Lawsuit claims large-scale scrap supply scam

A federal lawsuit filed by an Illinois-based secondary aluminum producer contends that it overpaid for some $8 million of aluminum scrap as it was being defrauded by employees and suppliers.

An online article by the Northwest Indiana Times of Munster, Indiana, which includes a copy of the legal complaint, describes a scheme perpetrated by two now former Jupiter Aluminum employees and two scrap processing and brokerage firms.

The 29-page complaint  filed Monday, Jan. 25, 2016, in the United States District Court of Northern Indiana, pits Jupiter Aluminum, which is based in Schiller Park, Illinois, with production facilities in northern Indiana, versus two of its own former executives; scrap processing firm Scrap Metal Services LLC (SMS), Burnham, Illinois, and one of its former employees; and GMI Recycling Services, Crown Point, Indiana, and one of its principals.

According to the filing, as Jupiter conducted an audit at the end of its 2014 fiscal year, it determined that it had paid some $8 million to buy more than 8 million pounds of aluminum scrap that had never entered its inventory system to become melted into secondary aluminum.

A subsequent investigation caused the company to determine that “its former receiving/inventory Supervisor (Philip Sabaitis) and chief financial officer (Loren Jahn) surreptitiously conspired over a substantial period of time with certain of Jupiter’s vendors and their employees, namely Scrap Metal Services LLC and its former senior manager Michael L. Thompson, and GMI Recycling Services Inc., Crown Point, Indiana, and its owner, Gary S. Longoria, to submit falsified paperwork that caused Jupiter to pay for: 1) scrap shipments that Jupiter never received; and 2) scrap that Jupiter received but that was removed from Jupiter’s facility before Jupiter processed it into recycled aluminum.”

Jupiter says its subsequent investigation turned up what it considers to be several irregularities in the relationship between the four individuals. According to the filing these include:

• “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;
• Sabaitis’ dealings with SMS and Thompson were different than with other vendors; for instance, Thompson appeared at Jupiter’s facility frequently, often once or twice per week, which was unique for someone in his position and unlike any other vendor’s contact person with Jupiter;
• SMS' drivers sometimes would not deliver scrap to Jupiter and would actually turn around before entering Jupiter’s facility if Sabaitis was not present when the truck arrived, which was unlike any other vendor; and
• Sabaitis also filled out the bills of lading for SMS shipments, which is highly unusual; indeed, SMS is the only vendor for which Sabaitis did this; all other vendors provided bills of lading filled out by them, their carrier or third parties with whom they subcontracted, which Sabaitis subsequently signed to acknowledge receipt at Jupiter’s facility.”

Jupiter has filed the case in federal court to seek “relief under the Racketeer Influenced and Corrupt Organizations (RICO) Act.”

Neither the filing nor the website of the United States District Court of Northern Indiana indicates when the case will reach its next stage or hearing.