The owner of a New York area bearing distributor and the company itself have pled guilty to an array of felony crimes, including fraud, grand larceny, and tax evasion.
Joseph Ungar and ABEC Industries Inc., the bearing distributor he operated, filed the pleas stemming from charges they conspired to repeatedly supply counterfeit bearings to the New York City Transit division of the Metropolitan Transit Authority.
ABEC Industries, located in Brooklyn, pleaded guilty to two felonies: Trademark Counterfeiting and Identity Theft. The company will pay $5,000 in criminal fines, permanently shut down all operations, and dissolve.
Appearing in front of the New York State Supreme Court in Manhattan, Mr. Ungar pleaded guilty to three felonies: Grand Larceny, Scheming to Defraud, and Repeated Failure to File Corporate Taxes.
With the plea, Mr. Ungar has agreed to five years on probation, pay $125,000 restitution, $5,000 in criminal fines, and more than $200,000 in taxes, accrued interest, and penalties. He is also banned for life from doing business with the MTA.
If he fails to comply with his plea agreement, Mr. Ungar could spend 2 to 6 years in state prison.
The Mr. Ungar, according to Manhattan District Attorney, Robert Morgenthau, "engaged in extensive counterfeiting and identify theft." Assistant District Attorney, Jordan Arnold, said: "In the aggregate, we're talking about thousands of parts."
From 2003 through 2008, the MTA awarded ABEC Industries with three master contracts: two for ball bearings to be used in subway car traction motors, and one for direct drive clutch bearings used in bus transmissions.
The contracts specified that the Miniature Bearings had to be specific brands and particular quality. Instead, Mr. Ungar and ABEC substituted inferior counterfeit bearings, "and raised the prospect of accidental injuries to NYCT passengers and employees."
By 2003, Mr. Ungar already had a "checkered history" as an MTA supplier, including twice being disqualified as a non-responsible bidder by failing to provide proper documentation for the bearings he proposed to supply. Apparently because of that history, Mr. Ungar began bidding for the NYT replacement bearing business under an array of false identities and fake business names. He went to some length, for example recruiting Notaries to certify fake signatures and false identities.
Incredibly, Mr. Ungar also bid for and won a contract by posing as Patron Transmission Company, a well-known but recently defunct bearing distributor, and brazenly assuming the identity of its deceased founder, Irving Patron. For that contract, Mr. Ungar took Mr. Patron's identity in phone conversations and signed Mr. Patron's name on bids and written correspondence with New York City Transit's procurement staff.
As well known as he was, some in the RC Bearings industry may not know Mr. Patron once had a promising baseball career as a minor league pitcher for the Elmira Pioneers, a farm team of the Brooklyn Dodgers. His next career move was as an actor in Hollywood, before returning to New York and founding Patron Transmissions. Mr. Patron was also a past president of the Power Transmission Distributors Association. He passed away in July 2005, but his children continue to be active in the bearing and power transmission industry.
In addition to adopting various bidding aliases, Mr. Ungar and ABEC Industries also deceived the NYCT by stealing the identities of other bearing manufacturer and distributors -- falsely presenting those companies as the sources for the bearings being supplied to NYCT.
New York's Office of the Inspector General made pains to point out that, throughout the investigation, as soon as an MTA contract was linked to Mr. Ungar, the MTA, OIG and NYCT took immediate action to quarantine those bearings. And in every instance, those bearings were found to be counterfeit.
During the investigation, evidence was uncovered during searches of storage facilities at the Brooklyn Navy Yard, the Wood-Ridge New Jersey Industrial Complex, and Mr. Ungar's Brooklyn home. That evidence included not only more inventory of counterfeit bearings, but also other equipment such as label printers used to counterfeit the bearing packages.
In 2006, an MTA service employee uncovered the scheme when he became suspicious about the markings, packaging and serial numbers used on bearings supplied by Mr. Ungar and ABEC Industries.
The MTA subsequently performed metallurgical analyses on the counterfeit bearings and determined the risk of catastrophic failure and public endangerment was minimal. Those that had been installed were primarily in non-safety-critical applications such as bus clutches. The counterfeit bearings are being replaced as service intervals allow.
As the investigations progressed, things got worse for Mr. Ungar. Authorities quickly became aware he had been evading income taxes from 2003 to 2007. ABEC Industries had also evaded New York City corporate tax from 2003 through 2007, primarily by falsifying its physical location as a small home in Monroe, New York, 5251R9N7.
MTA Inspector General, Barry Kluger, said: "When a dishonest vendor sells counterfeit parts, the MTA loses both the protection of a reputable warranty and the quality assurance of genuine equipment." He added: "Simply put, the message is: You will be punished, you will pay us back, and never do business with us again."
Mr. Kluger pointed out the counterfeit bearings were obvious to mechanics and technicians, so only a few were ever installed before the investigation began.
New York City Transit says this fraud will result in meaningful reform. NYCT will expand its inspection practices for safety-critical parts, audit its suppliers' quality practices more closely, and implement a training program for all procurement staff. Ironically, that program will include this investigation as a case study in product substitution fraud.