Baby Formula Export Scheme Worth $200 Million Lands Florida Trio In Prison
Clarissa Hawes of FreightWaves
A Florida trio was recently sentenced to federal prison for their roles in a $200 million baby formula fraud scheme that began some nine years before the current critical shortages.
U.S. District Court Judge Roy K. Altman sentenced South Florida residents Johnny Grobman, 48, Raoul Doekhie, 53, and Sherida Nabi, 57, each to 18 years in prison on Friday. He also ordered the three to forfeit over $200 million in fraudulently obtained profits. The three used the profits from the baby formula sales to buy a $9 million mansion in Florida, a 48-foot yacht, and several properties outside the U.S.
Federal prosecutors in the U.S. District Court for the Southern District of Florida said the trio convinced U.S. infant formula manufacturers to sell them the products at deeply reduced prices, in some cases receiving up to 60% discounts, by claiming they had a government tender to purchase the formula on behalf of the impoverished country of Suriname in South America.
Instead of shipping the formula to Suriname, the three sold the products for full price in the U.S., raking in record profits.
Following a 13-day trial in February 2020, a federal jury found Grobman, Doekhie and Nabi guilty of conspiring to commit wire fraud; wire fraud; money laundering; conspiring to obtain pre-retail medical products worth $5,000 or more by fraud or deception, theft of pre-retail medical products; and smuggling goods from the United States.
Two weeks after the trial ended, Grobman requested a new trial, which Judge Altman later denied.
As of publication, attorneys for the three did not respond to FreightWaves’ request seeking comment. Court records confirm the three are now in custody. However, a reason was not given for why the sentencing took place more than two years after the convictions.
The sentencing comes at a time when the U.S. is dealing with a nationwide infant formula shortage after a massive recall at manufacturing giant Abbott Laboratories’ Michigan plant.
How the scheme worked
According to court documents, the trio negotiated steep discounts from the victim companies by pledging to redistribute the products in Suriname when in fact, they intended to sell those goods in the U.S. at a substantial markup, a business practice known as diversion.
Doekhie and Nabi, who are married, set up a company called Tropical Marketing & Distribution N.V., based out of Suriname. The pair created a website for a fictional entity called the Suriname Tender Office to “support their false misrepresentation that they had a government tender for the victim companies’ products,” according to court records.
Grobman was listed as the manager of Nutrisource I LLC, as well as J Trading LLC and as a registered agent of Vejota Holdings LLC. All three companies show the same principal address in Aventura, Florida.
Court filings claim the three concealed their scheme by fabricating purchase orders, covertly shipping the products abroad and then immediately bringing them back, a practice known as U-turning, filling dummy cargo containers with sheetrock and falsifying export documents.
Once the products returned to the U.S., court records state Grobman would submit false shipping documents to U.S. Customs agents.
A fourth man, Edgar Torres, who received a reduced sentence of 25 months in exchange for cooperating with the government against Doekhie, Nabi and Grobman, served as president and registered agent of Le Mare Transport, a freight forwarding company in Medley, Florida.
During the trial, Torres testified they would swap out the cargo containers’ baby formula with sheetrock that was the same weight as the product they were supposed to be exporting to Suriname. They would replace the etched cargo seals, which the infant formula manufacturers installed to prevent tampering, using a special machine that could carve identical markings, in a concerted effort to avoid detection by customs officials and victim companies, court records said.
Through their companies, Grobman and Torres would sell the infant formula to distributors in the U.S., then split the profits with Doekhie and Nabi, court documents said.
Prosecutors claimed about 60 companies were defrauded between March 2013 and December 2018.
The scam reportedly started to unravel in 2017 after one of the manufacturers refused to do business with the group after a truck driver alerted the company about possible delays with their products.
“The fraud perpetrated by these defendants is nothing short of egregious,” said U.S. Attorney Juan Antonio Gonzalez in a statement. “The 18-year prison sentences reflect the seriousness of the defendants’ crimes.”
Thu, 05/26/2022 – 21:00