Best Buy vendors' fraud case sent to jury

They heard stories about Best Buy employees getting lap dances and going on exotic excursions to hunt sharks and wild boar, all paid by vendors. They listened to hours of secretly recorded phone calls, examined volumes of documents and read through scores of e-mails.

After four weeks of testimony the jury now will decide whether an Illinois couple defrauded Richfield-based Best Buy Co. Inc. out of $41.6 million, paid off a company insider to make it happen and then hid their gains to avoid paying taxes.

Russell and Abby Cole, of Deerfield, Ill., who owned and operated a computer repair parts company called Chip Factory, are accused of conspiracy, wire and mail fraud, money laundering and income tax evasion in a case investigated by the FBI, IRS and U.S. Postal Service.

They face a maximum penalty of 10 years on one of the money laundering charges, and 20 years on each of the other counts.

The case laid bare the high-rolling lifestyle of some Best Buy employees as well as the company's own lack of internal controls when it launched an online auction system in 2003 that Chip Factory and other vendors took part in.

Best Buy, the nation's largest consumer electronics company, intended to use the auction to create a "level playing field" where it could tell vendors what parts it needed to repair computers and other items for its customers, and the vendors would compete to sell the parts to Best Buy.

Documents showed that Chip Factory systematically bid low in the daily auction in order to win bids from Best Buy. Between June 2003 and August 2007, Chip Factory bid for $24 million in parts, but charged Best Buy $66 million, according to the government.

It was about "how both defendants lied and cheated and defrauded Best Buy, but also how the defendants lied and cheated and defrauded the IRS," she said.

The Coles' attorneys provided evidence that Chip Factory wasn't the only company bidding low and invoicing high. And it wasn't the only company wining and dining what Abby Cole's attorney, Shelly Kulwin of Chicago, derided as "sticky-fingered Best Buy executives."

The defense argued that Best Buy wasn't paying attention to problems with the auction, and needed to pin the problems on an employee in order to collect on an insurance policy -- coverage the company had conveniently expanded just as the Chip Factory problems came to light.

Robert Bossany, they argued, was that employee. And Russell and Abby Cole shouldn't be blamed because Best Buy wasn't minding the store.

Bossany was the liaison between Best Buy's computer repair service centers around the country and the vendors who were selling Best Buy the parts. He was fired from Best Buy in October 2008 when the scheme was uncovered, and pleaded guilty three months later to mail fraud and money laundering.

Bossany testified that over the course of four years he received weekly and biweekly envelopes totaling at least $100,000 in cash from Russell Cole, plus a Harley-Davidson motorcycle and ATV. In return, he said in court and in his plea agreement, he "provided confidential information for Russ Cole ... helped hide issues that arose from the service center ... and turned a blind eye to problems."

Bossany testified that another vendor bought him a $22,000 Corvette, an all-expenses-paid trip to the Dominican Republic, and lent his father $300,000 to start a business. Other vendors took him and other Best Buy executives to strip clubs, sports events and rock concerts. They were put up in a South Beach mansion, given access to a Jaguar and to a 60-foot yacht.

The defense provided documents that these other vendors also were bidding low and selling high.

"Ladies and gentlemen, this was a free-for-all," said Minneapolis attorney Andrew Luger, who represented Russell Cole.

Bossany proved a troublesome witness to the government when he discounted previous testimony and told defense lawyers that all the gifts and money didn't influence him. He had no authority to give preferential treatment, he said on the stand.

In closing remarks, Engisch called Bossany's turnaround "quite remarkable" and "one of the most extraordinary things that you will see."

But, she argued, jurors can throw out Bossany's testimony entirely and "that would not affect the case."

The IRS estimated at trial that the Coles owed $3.3 million in federal income taxes from 2004 to 2007, plus $1.8 million for parts sold on eBay.

The government provided documents alleging that Abby and Russ Cole claimed tens of thousands in personal expenses as business expenses -- including a $190,000 check for a downpayment on their $2.9 million home said to have come with proceeds from the scheme against Best Buy. Bossany testified Russ Cole described it as "the house that Best Buy built."

Abby Cole expensed a $40,000 diamond bracelet and more than $18,000 in interior decorating for the new house over two years. Russ Cole wrote off $26,000 in car detailing for his luxury car collection, which included Ferraris and Porsches.

Included in travel expenses were rooms at the Bellagio Hotel in Las Vegas, where they stayed for weeks at a time, including one 29-day stay that cost them $33,081.

Abby, her attorney argued, was a bit player who was duped by her accountant.