Email fraud plagues Ohio company trying to recover $500,000 payment

By Bill Bregar
Senior Staff Reporter

By Nina Ying Sun
Assistant Managing Editor

By Steve Toloken
Staff Reporter / Asia Bureau Chief

Published: March 20, 2014 1:52 pm ET
Updated: March 20, 2014 1:58 pm ET

Image By: Bill Bregar Sunny Daga, left, and Suresh Bafna at Wrap-Tite Inc.'s Solon, Ohio, office.

Related to this story

Topics China, United States, Packaging, Film & Sheet

SOLON, OHIO — Sunny Daga, president of Wrap-Tite Inc., a small packaging company in northeastern Ohio, made calls to the Federal Bureau of Investigation and dealt with Interpol — but he doesn’t fit the mold of a James Bond character.

That’s because Daga and co-owner Suresh Bafna, already hard at work planning a nearly $5 million expansion into cast film manufacturing, now are trying to chase down a $500,000 wire transfer that was stolen by a scammer. The money never made it to the Chinese cast film equipment maker, Xinle Huabao Plastic Machinery Co. Ltd.

“This is half a million dollars. And you feel violated,” Daga said.

E-fraud has been all over the national news lately, as Target Corp. and Neiman Marcus Group Ltd. suffered from fallout from massive credit card fraud. Wrap-Tite isn’t making the nightly news, but for a small company, $500,000 is a major hit.

Wrap-Tite has a good relationship with Xinle Huabao, which also is working to recover the money and find the fraudster who forged a document that was sent through Xinle’s email account and sent the $500,000 bill to Wrap-Tite.

But Wrap-Tite executives have been frustrated by the refusal of Chinese authorities — police and the bank in China — to help, or even allow the U.S. company to file a report of the crime.

Daga is optimistic Wrap-Tite will get its money back. And Xinle Huabao is moving forward to ship the cast film machine from Xingang Port in Tianjin, to the United States, after giving Wrap-Tite a discount of $100,000. Wrap-Tite recently sent another a payment, for $400,000.

Daga said the high-output Xinle line should arrive in Solon around mid-April.

Kevin Zhao, sales department manager for Xinle Huabao, said the film machinery maker immediately contacted the police when officials in China discovered the crime, and they met with Bafna in China to visit authorities.

But Bafna said he and the Xinle officials were not successful in getting anybody in China to pay attention. Wrap-Tite recently retained a lawyer in China, and Bafna and Daga are confident the local attorney will finally be able to make a formal report of the fraud with police, and the Chinese bank.

Bafna, who spent a frustrating eight hours in Shenzhen, is most critical of the Chinese banking system.

“China Merchants Bank did not do its job,” he said. Xinle also is a victim, but he said the machinery maker also was not allowed to file a report, either with the bank or the police.

“It was extremely disappointing that, in spite of my making the trip there, the police were not willing to look at the police report that I took from [Solon police], and they wouldn’t let us file a report there,” he said.

Bafna has heard of this type of fraud happening to other companies — including another business in Solon, not far from Wrap-Tite. Bafna, the CEO, and Daga spelled out their ordeal in interviews at the company’s plant. Bafna doesn’t want it to happen to anybody else.

“It’s not good for the company,” Bafna said, referring to Xinle. “This is a legitimate company. They’re doing legitimate business. And because of a hacker it makes it difficult for everybody else, for the buyers, for the sellers. It makes a bad name for the Chinese. They’re trying to do business.”

Daga and Bafna quickly took action, once they found out that Xinle did not receive the payment. They reported the crime to the Solon police. They called the FBI. They contacted the Chinese Consulate in New York.

Solon police contacted Interpol, the international police organization.

Daga is an unassuming man from India who drives a Prius to work. Suddenly he found himself on the midst of an international fraud case.

“It’s like James Bond. We want to try out everything possible,” he said. “It doesn’t feel good. I mean, half a million dollars and they’re just stealing it.”

And Daga has learned an expensive lesson about China’s legal and banking system: “If you get into a jam, then it’s a challenge. We’ve been doing business with China for the last 12 years now, with other suppliers and other products. Everything goes fine, it’s great. You never know [of the negative side]. But when things really go bad, then you realize the challenges.”

Wrap-Tite has been in the public spotlight before, but for a happier reason. Vice President Joe Biden visited in 2011, to praise U.S. manufacturing. Back then, the company had 22 employees. It now has about 60 people at the company in Solon, a suburb of Cleveland.

Expensive hiccup

Wrap-Tite is undergoing the largest expansion since Daga left his job at Avery Dennison Corp. and joined with Bafna, an entrepreneur and family friend, to start a business in 2001. After a few years, they decided to focus on packaging.

Now Wrap-Tite sells stretch film for wrapping pallets, adhesive tape, bubble-wrap mailing envelopes, gloves and first aid kits to industrial packaging distributors.

“So we’ve been growing. We’ve been hiring. We’ve been doing a lot of manufacturing, doing the right stuff,” said Daga. The company does not release sales numbers.

Wrap-Tite had been buying its stretch film from a trusted supplier in China, then slitting and converting it in Solon. Daga and Bafna decided that Wrap-Tite should make its own cast film. Last September, they purchased an 115,000-square-foot building across the street from its existing facility, and picked up a used cast film line to learn about the process. They recruited Paul Harper away from a local film producer, as operations manager of the new cast film operation.

Its longtime Chinese film supplier uses Xinle cast film machinery, and highly endorsed the equipment as of good quality. Wrap-Tite leaders visited Xinle Huabao’s booth at NPE 2012 in Orlando, Fla. In early 2013, Daga and Wrap-Tite’s general manager traveled to the machinery maker at Xinle City in Hebei Province, about 175 miles south of Beijing. Bafna also traveled to check out the company.

“We made seven or eight visits there, to make sure everything was authentic. It looked good,” Daga said. “We knew they supply a good machine. It works fine. It is a consistent product and then you get references from your suppliers, and then we visited them. So everything looked good.”

In May 2013, Wrap-Tite agreed to pay $700,000 for the cast film line. A few weeks later, Wrap-Tite’s U.S. bank wired an advance of $200,000 to Xinle, through the Agricultural Bank of China. Xinle confirmed receipt of the funds.

Forgery and frustration

 

Then a series of slam-bang actions hit, running the Wrap-Tite partners through a roller coaster of emotions. The machine was ready in late December. On Jan. 12, Bafna visited and saw the machine run. They agreed to wire the balance of $500,000.

Wrap-Tite was about to become a much bigger film manufacturer.

Before wiring the balance, the company sent an email to Xinle to confirm the details.

“That’s when we received an email back from the hacker that the amount is correct, but the name and account number has to be changed,” Bafna said.

The Jan. 14 email, from Xinle’s email address and on Xinle Huabao letterhead, asking for the payment to be sent to China Merchants Bank in Shenzhen — a different bank than for the down payment, which Daga now realizes should have been a red flag. The email even answered Wrap-Tite’s question about how thick of a concrete pad is needed to support the machine.

Zhao, of Xinle, said hackers used Photoshop on the company logo and seal, with a new account name of Combuy Trading Co. Ltd. In an email interview, Zhao called it an act of “fraudulent mail fraud.”

Zhao said any change of the account beneficiaries would need written agreement from both parties to be effective, according to the sales contract with Wrap-Tite. He said this is the first time Xinle has encountered an issue like this. Zhao added that Chinese agencies still need to determine whether indeed it was a hacker attack.

On Jan. 15 — three days after Bafna saw the machine running — Wrap-Tite’s bank transferred the $500,000 to the China Merchants Bank account. The Wrap-Tite wire named Combuy Trading Co. but listed the address of Xinle Huabao.

“People do change banks, and when they change, you get emails and you get letterhead that this has happened,” Daga said. “So it never occurred to us that there could be something fishy happening.”

Bafna said the woman at the China Merchants Bank told him, through an interpreter, that this has happened before. When he asked if bank officials verify the recipient’s name against the address, she said they do not.

Daga said the lesson is to always call and make direct telephone contact with the overseas supplier, then have them follow up with a detailed fax, before sending payment.

“So far, we thought emails were the perfect way to communicate, till this happened,” he said.

When Wrap-Tite called, Daga said they were told Xinle had not received payment, possibly because of delays due to Chinese New Year, Jan. 31-Feb. 17. So Wrap-Tite called again the evening of Feb. 18, and found out that the money still had not reached Xinle.

Wrap-Tite filed a report the following day with Solon police, who also recommended they contact the FBI. A Cleveland FBI spokeswoman told Plastics News that the agency doesn’t talk about any investigations.

Daga said the realization of the fraud hit hard.

“Hard-earned money, man. It was hard-earned money. It felt bad, being taken out like that,” he said.

Daga said no insurance will cover a mistake when you willingly wire money to a fake overseas account. “You work hard for all the money and you feel really good about [the expansion]. Each year we spend anywhere from half a million to a million dollars on new machinery,” he said.

The Chinese Consulate was helpful, connecting them up with a Cleveland law firm that has a Chinese specialist. They helped Daga find a lawyer in China — a necessary step so Wrap-Tite, as an American company, can file reports and complaints there.

According to Zhao of Xinle Huabao, Xinle cooperated with Wrap-Tite to report to the police in Shenzhen.

Bafna said they went to the bank first. “They wouldn’t release any information,” he said. “They would not tell us if the funds are still in the account, and essentially their position was, that ‘it was for the privacy of our customer, and unless there’s a police complaint, we can’t do anything.’”

The U.S. Consulate in China called when he was there, but it did not help. Chinese police would not let Wrap-Tite or Xinle to file a report.

“My vendor [Xinle’s general manager] pleaded with the police for almost an hour, tried to explain what happened, and police kept saying to them that you have to file the complaint in your country,” Bafna said. He showed them the Solon police report, but nobody there could read English.

Daga stressed that Xinle has been a good supplier and is a reputable company. By email, Zhao said no other customers have experienced this type of issue. Xinle’s email system never was down and has been running as usual, he said.

The partners think the money may still be in the Chinese bank. They believe Combuy Trading has an account at China Merchants Bank.

“We’re trying to get accounts frozen so we can work to getting the money back,” Daga said.

Meanwhile, work continues on the cast film plant. A crew soon will install five silos inside the building, to hold the linear low density polyethylene. The company bought a pelletizer and three more slitters. Electrical upgrades are finished.

The loss of $500,000 is not “devastating,” Daga said. He has assured employees that nobody will be laid off, even though cash flow will be tight, given all the investment in the new plant. And sales should grow quickly, around 45 to 50 percent after the expansion, he said.

“Being a small business it is likely tough, but we will come out ahead,” Daga said.

And he is confident that Wrap-Tite eventually will find its $500,000.

“We hope so. That they can find the people and we get back the money,” he said.


Comments

Email fraud plagues Ohio company trying to recover $500,000 payment

By Bill Bregar
Senior Staff Reporter

By Nina Ying Sun
Assistant Managing Editor

By Steve Toloken
Staff Reporter / Asia Bureau Chief

Published: March 20, 2014 1:52 pm ET
Updated: March 20, 2014 1:58 pm ET

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