‘Cents-Off’ Scam : Food Market Owner Helps Authorities Trap Suspected Coupon Con Artists Who Steal Thousands From Producers

As Malibu food market owner Jerry Alexander recalls his role in the sting, he was “not in the least” scared. But his wife, Kaye, “was petrified,” he said.

Alexander, 48, volunteered to be used as bait to catch a suspected con artist allegedly linked to a scam which has the food industry increasingly concerned--the cashing of “cents-off” food coupons without any products ever being bought.

“Wired up” last month by detectives from the Los Angeles County sheriff’s forgery/fraud detail, Alexander huddled with an individual who called himself “Marrio” in the small office in the back of Alexander’s Trancas Grocery on Pacific Coast Highway near Zuma Beach. Deputies eavesdropped from next door.

‘A Lot of Money’

Marrio had showed up for a payoff, cash generated by a coupon plan which, he claimed, would make both of them “a lot of money,” Alexander said. Specific dollar amounts were not mentioned, Alexander recalled. Instead, he said, Marrio allegedly declared that profits would be good enough so that “you’ll be able to take trips to the Orient, Europe. . . .”

Under the scheme, there was no need to collect coupons from customers at checkout counters. No products had to be purchased. Instead, Marrio would supply the coupons for cash redemption and split the profits with Alexander.

For his part, all Alexander had to do was vouch that the coupons were generated by sales at his Malibu market and at another store he owns in Farmers Market in Los Angeles. The big loser: coupon-issuing manufacturers, producing everything from soap to cereal, which reimburse market owners such as Alexander.

As a result of the sting, Marrio--Martin O. Smythe, 50, of Simi Valley--was arrested by sheriff’s detectives Feb. 12. Smythe has declined to comment on the charges.

Competitive Marketplace

The Los Angeles area breeds dozens of “Marrios,” law enforcement and industry officials said, because of the hotly competitive grocery business here. Coupon con men have been the targets of federal and local investigators for years, but officials said it is unusual for a market owner to volunteer to stick his neck out, as Alexander did.

The incentive to break the law, said Steven Koff, president of the 1,200-member Southern California Grocers Assn., is “the volume, particularly in Southern California, where the stores are offering (to) double and triple (manufacturers’) coupons in a competitive price war. It’s a big market.”

Last month, for example, based on an investigation by U.S. Postal Service investigators, a federal grand jury returned a fraud indictment against three individuals allegedly operating a coupon fraud ring through a Long Beach-based chain of 45 small liquor and convenience stores called Eddies Markets. One of the defendants, Edward Albert Snow, was president of Supreme Euphoria Inc., which owned the markets.

In a three-month period in 1983, Assistant U.S. Atty. Harriet Rolnick charged, the suspects received more than $124,000 from the operation. Two of the three defendants also were charged with using Harrisons Market in Reseda to redeem more than $26,000 worth of coupons in about the same time period. Harrisons Market was not charged with any wrongdoing.

Billions of Coupons

Just how big a business coupon hustlers run is reflected in national figures: In 1986, the year for which the latest numbers are available, 203 billion cents-off coupons were generated by about 2,000 companies, according to the Manufacturers Coupon Control Center of Clinton, Iowa, the nation’s biggest coupon clearing house. This represents about a 70% increase over the previous five-year period.

Of the more than 200 billion coupons, most ended up in the trash. Judy Farrell, the firm’s coupon control manager, said about 7 billion coupons were cashed in--translating into about $3 billion worth of redemptions.

Coupon crooks, she estimated, are collecting as much as 10% of this “cents-off” cash in schemes of “mis-redemption,” as the industry calls it.

Law enforcement officials said coupon con artists tend to prey primarily on small and middle-sized independent operators such as Alexander. A veteran grocery executive, he knows this, and is ready for the inevitable get-rich-quick calls. Marrio was not the first to make such a pitch.

In August, Alexander recalled, another coupon hustler, “Bobbie,” told him that he had been lying on Zuma Beach with his girlfriend when he noticed the market up the road. He promised Alexander $1.5 million over three years if he would cooperate with him, Alexander said.

No Stranger to Operation

Bobbie, in his 30s and apparently well-educated, suggested to Alexander that he was no stranger to the coupon scam operation.

“He said he learned the business from his father, who did it in the New York-New Jersey area,” Alexander said. “He said he’d been doing the coupon thing for nine years and that he had a lot of clients.”

By then, however, Alexander had put out distress signals to several law enforcement agencies. For reasons that are not clear, the U.S. Postal Service, which has played a major role in catching coupon crooks, did not enter that case.

But the Internal Revenue Service was interested, Alexander said, and in October the agency placed a recording device on his business telephone to monitor conversations with Bobbie and Marrio.

A spokesman for the IRS’ Los Angeles district, Robert Giannangeli, said the agency could “not confirm nor deny the existence of an investigation.”

Relatively Simple Plan

The dishonest wrinkle that coupon crooks propose is relatively simple in contrast to a normal cents-off coupon transaction.

In the latter case, involving, say, 25-cents off a bar of soap, the consumer gives the 25-cent coupon to a store clerk. The soap coupon typically is then sent to a clearing house.

The clearing house’s job is to process the coupon, mailing it to the manufacturer. Then, the clearing house--performing its bookkeeping function--receives the quarter back from the soap manufacturer, plus eight cents in reimbursement for handling costs. The total of 33 cents (minus a penny or two for the clearing house’s profit) is then mailed back to the store.

Coupon crooks, to make their schemes work, almost always are in cahoots with store owners, with whom they split their profits. That is because clearing houses and manufacturers will not refund coupon cash unless the coupons flow through a legitimate market which must be identified on a reimbursement form.

A dishonest market owner will generally discard coupons legitimately brought in by customers and instead rely on an outside contact to generate coupons--often many more than the market could produce from its own sales. This can be done in a variety of ways.

About $400 a Pound

Market owner Alexander recalled that Bobbie told him he got his coupons from “his ladies who cut them” in the Farmers Market neighborhood and from a Camarillo “cutting operation.” Such assembly lines can literally weigh the profits: an industry rule of thumb is that a pound, or 750 coupons, is worth about $400 in redemptions.

Claiming just one month’s business, Bobbie last fall shipped about $50,000 worth of “Alexander’s” coupons to United Coupon Clearing in Lubbock, Tex., one of the nation’s largest coupon clearing firms, for subsequent cash redemption from dozens of manufacturers. Alexander said he had informed the IRS and was trying to string Bobbie along until authorities could corral him.

The amount shipped off was more than double his normal two-store business, Alexander said. But he explained that Bobbie rationalized this by telling the clearing house that Alexander’s business was booming because he was offering to double and triple manufacturer coupons.

Unknown to Bobbie, however, Alexander had alerted United’s coupon services manager, Heidi Kelley, and Henry (Hank) Goodson, coupon control manager for Procter & Gamble of Cincinnati, both leading watchdogs in pursuing coupon hustlers.

Kelley, Goodson and Alexander finally decided to give Bobbie a first installment payment last fall of about $3,000 so that the IRS would have a possible lever for any future prosecution.

Makes Similar Proposal

Then, in October, Marrio, who apparently was operating independently of Bobbie, telephoned Alexander with a similar coupon proposal. “I told Marrio to come in and he did,” Alexander said.

By January, Alexander had huddled with sheriff’s investigators, who decided that they had a better chance to nail Marrio than the more elusive Bobbie.

When Marrio finally showed up at Alexander’s Malibu market on Feb. 12 for an anticipated first payoff of $2,600, sheriff’s deputies had wired the store owner with a recording device and were listening in a next-door room.

Alexander, during a 20-minute session, attempted to pump Marrio for information about his coupon operation. Marrio disclosed he had “75 clients,” probably other store owners, Alexander later said. But Marrio did not say how he generated his coupons.

Then, on a prearranged signal, deputies arrested Marrio, slapped handcuffs on his wrists and led him out of the office.

Wife Reduced to Tears

Weeks of tension in dealing with Marrio and Bobbie finally caught up with Kaye Alexander. “My wife broke down crying when they took him out,” Alexander said.

On March 9, the county prosecutor filed two felony charges against Martin (Marrio) Smythe--attempted grand theft of personal property and solicitation to commit a crime. He is free on $1,500 bail. If convicted, he faces a maximum of 4 1/2 years in prison and/or a $10,000 fine.

“This particular case was nipped in the bud before it had an opportunity to develop into a more horrendous case,” said sheriff’s detective Ronald Bailey, who led the investigation. “I would hope the word gets around that we will not sit down on these things. We’ll actively pursue prosecutions.”