Federal Judge Rips Into Best Buy Loss Prevention VP

The head of loss prevention is a thankless job at any retail chain, but the LP VP at Best Buy on Monday (Dec. 20) discovered a new anti-perk to the job: getting royally chewed out by a federal judge in an open courtroom.

The chief anti-fraudster at the $50 billion chain, Paul Stone, wasn't even accused of anything (well, not until he walked into court, at least). He showed up in court to ask the judge to give a harsh sentence to some Best Buy contractors—who were convicted of overcharging Best Buy to the tune of almost $33 million—along with a former Best Buy manager who supposedly let the fraud happen, for kickbacks.

But in the eyes of Michael Davis, who is the chief federal judge for Minnesota, the lackluster mechanisms and processes that Stone's LP group put in place allowed the crime to happen and Stone should have been punished. (As the judge started in, it's likely that Stone thought, "Ok. Looks like the judge doesn't need any sentencing help today. I'll just drive back to the office now." But it was too late.)

The judge started by saying that Best Buy is a huge chain and should have caught this criminal activity much earlier. "I don't know if you were the loss management person at the time of this. If you were—and if I was the CEO—your head would have been gone." (Presumably, the judge meant that he would have been fired—as opposed to being beheaded—but the rest of his comments could pretty much support either interpretation.)

The judge said that Best Buy "is not a mom-and-pop corporation." He added: "Would you not agree that the corporate culture within the buyers was one of corruption and that Best Buy should have known something about that way before this occurred? And you coming here and saying, 'oh, poor Best Buy, we have a $40 million loss without any types of checks,'" (as in "checks and balances," oversight).

Judge Davis was only getting started. He described how he sat through the trial and found Best Buy's culture "astounding." Said the judge: "You don't want to even have the public know about all these private trips that your buyers were going on and being wined and dined. Even the King of Saudi Arabia couldn't afford some of these things. So don't come here and talk about, 'Oh, Best Buy's culture has taken a hit' and everything else."The judge continued: "This was Best Buy's culture, and you can't have a group of people who are a significant portion of what Best Buy does doing this and no one knows anything about it. Don't do an end-run on me and say, 'My goodness, I don't know what's going on and my CEO doesn't know what's going on, my CFO doesn't know what's going on, the supervisors don't know what's going on.'"

Stone (who, to his credit, opted to not say "Whoa. I don't get paid nearly enough to take this crap") then bravely asked if he could respond. He argued that Best Buy has some 186,000 employees and that Loss Prevention is a relatively small team. He said the former Best Buy manager who was charged—Robert Paul Bossany—had not cooperated with Best Buy's internal investigation.

"You're right. I mean, it's certainly not information we would like to have out in public. But we felt a duty because of the fact that this is one rogue department that stretched the rules, they stretched the boundaries of our ethics policy and essentially benefitted [several] vendors," Stone said.

Stone cited as an example of the fraud that Bossany approved a $240 invoice for a $24 part. (He strangely told the judge that $240 is "more than 12 times" $24. Guess the judge flustered him more than he realized.)

Many of the details of the case involved a vendor called Chip Factory and its activities between 2004 and 2007. The case was one where the vendor won business with low bids, but then charged much more. The Minneapolis Star-Tribune reported on one instance where "Chip Factory bid $69 for a computer screen and then charged Best Buy $1,699 for it."

The judge eventually sentenced the president of Chip Factory, Russell Cole, to 15 years in prison. He also sentenced Bossany, who had been a Best Buy vendor relations manager, to 7-and-a-half years in prison. Bossany's sentence was reduced because he wore a wire to secretly record conversations with some of the vendor executives involved, in cooperation with federal investigators.

Best Buy issued a short statement saying that "Since learning of this scheme back in 2007, we made significant changes to our processes to help ensure that this type of fraud does not occur again."