, an employee of the United States Postal Service, arranges to drive a "spillover mail" truck because he figures there will be excess capacity -- which will allow him to transport his cache of empty cans and bottles for free. It is the loophole that many have searched for but failed to find. In Part Two, while driving to Michigan, Kramer and Newman spot Jerry's supposedly stolen car (a long story starting in Part One and not one I'm going into here). Suffice it to say that Kramer and Newman are now caught in an existential struggle over whether to drive straight on to Saginaw and cash in their booty of cans and bottles, or, in the alternative, to follow Jerry's stolen car as it heads for Ohio. Alas, as they chase after Jerry's car, the dynamic duo toss empty cans and bottles overboard in order to lighten their load and to gain speed -- all of which ends with Kramer dumping Newman. As with so many of Kramer's and Newman's schemes, this one ends in catastrophe.

What, you might rightly ask, do the Seinfeld "The Bottle Deposit" episodes have to do with the legal, regulatory, and compliance focus of the highly-regarded and ever-so-serious BrokeAndBroker.com Blog? Great question. Read on for the equally wonderful answer. Enjoy the video.

90 Bottles of Beer on the Wall (But Let's Tell 'em 100)

On December 5, 2017, the United States Attorney for the Southern District of New York ("SDNY") filed a federal criminal complaint: United States of America, v. Eldar Rakhamimov, Nasim Rakhamimov, Vladimir Zabrodin, Ruslan Kadirov, and Joseph Finneran, Defendants (Complaint,  SDNY, 17-MA-8999 / December 5, 2017). As set forth in part in "Five Defendants Arrested In Bottle-Return Bust / Group Allegedly Used False Invoices and Kickbacks to Transform  5 Recycling Deposit Into Lucrative Fraud" (Department of Justice Press Release 17-387):

The defendants' scheme exploited recycling incentives created by New York State's Returnable Container Act (the "RCA"). The RCA created a $.05 deposit on bottled soft drinks, beer, and water sold in New York State to promote the recycling of bottles and cans by bottlers, beverage distributors, and container redemption centers. Under the RCA, the first bottler, distributor, or dealer to collect the required deposits on beverage containers is required to reimburse the $.05 deposit to redeeming individuals or entities and to pay a handling fee of $.035 per empty beverage container redeemed by redemption centers.

ELDAR RAKHAMIMOV and NASIM RAKHAMIMOV managed a bottle collection company ("Company-1") that focused on aggregating recyclable containers and delivering them, in exchange for payment, to redemption centers in the New York City area.  ELDAR RAKHAMIMOV and NASIM RAKHAMIMOV, along with ZABRODIN, KADIROV, and FINNERAN, worked together to falsely inflate the number of bottles delivered by Company-1 to induce redemption centers to overpay bottle deposits and handling fees to Company-1.

Using an assortment of deceptive techniques, ranging from doctored invoices to "redeeming" the same bottles twice to impermissibly collecting bottles from New Jersey to paying (or receiving) kickbacks, the defendants extracted hundreds of thousands of dollars from victim companies - and, ultimately, the State of New York.

The Defendants are each charged with one count of conspiring to commit mail and wire fraud, which carries a maximum penalty of 20 years in prison.

NOTE: A Criminal Complaint merely contains allegations and defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

Bill Singer's Comment

I mean, listen, ya gotta read the Complaint, which is often hysterical and the dialog come off as scenes from Seinfeld. For those of you unfamiliar with the nomenclature and lingo of recorded conversations in criminal pleadings:

CS is a Confidential Source
CC is a Co-Conspirator
UI means Unintelligible
OV means Overlapping Voices

Just consider this nugget of a recorded conversation from pages 19 to 21 of the Complaint [Ed: "ER" below references Eldar Rakhamimov]:

CS-1: OK, bro, of course. Listen, there is another question. [CC-1] called me. He's kind of starting to get brazen. He said that he wants more money. He's driving me fucking crazy.

ER: What's with him?

CS-1: I don't know. He said that -- he said, "I'm taking a great risk," he said, "You--" he said, "different people -- there's you," he said, "your assistant." I said, "So what's the matter? Don't you get paid everything, everything is like it's supposed to be. You are getting your salary every Friday." He said, [noise]"I am adding quite a lot. You are still paying me little." . . . .

ER: [OV] I don't understand. What does [UI] mean?

CS-1:[OV]I don't understand either.

ER:[OV]He gets decent dough. Is he a fool or something?

CS-1:[OV]Yes, he gets very decent dough, three a week.

ER:[OV]So here it is.

CS-1:[OV]I told him that he's getting two times more than I. He's been fucking adding 30/30 earlier and now he's adding kind of less, getting more for that, and -- I don't know what's fucking happening with him. Maybe someone is fucking goading him on again, either Vova [i.e., ZABRODIN] or someone else.

ER: Well, I don't think so.

CS-1: You don't think so?

ER:[OV] [UI]

ER:[OV]Ah, so-so, this has happened once, if you remember. He started bullshitting and then he was told, "You know what? If you don't want to do it -- take a hike." And he stopped that.

CS-1: Aha.

ER: [OV] [UI]

CS-1: This is also alternative yes -- I didn't even think about it.

ER:[OV] We had that alternative before.

CS-1:[OV] Yes.

ER:[OV] Someone sucked the blood out of us and go to fuck yourself.

CS-1:[OV]I told him, "What do you want?" I said, "You want money -- add some bags." He said, "No." I say. . . He says that he just wants more money for the same bags. I said, "Well . . . "

ER:[OV]No, no, no. Tell him, "It doesn't happen that way. It's not a first day we work with you, that's why nothing changes like that."

CS-1:[OV]Okay, then when I'll get to work, I''ll explain it to him.

ER: Explain, just tell him, "Listen, it's not that simple. We work -- it's not that simple," say, "we have to pay here and we to pay there, we have to here and there [UI]."