SANTA ANA — A suspected $126 million telemarketing scheme uncovered by Huntington Beach investigators led authorities on Tuesday morning to arrest 21 people accused of defrauding small businesses and charities by selling them overpriced toner for printers and photocopiers.
Those taken into custody by the federal agents and Huntington Beach police officers were accused in an indictment of targeting more than 50,000 victims by posing as their regular toner-products supplier but upping their prices by as much as 10 times the regular retail price.
Twenty-three were indicted: 21 defendants were arrested this morning, one has agreed to surrender and authorities are searching for one other. Six of those arrested were from Orange County.
The wide-ranging investigation began in late 2012 with a complaint to the Huntington Beach Police Department.
A man from Arizona who owned a storage facility had received an invoice for toner, said Officer Jennifer Marlatt, the agency’s spokeswoman. The man was immediately suspicious, Marlatt said, because he did all of his business on typewriters and didn’t understand why he was being asked to pay for something he never purchased.
An address on the invoice led officers to Huntington Beach. Police were unable to comment too directly on the open investigation, Marlatt said. But Huntington Beach investigators ultimately reached out to federal officials for assistance after realizing the scope of the alleged fraud.
“It just kept getting bigger and bigger,” Marlatt said. “This was a complex investigation, and it’s a testament to all the hard work everyone put into it.”
Detectives within the department worked closely with Secret Service members.
Federal authorities say the alleged scheme dates back to 1988, and was orchestrated by Gilbert “Gil” Michaels, a 73-year-old Los Angeles man who owned and operated IDC SERVCO, which sold toner to a variety of business, government agencies, churches and charities such as Easter Seals and the United Way.
According to the federal indictment, IDC employees would call up the companies and organizations and tell their workers that they were affiliated with their regular toner supplier, but that the price of the products had increased.
The IDC employees would offer the workers the chance to purchase the toner supplies at the “previous, lower price,” prosecutors allege, but would ultimately demand the inflated prices after the products were shipped.
Prosecutors say that if the alleged victims complained, they were told by IDC employees that they couldn’t cancel the orders or refund money. If they refused to pay, prosecutors allege, IDC employees threatened to take them to collections or court.
In all, the authorities said, they found $126 million in bogus sales.
“This toner fraud has been a tremendous burden on small businesses across America for many years,” U.S. Attorney Eileen M. Decker said in a Tuesday statement.
About two-dozen alleged victims were listed in the indictment, including a half-dozen from California. They include a country club in Orange County, a marketing agency in the Bay Area and a union in the Inland Empire.
A call for comment to the Culver City headquarters of IDC SERVCO was not returned.
Among those named in the indictment: Anjanette S. Lester, 60, of Garden Grove; Glen K. Katayama, 48, Fullerton; Tiffany M. Ostrander, 32, Newport Beach; Sean S. Moustakas, 35, Newport Beach; James R. Milheiser, 49, Huntington Beach; and Thomas A. Sanetti, 49, Huntington Beach.
All of the defendants were indicted on conspiracy to commit mail fraud, as well as at least one count of mail fraud. Michaels is also charged with five counts of money laundering.
Authorities in a statement say Michaels had previously been warned by “federal and state court judges to cease fraudulent and deceptive business practices related to toner sales.”
Contact the writer: semery@ocregister.com