Ohio Corporation Pleads Guilty to Honest Services Fraud

Gear Pump Distributors (USA), a subsidiary of the South African company Dosco GPM Holdings (PTY), Ltd., entered a guilty plea to honest services fraud for enticing an employee of a competitor to share secret pricing information from his company.  A press release issued by the U.S. Attorney's Office for the Northern District of Ohio (here) describes how Gear Pump got an executive at Permco, Jack Buffin, to provide it with "internal price lists for both the U.S. and European markets, internal cost lists, copies of internal Permco e-mails, internal customer trip reports, Permco customer purchase specifications, business opportunities of Permco, and Permco supplier information."  According to the press release:

Gear Pump admitted that, beginning in approximately 2001, Dosco began exploring the opportunity of increasing its presence in the United States market. In or about December 2003, Dosco approached Buffin about the possibility of setting up its operations in the United States. Dosco eventually made a formal offer of employment to Buffin in September 2004, to take effect December 2004; in reality, Buffin began working with Dosco/Gear Pump prior to receiving a formal employment offer.

It was part of the scheme that representatives of Dosco would have secret meetings with Buffin to discuss its plans for the United States market. While still a full-time employee at Permco, Buffin took two trips to South Africa to discuss his role in Dosco’s business development in the United States. Buffin also attended secret meetings with representatives of Dosco at a trade show in Dallas, Texas.

Buffin assisted in the creation of Dosco’s United States operations in Ohio, the Gear Pump corporation, while a full-time Permco employee.

Buffin entered a guilty plea in February 2006 to a charge of violating the Economic Espionage Act for supplying trade secrets to Gear Pump.  The company will pay a $190,000 fine and restitution to Permco of $95,000.  It is an awfully competitive business environment out there these days, especially in the manufacturing sector, and resorting to these tactics to gain an advantage is a sign of how great the pressure if to achieve results. (ph)