15 in Southern California Named in Nationwide Crackdown : Grocery Coupon Fraud Ring Broken Up

Times Staff Writer

Using discount coupons for a non-existent roach spray as bait, U.S. postal inspectors on Wednesday cracked a phony grocery coupon ring that allegedly bilked manufacturers of more than $186 million.

About 100 of the ring's 250 members, including 15 people in Southern California, were accused of crimes ranging from mail fraud to grand theft in arrest warrants issued in California, Florida, New York and South Carolina, according to a statement released by the U.S. Postal Service.

The suspects are accused of fraudulently redeeming millions of grocery coupons and collecting refunds from manufacturers for discounts that supposedly were given to customers, the statement said. However, none of the coupons was ever actually used to purchase a product, the inspectors said.

Distributors Named

Many of the coupons used in the alleged scheme were purchased from independent newspaper distributors and printing warehouses, the Postal Service said. Four distributors in Dade County, Florida, were named in the arrest warrants.

All but three of the California suspects were arrested Wednesday and face arraignment in U.S. District Court in Los Angeles, said Cory F. Dudley, a postal inspector in Pasadena. Ten were picked up together at a San Bernardino hotel, where they had gone believing they were to receive their share of the fraudulently obtained refunds, Dudley said.

More than 50 suspects had been arrested nationwide by late Wednesday.

The California defendants are affiliated with markets in San Bernardino, Riverside, Rancho Cucamonga, Fontana, Rialto, Sun City, Morongo Valley, Banning and Green Valley Lake, Dudley said.

Millions Lost

"The grocery industry is losing millions as a result of this fraud, and the consumer not only loses a sure discount through the unavailability of the coupons but underwrites the fraud through higher prices at the supermarket," said W.J. Maisch and Robert T. Grudek, postal inspectors in charge of the Los Angeles and San Diego divisions.

Postal inspectors in southern Florida last year set up a sting operation, dubbed Operation Clip, in an attempt to snare the ring members, authorities said. While the operation progressed, the promoters of the coupon scheme contacted the operator of a coupon clearinghouse in El Paso, Tex., and allegedly tried to persuade him to join in the conspiracy, the Postal Service said.

The Texas clearinghouse operator contacted authorities, who sent two undercover agents to meet with grocers who had allegedly agreed to participate in the scheme, the postal service said.

Recently, postal agents arranged for the printing of 25-cent discount coupons for a non-existent roach spray called "Broach," inserted the coupons in South Florida newspapers and arranged for a clearing house in Illinois to redeem the coupons. Even though the product was not on market shelves, thousands of "Broach" coupons were redeemed by grocers across the nation, the postal service said.

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