14 Held in Recycling Fraud Case

It was a crime ring straight out of the Hollywood mold -- fast cars, furtive trips across the border, the latest cell-phone technology, police lookouts and a haul estimated at more than $3 million. Only the payload was mundane: discarded bottles and cans.

After a yearlong investigation, law enforcement officers have arrested 14 people accused of defrauding the state’s recycling program of millions of dollars by hauling bottles and cans from Mexico and neighboring states and redeeming them in Los Angeles.

State officials said the ring was purchasing aluminum cans as scrap in states that do not require a recycling deposit and then cashing them in at California recycling centers, where deposit money is returned.

The profit could be substantial. Discarded aluminum cans in Nevada, Arizona and Utah could be had for about $950 a ton and then sold in California for about $2,490 a ton. Plastic bottles netted even higher profits, selling for $90 a ton out of state and bringing in $910 in California.

The arrests were made by the California attorney general’s Bureau of Investigations as part of a probe that involved 10 law enforcement offices and stretched to four states and Mexico. It is the biggest recycling fraud bust since consumers began paying deposits on beverage containers in 1987.

Bail for each of the 14 was set at $2.5 million and all are still in custody. As an additional condition of release, investigators said those attempting to make bail will have to prove that they are not using any profits from the recycling program.

Michael Jehdian, an attorney representing one of the defendants, said all 14 will ask for reduction of the bond at a Nov. 5 hearing.

“I can’t understand why it is that high,” he said. “There’s actually no reason for it.”

The 14 were charged with conspiracy to commit recycling fraud, filing false documents, grand theft in excess of $2.5 million and unlawful recycling. Another suspect is still at large. Los Angeles Deputy Dist. Atty. Diana Callaghan said the charges are punishable by a maximum prison sentence of eight years.

Among those arrested was Migran Changulyan, 35, an unemployed truck dispatcher from Glendale who Callaghan said is believed to be the ringleader.

Changulyan and two others also were accused of collecting welfare while they took millions from the recycling program and used it to buy the accouterments of a middle-class lifestyle -- cars and homes.

“We found one defendant ... and his wife ... had been collecting welfare for 15 years while they owned a home, cars and a recycling business,” Callaghan said.

The arrests were the result of a crackdown on recycling fraud that began several years ago when lawmakers discovered that the unique way California had designed its program -- with deposits held by the state and returned at recycling centers -- made it vulnerable to fraud. Lawmakers earmarked special funds allowing the Department of Conservation, which oversees the program, to contract with the attorney general’s office to perform criminal investigations.

“These arrests should serve as a wake-up call for those who cheat the system. They will face the consequences of their actions,” said Darryl Young, the department’s director.

In 1986, California passed a law that required consumers to pay a deposit on certain beverages sold in aluminum, plastic and glass containers. The deposit is 2.5 cents for containers less than 24 ounces and 5 cents for those 24 ounces or larger.

Shoppers can recoup the deposits at state-licensed recycling centers where the containers are weighed and a redemption value paid. The state then reimburses the recycling center. Deposits that are not redeemed go into a special fund that is used by the conservation department to help pay for local curbside recycling and promotion of the program.

“The state’s beverage recycling program is a groundbreaking environmental protection effort that Californians rightfully point to with pride,” said Atty. Gen. Bill Lockyer. “This prosecution will help protect the program by breaking up a criminal conspiracy which defrauded the recycling fund of millions of dollars.”

Callaghan said Changulyan was identified early as the ringleader of the operation, but it took months of surveillance and investigation to determine how he operated and who else was involved.

She said investigators followed members of the ring to Nevada, a state that does not require a beverage deposit, and watched as they purchased scrap aluminum, loaded it onto tractor-trailers and then transported it back to California.

Once in Los Angeles, Callaghan said, the cans would be divided into small lots and the ring members would fan out across the city to collect the redemption at a variety of recycling centers. She estimated that the ring was organized in 1998 and became more sophisticated as each year passed without detection. By 2002, she said, it was using cell phones to coordinate its operation and contracting with trucking firms to transport bottles and cans from other states.

By then, the ring had also devised another scheme to defraud the program, she said. Bottles and cans that had been redeemed at recycling centers were purchased by the ring under the name of a phony company that promised to use them in the manufacture of new products.

But instead of reusing the materials, they were taken to other recyclers in the Los Angeles area and redeemed again.

Last summer, when some of the ring members who acted as runners were arrested, Callaghan said, the ring continued its operation, although leaders clearly suspected it might be under investigation.

She said lookouts would be used to search the sky for police helicopters. Cars parked near recycling centers would be checked for police insignia. Ring leaders who thought they were being followed would make quick turns or pull over and abandon their vehicles.

“They knew we were looking at them,” she said. “But they still kept doing it. Greed is greed, you know.”

She said that the investigation is continuing and that more arrests are expected.

Until the latest arrests, the largest criminal case involving recycling involved a $1.2-million fraud uncovered by federal investigators in 1992.