Amazon Defrauded by Vendor to the Tune of $19 Million

Here's a different kind of Amazon fraud: a vendor that sold inventory to Amazon at wholesale is accused of bilking the marketplace for $19 million by allegedly manipulating its vendor system. The US Attorney's Office for the Southern District of New York charged four brothers with conspiracy to commit wire fraud, wire fraud, and money laundering.

According to the indictment, the defendants opened vendor accounts with Amazon to sell the company small quantities of goods: "By accepting a purchase order, the defendants agreed to supply specific goods, at specific prices, in specific quantities. Instead, they manipulated Amazon's vendor system, and then, in the most egregious iteration of the scheme, invoiced the company for substitute goods at grossly inflated prices and excessive quantities."

The government press release announcing the arrests of the four defendants noted that "the charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty."

According to the allegations, the defendants frequently shipped and invoiced for over 10,000 units of an item when Amazon had requested fewer than 100. The government called the practice an "overshipping" scheme.

An excerpt of the indictment described one example of the alleged crime, where "Vendor-3" was one of the defendants and "Online Retailer-1" was Amazon:

"On or about July 17, 2018, Vendor-3 confirmed a purchase order and agreed to ship one unit of a particular designer perfume with a particular ASIN ("ASIN-2"), at a unit price of $289.78. Instead, Vendor-3 manipulated Online Retailer-1's vendor system and shipped 927 units of a plastic beard trimming tool, bearing ASIN-2, to Online Retailer-1, for $289.78 each, and invoiced Online Retailer-1 approximately $268,626."

The USAO press release stated: "As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein constitute only allegations and every fact described should be treated as an allegation."

The press release links to the fulltext of the indictment. One thing that might jump out to online sellers is the following:

"By qualifying as a Vendor, Online Retailer-1's systems also permit Vendors, through their vendor accounts, to edit the product detail pages associated with particular ASINs to ensure they accurately describe the product."

We've seen many branded sellers complain that Amazon allows others to change product detail pages associated with their products.

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