Dive Brief:

• Schiller Park, IL-based aluminum producer Jupiter Aluminum has filed a federal lawsuit over allegations that it overpaid $8 million for 8 million pounds of aluminum scrap that it never received, the result of fraud by some of its employees and suppliers.
• Following the discovery of the overpayment during an FY 2014 audit, an investigation allegedly revealed a conspiracy to falsify papers, committed by: the company’s former receiving/inventory Supervisor Philip Sabaitis and Chief Financial Officer Loren Jahn, some of Jupiter’s vendors and their employees such as Scrap Metal Services (SMS) and its former Senior Manager Michael Thompson, as well as GMI Recycling Services Inc. and its owner Gary Longoria.
• The filed complaint states that, as a result of the fraudulent act, the company did not receive millions of tons in scrap shipments, and other shipments were removed from the facility before they were processed. Jupiter has filed the case in federal court to seek “relief under the Racketeer Influenced and Corrupt Organizations (RICO) Act."

Dive Insight:

Alleged scams are not unique to the industry, whether it’s one truck driver committing the crime, or larger scale corruption and shady deals. As devalued scrap metal prices already cause enough trouble for producers and recyclers, a fraud case involving scrap is an extra blow for a tough industry.

In the Jupiter Aluminum case, not only does the 29-page legal complaint name former employees and vendors for fraud, but Jupiter says the subsequent investigation turned up what it called irregularities in relationships between them.

"During the relevant time period, Thompson was SMS’ primary contact with Jupiter, and SMS [quickly] became one of Jupiter’s highest volume scrap vendors during Thompson’s tenure at SMS," the papers state. They go on to say Sabaitis' dealings with SMS and Thompson were "different than with other vendors." For instance, Thompson appeared at Jupiter’s facility frequently ... "unlike any other vendor’s contact person with Jupiter."

Further, SMS drivers would sometimes turnaround before entering the facility if Sabaitis was not at the site when they arrived. And Sabaitis also filled out the bills of lading for SMS shipments, which was described as "highly unusual; indeed, SMS is the only vendor for which Sabaitis did this; all other vendors provided bills … filled out by them, their carrier or third parties with whom they subcontracted."

SMS responded to these allegations with the following statement: "Last year, Jupiter asked SMS to provide Jupiter with certain information in connection with an inventory audit that Jupiter was conducting. SMS cooperated and resonded to numerous requests for assistance in Jupiter's audit. Jupiter's claims that SMS is responsible for its alleged inventory shortage are unfounded. The Company values its relationships with all its business partners and we are confident that this business dispute will be resolved in our favor."