This is part of our series of scrap industry interviews where we uncover horror stories and bad practices. We’re sharing them with you to highlight how we can improve the scrap industry together. Names have been removed for legal reasons and some editing done for clarity.
“I’ve been running a trading company for over 20 years. We’ve run into a number of problems trying to do good business while avoiding the scammers, but this is the one that cost us the most money and time.
I met a guy in 2009 at ISRI. He told me he was a scrap industry veteran, and he certainly knew the business. He was based in Fort Lauderdale, Florida and said he was a partner in a scrap yard there. He said he was exporting HMS 1&2 from used auto parts to India on a regular basis. He invited me to come down to his yard and have a look at his operation.
Before my visit, I asked him to send me photos of recent loading so I could check the container numbers and make sure he was exporting. We also did some research to try and find his name listed as a partner in the company, but weren’t successful. However, I contacted the president of the company as listed in public records. He confirmed this guy was his partner, and they were in the export business together. We checked online for scams or any other kind of negative feedback about him, but didn’t find anything that stood out. He passed our due diligence without any red flags, so we proceeded to do our first order with them.
Our first order was for $100,000 and we shipped that material to our customer in India. The deal went well, so we did another deal for a little more than $150,000 and again, everything went as planned.
So when he mentioned that he had scrap he was buying from another yard in Houston on a regular basis, our confidence level was high. We didn’t think there would be any problems, so we went ahead with the next order, which was about $300,000 USD.
Over the next two weeks he shipped 15 containers without any problems and asked us if we wanted to increase the order size. He said he had extra tonnage available in Philadelphia as well. Everything seemed legit, so we gave him the go ahead. We were excited about our new trading partner, and there didn’t seem to be any issues with the orders we had placed.
Then problems began to arise. The market prices were increasing and he said was honoring our contract verbatim, but it was taking longer than expected to ship the order. One month stretched into two months and we still hadn’t finished delivery of all the material. Fortunately, we were able to keep our buyers happy because we kept shipping—albeit much slower than usual.
We didn’t like the slow shipments, but we were able to keep our reputation intact, which was important for us. But things suddenly turned in a bad direction. As our new supplier was coming back into the country from a vacation in the Dominican Republic, he was arrested at the airport because, as we later learned, he had failed to attend an EPA Violations Hearing. While he was in US custody, we scrambled to find out where our materials were and how to keep the shipments moving. They put them on the prison transfer bus back to Houston from Miami but meanwhile we had to keep these orders moving.
We started to peel back the layers of the deal. By talking to the trucking companies, we located the scrap yards he was dealing with and contacted the owners. We explained our situation, and what we learned of the process was quite shocking. He was buying scrap at a price higher than what he was selling to us. First red flag.
I started doing research online for information about the EPA violation and found an article written about it, and also dug up some public filings from the court system in Texas. One of the filings I found was for a bankruptcy. As we began to discover, he had bankrupted his Houston company in 2006. Second red flag.
Immediately, I called his partner in Florida to check on the situation. What he told us was very disturbing…. He said this guy was a crook and although he entered into a partnership with him for exports, he only recently found out that all the equipment he brought to their deal was stolen from his own yard in Houston!!! They had creditors trying to seize their assets and had filed a lawsuit to recover them against the scrapyard in Florida. Oh no! Third red flag.
Obviously, at this point we knew we were in for an unpleasant surprise. When he finally got out of jail and was able to speak to us by phone, all he said was, “I’m sorry, but I don’t have any money to finish these orders.” We had given him over $150,000 for material that had not been shipped yet. All he could say was that he was sorry. This was mind-blowing. He was playing a shell game all along and hoping he could escape with our money before getting caught. Luckily for everyone else he was caught, but our money was gone. The scrap yard in Miami suffered substantial losses as well.
We immediately started looking at assets he owned so we could file a lien against them, but in the process we found he didn’t own the nice house located on the golf course that I had visited. His cars weren’t paid for. The equipment he showed us didn’t belong to him. We couldn’t find any assets to attach a lien to. Essentially, he owned nothing. He was broke, and even though he had the appearance of success and sincerity he was just another well-dressed crook. Welcome to the scrap industry.
Realizing that we were not going to get anywhere with the civil court system, I looked into filing a case under the fraud statutes. We approached the FBI about picking it up because it was across state boundaries, but they wouldn’t touch it because the losses were less than $1 million. The police investigators in our state and in his state were also uncooperative. We were caught in a situation of state investigators referring to the FBI, who we already knew wouldn’t take the case. This went back-and-forth for months until finally we just gave up. Not only did we lose our money, but he walked away scot-free. Unbelievable. He’s still out there scamming people.
Something must change. There has to be a better way to find new trading partners. There has to be a way to warn others about potential fraud in the scrap industry. There has to be a better way.”
Have your own scrap horror story? We’d love to hear it! You can email a written version of the story or send us an audio or video file to firstname.lastname@example.org. Or, send it via Whatsapp to Chris at +31 6 5392 8886.