U.S. Charges 18 in Athletic Shoe Counterfeiting

Eighteen people from South Korea, the United States and Mexico were charged by a federal grand jury with engaging in a worldwide conspiracy to market counterfeit merchandise, including millions of pairs of athletic shoes bearing such trendy labels as Nike, Reebok, L.A. Gear and Converse, authorities announced Friday.

The government investigation, coordinated by federal prosecutors in Arizona and the U.S. Customs Service, began last August when vehicles carrying 385 cartons of counterfeit footwear bound for Mexico were stopped by Mexican authorities at the U.S. port of entry at Nogales, Ariz. U.S. Customs inspectors then seized the shipment.

“It’s safe to say that millions (of counterfeit sneakers) were distributed in the United States over the past two years,” said Stephen M. McNamee, the U.S. attorney for Arizona, where the 18-count indictment was returned. “The shoes were produced in South Korea.”

Pirating of consumer and industrial goods costs U.S. business upwards of $20 billion a year, according to government trade officials. American producers have alleged in recent years that the biggest offenders are manufacturers located in South Korea, Taiwan, Singapore and Indonesia.

Much of the legitimate production of athletic shoes is done overseas. As recently as May, according to the trade publication Footwear News, 70% of legal Reebok production was in South Korea.

Nike, Reebok and L.A. Gear are the biggest sellers of athletic shoes, in that order.

Much of the investigative work for the indictment was done by a relatively small, privately held Southern California footwear producer, the Van Doren Rubber Co. of Orange County, whose $55 million in annual sales pales beside the billion-dollar-plus annual operations of its competitors. The August seizure that prompted the inquiry involved counterfeit shoes supposedly produced under the Orange County firm’s Vans label.

“We’ve had people copying our shoes for 12 years,” said Steven Van Doren, who is in charge of the 24-year-old firm’s outside sales.

The company was enjoying good sales in Mexico, he said, when it recently found that sneaker pirates were cutting into its business. It investigated and found that copies of its sneakers were being sold for less than half the $32 a pair at which Vans are priced.

Van Doren said his firm then took an unusual step in the cutthroat sneaker business--it shared its investigative information with competitors Reebok and Converse.

The counterfeiting ring dealt in shoes bearing the trademark of virtually every well-known athletic shoe manufacturer, but primarily Converse, Reebok and Vans.

“We got a lot of information from Mexico and offered our information to them,” Van Doren said in a telephone interview. The companies were already looking into the counterfeiting problem when the August seizure confirmed their suspicions.

Indicted on charges of trademark violations and money laundering of the profits was an alleged kingpin of the pirate athletic shoe operation, South Korean businessman Dae Yun Hwang, president and chief operating officer of Royal Trading Corp. and Mi Ju Trading Corp. of Pusan, South Korea.

Seventeen other people were named in the indictment, which was unsealed Friday, including three other Koreans, two Mexican nationals and eight San Diego residents: Byron McLaughlin, Debbie Watson, Celeste Cota, Nathan Betech, Marcos Betech, Abraham Betech, Isaac Paz and Herminia Ascensio.

Those indicted were accused of selling “large quantities of footwear and other merchandise manufactured in Korea and elsewhere bearing counterfeit trademarks, by means of false and fraudulent practices. . . .” the indictment said.

Earlier this month, more than $4.5 million in assets in the form of bank accounts, vehicles, real estate and precious metals and gems were seized by government agents in connection with the case, said McNamee, the U.S. attorney for Arizona.

Convictions for violations of false Customs statements, trafficking in counterfeit goods and money laundering carry prison sentences of up to 20 years and fines of up to $500,000.