Buyers of promotional gear seek refunds
Prosecutors halted price-fixing scheme, and customers want what they overpaid
Federal prosecutors last summer busted a local scheme to fix the prices of promotional products, obtaining guilty pleas from online sellers of silicone wristbands, customized lanyards and buttons. Now, the clients who bought the overpriced merchandise are queueing up for refunds.
So far, about a half-dozen buyers of the tchotchkes used to promote disease cures, charities and other causes have sued in federal court in Houston the promotional product makers.
They’re seeking class-action status to represent the thousands of other consumers and businesses that overpaid for their marketing materials and convention gear. And they’re betting their civil cases will be easier to prove since two of the main players admitted their roles in the conspiracy, making it difficult to deny refunds to customers who say they were overcharged.
Houston is home to several companies that customize coffee mugs, stress balls and T-shirts to give away at trade shows, hand out to customers and give to employees as gifts. The industry reported U.S. sales of $21.3 billion in 2016, according to Promotional Products Association International, a trade group.
The industry was humming along sewing law firm names onto polo shirts and fertilizer brands onto ball caps when, in 2004, a new gimmick came along. That year, now-disgraced cycling champion and cancer survivor Lance Armstrong launched a yellow silicone gel wristband imprinted with “Livestrong” to promote cancer awareness. The wristband sold millions and inspired other charities to sell their own lines of silicone gel wear.
Price fixing of wristbands and lanyards began as early as 2014
conspirators using Skype and Whatsapp to fix prices and eliminate competition, according to the federal criminal charges filed in Houston in August. The Houston-area company Zaappaaz and its president pleaded guilty to a criminal violation of the Sherman Act, the federal antitrust law. The company agreed to pay a penalty of $1.9 million. The company’s lawyer would not comment.
California-based Custom Wristbands and its owner also pleaded guilty to conspiring to fix prices, according to court documents. The company agreed to pay a criminal penalty of $409,000. Christopher Angeles’ sentencing is scheduled for June.
The civil lawsuits provide new details about how the scheme started and how allegations of price fixing got the attention of federal prosecutors. The investigation began with a tip from Victor Rey, owner of Houston-based Wristband Connection, who said in an interview that he notified government investigators some eight years ago about unusual pricing patterns in silicone gel wristbands that suggested other sellers were acting in unison.
Then about two years ago, Rey said, he was offered a chance to join a price-fixing cartel over lunch with a competitor. He shared that, too, with the FBI.
“I’ve been working for 10 years to stop this bull crap,” Rey said.
The civil lawsuits also allege that four other companies, including three in Houston and one in Ohio, were involved in the price-fixing scheme. None of the four has been charged by federal prosecutors.
Some legal experts are surprised that the federal government pursued such a small case, dollarwise. The criminal penalties —which total about $2.3 million —are small, compared with other price fixing cases the government has brought. Citicorp, for example, paid $925 million to settle a foreign exchange antitrust case last year.
“They tend to go where the big dollars are,” said Philip Hilder, a white-collar defense lawyer in Houston and former assistant U.S. attorney in Houston, referring to federal prosecutors.
The government, however, may have thought the behavior in the wristband case was egregious, Hilder said. Or it could have been an easy case to make if a whistleblower brought the case to law enforcement officials.
Whatever the reason — the Justice Department won’t say — buyers of the overpriced products are looking to score refunds. Fred Taylor Isquith, a New York lawyer who filed the first civil case last year on behalf of Kimberly Kjessler of Portland, Ore., said the plea agree with ments will make it hard for companies to defend the cases and pressure them to settle.
“I don’t think we’re chasing an empty cupboard,” Isquith said.
Federal prosecutors have signed on as an intervenor in some of the civil cases, a sign that their inquiry is continuing. A hearing is scheduled in May in Houston before U.S. District Judge Nancy Atlas to determine whether the civil cases will be consolidated.
The buyers are seeking the money they overpaid along with other unspecified damages.