Public Hearing: To Investigate Circumstances Surrounding Organized Retail Crime and Stolen Goods

1 BEFORE THE NEW YORK STATE SENATE

STANDING COMMITTEE ON CONSUMER PROTECTION 2 ------------------------------------------------------ 3 PUBLIC HEARING: 4 TO INVESTIGATE CIRCUMSTANCES SURROUNDING

ORGANIZED RETAIL CRIME AND STOLEN GOODS 5

------------------------------------------------------ 6 7

Touro Law Center 8 MultiFaith Meeting Room

225 Eastview Drive 9 Central Islip, New York 11722 10 September 19, 2012

11:00 a.m. to 2:00 p.m. 11 12 13 PRESIDING: 14 Senator Lee M. Zeldin

Chair 15 16 ASSEMBLY MEMBERS PRESENT: 17 Assemblyman Alfred C. Graf 18 Assemblyman Michael Montesano 19 20 21 22 23 24 25 1

SPEAKERS:PAGE QUESTIONS 2

Ted Potrikus 9 20 3 Executive Vice President and

Director of Governmental Relations 4 Retail Council of New York State 5 Michael Rosen 45 87

Senior Vice President 6 Food Industry Alliance of New York State 7 Justin Dietel 45 87

Asset Protection Specialist 8 ShopRite (SRS) 9 James D'Arcy 45 87

Director, Asset Protection 10 Great Atlantic & Pacific Tea Company 11 Charles Rosaschi 91 107

Director of Security 12 King Kullen 13 Jon Greenfield 91 107

Owner 14 Food Parade 15 Catherine Riccards 118 130

Sr. Director, Professional Standards 16 Sak's Fifth Avenue 17 Shane Nielsen 135 140

Investigator 18 Target 19 Paul Jones 142 169

Sr. Director, Global Asset Protection 20 eBay 21 22 ---oOo--- 23 24 25 1 SENATOR ZELDIN: Good morning, everyone. 2 Thank you for coming to our second hearing of 3 the Senate Consumer Protection Committee on 4 organized retail theft. 5 I guess we want to start off by thanking to 6 Touro Law College for hosting us this morning here 7 in Central Islip, in the 3rd Assembly District. 8 I'm joined by two of my legislative 9 colleagues, Assemblyman Al Graf from the 10 5th Assembly District, and 11 Assemblyman Michael Montesano from the 15th Assembly 12 District. And I thank both of you gentlemen for 13 being here on this important issue. 14 According to the FBI, organized retail theft 15 accounts for about $30 billion annually of theft 16 nationwide. 17 About half of that loss, 15 billion, is 18 within the food industry, and supermarket losses 19 specifically. 20 Additionally, state and local governments are 21 losing out on tens of millions of dollars annually 22 in lost sales-tax and excise-fee revenue. 23 Organized retail crime is a public health and 24 safety issue. 25 The items stolen are often resold to 1 unsuspecting wholesalers who, in turn, sell the 2 stolen items to consumers. 3 Many of the heavily trafficked items require 4 proper handling, such as storage at certain 5 temperatures, which may not be occurring when the 6 product is in the hands of the thieves. 7 Also, organized-retail-crime thieves have 8 been known to change the expiration date of packages 9 by repackaging them, thereby posing further health 10 and safety risks. 11 There was a package of five bills that passed 12 in the Senate that I had sponsored, one that was 13 sponsored by Senator Chuck Fuschillo of Long Island, 14 which put teeth into the crackdown on organized 15 retail crime. 16 I would like to summarize the five bills that 17 I had introduced in the Senate, which the Senate had 18 passed. 19 The first is Senate Bill 6956. 20 This bill defines "organized retail crime," 21 adds to general business law, the crime of theft of 22 retail merchandise with an aggregated value of 23 $1,000, and makes corresponding changes to the penal 24 law to define such crime as grand larceny in the 25 fourth degree. 1 Current law requires a single criminal 2 transaction where the property amounted to $1,000 in 3 order for this crime to be triggered. 4 This bill would also allow property stolen 5 within a 30-day period or by multiple people working 6 in association to be aggregated. 7 The second bill is Senate Bill 6958-B. 8 This relates to jurisdiction and venue for a 9 pattern of criminal offenses, granting jurisdiction 10 to any county when at least one of the crimes 11 constituting a pattern occurs within the county. 12 This bill targets the organized retail 13 criminal who travels from county to county 14 committing organized-retail-crime offenses, and 15 would be an additional tool for prosecutors and 16 law enforcement in curbing organized retail crime. 17 The third bill is Senate Bill 6959-A. 18 This bill relates to prohibitions and 19 penalties against persons who lead an 20 organized-retail-theft enterprise, by organizing, 21 supervising, financing, or managing such criminal 22 activity. 23 This newly established crime would be 24 classified as a Class C felony. 25 The FBI issued a report in January of 2011 1 which indicated that organized retail crime is a 2 gateway crime. It often leads to major crime rings 3 using the elicit proceeds of organized retail theft 4 to fund other crimes, such as organized criminal 5 activity, health-care fraud, money laundering, and, 6 potentially, even terrorism. 7 By increasing penalties against those who 8 lead organized-retail-crime enterprises, some of the 9 most dangerous criminals will be taken off of the 10 street. 11 The fourth bill is Senate Bill 6954-A. 12 This bill prohibits criminal practices with 13 an access device, and classifies such crime as a 14 Class B misdemeanor. 15 This crime would subject individuals to 16 criminal liability for certain actions taken with a 17 fraudulent or counterfeit credit card or other 18 devices that grant the holder access to money, 19 goods, or services. 20 The fifth bill is Senate Bill 6957-A. 21 This bill adds a new subdivision to penal 22 law, to provide that use of an emergency exit to 23 facilitate a theft from a mercantile establishment 24 is classified as grand larceny in the fourth degree. 25 This bill targets thieves who wait in a store 1 until all employees have left and then use the 2 emergency exit to steal from retail establishments, 3 and those thieves who conspire with another criminal 4 and have a get-away car waiting at an emergency 5 exit, so that they can escape easily without having 6 to exit from the front of the store where security 7 personnel are there often. 8 Using an emergency exit to facilitate theft 9 from a retail establishment would be classified as a 10 Class E felony. 11 And, finally, as a reference, 12 Senator Fuschillo introduced a bill, 7370. 13 This bill adds a new subdivision to the penal 14 law, to provide penalties for using false UPC codes 15 and fake receipts in the commission of organized 16 retail crime. 17 I would once again like to thank my 18 Assembly colleagues who are here. 19 Assemblyman Mike Cusick of Staten Island has 20 introduced this package in the Assembly. 21 We're hoping that this whole package can pass 22 both the Senate and the Assembly when the 23 legislature reconvenes in 2013. 24 In order to do that, we need the support of 25 our Assembly colleagues who are here, and their 1 fellow colleagues. 2 So at this time, I would like to introduce 3 Assemblyman Al Graf of the 5th Assembly District. 4 ASSEMBLYMAN GRAF: Thanks, Lee. 5 First off, I would like to say I'm happy to 6 be here at my old alma mater. I graduated from 7 Touro. 8 And I'm going have some questions along the 9 way as we proceed. 10 I've already had a couple of questions, right 11 off the bat, as far as: If these are organized 12 crime -- organized-crime organizations, why aren't 13 we looking at bringing any RICO statutes? 14 Under RICO, as far as prosecution is 15 concerned, there's a lot tougher penalties. 16 And this seems like, and correct me if I'm 17 wrong, that this would fall under a RICO statute. 18 SENATOR ZELDIN: Well, actually, we're going 19 to -- if you don't mind, when we introduce the first 20 speaker, which will be Ted Potrikus, I think he 21 might be best to answer that question when we 22 conclude. 23 I was wondering if you had any other 24 introductory remarks? 25 ASSEMBLYMAN GRAF: That's it. Thank you. 1 SENATOR ZELDIN: All right, thank you, 2 Assemblyman Graf. 3 And I'd also like introduce 4 Assemblyman Montesano of the 15th Assembly District. 5 ASSEMBLYMAN MONTESANO: Thank you, Senator. 6 Thank you for having this hearing this 7 morning. 8 I am interested, as reviewing some of the 9 comments and notes, and I'm glad we're having this 10 hearing because this is a huge problem, not only to 11 government, but, of course, to the retail 12 establishments with the significant monetary loss 13 they take, and also for, you know, their insurers. 14 So, I'm interested in hearing the testimony 15 today. And then, you know, of course, I will join 16 in with those bills that are being carried. 17 Thank you. 18 SENATOR ZELDIN: Well, at this time, I'd like 19 to introduce our first speaker. 20 And, Ted Potrikus of the Retail Council of 21 New York really has been instrumental in helping 22 this package reach the point that it has today. 23 His great organization, the Retail Council of 24 New York State, has been very focused on the issue 25 of organized retail theft. 1 And it's great to have a subject-matter 2 expert here to testify on the topic, and hopefully 3 answer some questions of the panel. 4 Welcome, Ted. 5 TED POTRIKUS: Thank you very much, Senator. 6 And, Assemblyman Montesano, thank you for 7 being here. 8 Assemblyman Graf, thank you for being here. 9 And thanks for holding this second hearing. 10 The first hearing in June was a big success 11 because, right after that, your bills passed. 12 And we really, on behalf of the entire retail 13 industry, appreciate all the work that you and your 14 colleagues in the Senate did to make sure that those 15 five bills, the one that you mentioned from 16 Senator Fuschillo, and, two of his other bills -- 17 one, that would increase the penalties for using a 18 booster bag in the commission of a theft, and, the 19 second one, which would prohibit the sale of certain 20 items by itinerant vendors in a flea-market 21 situations -- all of those, those eight bills 22 combined, really touch on the major issues that the 23 retail industry deals with and confronts on a daily 24 basis. 25 Everything, from the aggregation of the 1 value, that's such an important one, because -- let 2 me start by just talking for a brief moment about 3 organized retail crime, and why it is not 4 shoplifting. 5 We think of shoplifting as a couple of people 6 going into a store, and saying: Come on, I dare you 7 to steal, this. Or, I'm going to steal, that, for 8 personal use. 9 It's -- I hate to call it "garden variety" or 10 "recreational," but -- but it really is. It's 11 personal-use shoplifting. It's not something that 12 rises to the level that we're talking about today. 13 With organized retail crime, really, 14 essentially what it comes down to, is you've got 15 multiple people working in groups, trained -- 16 highly-trained, highly-organized. 17 They know exactly what they're going in for, 18 and they steal specific items on their shopping 19 list, for lack of a better phrase. 20 They steal it in multiples, from multiple 21 locations, and then they fence it for whatever money 22 that they get. And then the fences sell it, either 23 on the black market or put it back into the stream 24 of distribution. 25 And as you mentioned in your opening 1 comments, Senator, we're talking about something 2 that, across the country, can go anywhere from 3 30 to 40 billion dollars a year. 4 Here in New York State, you see a great deal 5 of the fenced merchandise coming back into New York 6 for redistribution elsewhere. 7 But, our members estimate, that just the cost 8 to the State alone, as far as sales-tax revenue lost 9 in the course of a single year in New York, can 10 range anywhere from 70 to 75 million dollars a year. 11 And that's sales tax that's lost, because we 12 aren't going up to the cash register and buying it, 13 and making a legitimate purchase and paying the 14 sales tax. 15 This is merchandise that's gone from the 16 shelf so that we can't do that. It's ending up 17 someplace else. 18 And, I don't think it's too much of a leap of 19 the imagination to think that the criminals are not 20 collecting and remitting the sales tax. 21 They may be collecting it, but that's 22 probably where it stops. 23 So, the hit to the State, the hit to local 24 governments, is significant here in New York. 25 And back to your bills, you know, as I 1 mentioned, these are highly trained. They know to 2 stop at $999 in a store, because that becomes a 3 single incident, and it become as misdemeanor. 4 So, the crooks will travel from store to 5 store, from jurisdiction to jurisdiction, and 6 they'll just rack up trunk loads and -- and van 7 loads of stolen merchandise, and never really rise 8 above the level of a misdemeanor case. 9 But when you add it all together, it can get 10 into the thousands in a single day. 11 And they'll do this two or three or four or 12 five days a week. This is their job. 13 They get up in the morning, and they say: 14 Okay, today I'm going to go from Suffolk County to 15 Nassau County, into New York City. Then, maybe I'll 16 scoot over to Pennsylvania, and then I'll come back 17 over. 18 And they just have the little trail. 19 Now, having just driven the 20 Long Island Expressway, I don't know how they get 21 from place to place so quickly. 22 I'm a novice on the LIE, so it was kind of 23 interesting to see. I don't know how they do it so 24 quickly, but they do. 25 And, really, what this becomes, too, is, you 1 know, it's like the old TV shows you used to see: 2 If they would only use their brains for good. 3 Because, some of the techniques that they 4 use, and some of the things that you address in your 5 legislation package, Senator, it's really amazing. 6 You wonder how you can take a blank gift card 7 off of the rack and turn it into something that's 8 illegitimate. Because, you know, you've got a 9 stolen credit card number, you call the 800 number 10 on the back and you activate that credit card -- 11 you, the criminal, activate that gift card with 12 stolen credit card information. 13 And, New York State being a leader as it is, 14 in bills and laws, to protect people from identity 15 theft, this is a manifestation of what happens with 16 that stolen merchandise, and it all comes back down 17 to the retail level. 18 So, in each case, each one of the bills that 19 you've introduced, three that Senator Fuschillo 20 introduced, the eight that you shepherded through 21 the Consumer Protection Committee, on to the floor, 22 and, now, with the sponsorship of 23 Assemblyman Cusick, and, members of the Assembly, 24 with your support, we think -- we think that we're 25 in better shape now to get these bills through in 1 2013 than ever before. 2 And they are very important. You touched on 3 these things in your opening statement as well. 4 And, just as an industry, we appreciate that 5 you, as the Chairman of the Consumer Protection 6 Committee, took these on because they do protect 7 consumers. 8 You'll hear this many times today and I don't 9 want to belabor the point, but, when you're talking 10 about the most stolen goods, coming into things like 11 health and beauty aids, baby formula, face cream, 12 aspirin, these are things that we put on our face, 13 that we ingest, that we feed to our kids. These are 14 the things that are getting stolen, and I doubt that 15 they're being stored in the climate-controlled 16 situations that you would want them to be. 17 They're in dank basements. They're in 18 storage lockers that sit out in the sunshine all day 19 long or in the cold in the wintertime. 20 So they aren't -- and then when they 21 counterfeit the labels as they do, and change the 22 expiration dates, and then you see them at a flea 23 market, you see them someplace, and you think, as a 24 consumer, Hey, I'm getting a great deal on this. 25 Well, that great deal comes with some -- some 1 real potential harm to the consumer. 2 And, you know, we focus quite a bit, when we 3 talk about these bills, on things like health and 4 beauty aids, and the little packages of razor 5 blades, but it goes all the way up. And you'll hear 6 this later today, it goes right through the retail 7 spectrum, to the largest department stores, some of 8 the best-known brands in the country. 9 And the thefts there, I mean, that's where 10 you really start to rack up the dollars in very 11 short order. 12 I think the biggest challenge, other than 13 getting the bills through both Houses, and, really, 14 making all the prosecutors and the police forces 15 across the state, have them be our partners on 16 this -- and I'll touch on that in just a minute -- I 17 think the biggest challenge, really, is going back 18 to splitting that definition between "shoplifting" 19 and "organized retail theft." 20 There was a piece just in "News Day," I think 21 on Monday, about a theft out here in Suffolk County 22 at a Gap store, where $2,200 worth of jeans were 23 taken, just in a flash, by two people. They have 24 some security-camera pictures. 25 That's very quick; they can run in, run out, 1 with $2,200. 2 And I was reading it online, and I was going 3 through the comments afterwards. And so many of the 4 comments were, like: Well, this is just 5 shoplifting. This is just a couple of people 6 shoplifting. 7 It's not. It's completely different. 8 They knew exactly what they were going for. 9 They knew which jeans to get. They knew which to 10 take off of that shelf. And they knew, probably by 11 the end of the day, where to fence them, and how 12 much money that they got for them. 13 And there's a fairly good chance that there 14 were other stores in that escapade hit along the 15 same way. 16 But that leads me to the point that I really 17 want to stress, about the retail industry's 18 partnership with law enforcement throughout the 19 state. 20 We've had some -- you know, over the years, 21 really over the past decade, as this has become a 22 bigger issue for the retail industry, and a more 23 noticeable one, they've worked very, very hard to 24 develop partnerships with local police agencies, 25 with district attorneys, with assistant district 1 attorneys, because we, as an industry, know that 2 there are billions and billions of priorities that 3 these law-enforcement professionals face on a daily 4 basis. 5 And, you can't bother them with -- with, or 6 we don't want to cry wolf every time somebody steals 7 a tube of lipstick or a pair of jeans, but, DAs -- 8 And, you know, you always suffer the sin of 9 omission if you start naming names, but I think that 10 there are some that come immediately to mind: 11 Dan Donovan, Staten Island; Cy Vance, Jr. in 12 Manhattan; Kathleen Rice in Nassau; David Soares in 13 Albany; and, Mike Green, who was with Monroe County, 14 and now is with the Division of Criminal Justice 15 Services. 16 -- when we went to them first, you know, 17 they -- not only did they immediately understand the 18 difference, some of them had already been working on 19 it. Some of them had assistant district attorneys 20 that were devoted strictly to economic crimes, and 21 including this as part of it, police forces. 22 And what we, as an industry, want to be able 23 to do, is package these cases and deliver them to 24 law enforcement, deliver them to judges, and say: 25 Here's the evidence. Here's what we've got. 1 With the bills that you've introduced and 2 that you've shepherded through the Senate, and that 3 I hope we can see Assembly passage in 2013, we'd 4 have a better chance of grabbing those criminals 5 where it's happening, where the leaders are 6 happening. 7 And the last point that I want to make is, 8 with reference to the bills, and on my testimony, I 9 think your bills, appropriately, go right to the 10 top. 11 They go to the people who are -- who are 12 leading these enterprises; who are gathering these 13 people, training them, organizing them, financing 14 them, sending them out, and saying: Here's what we 15 need you to buy -- or, here's what we need you to 16 steal today. 17 They're the ones who these bills go after. 18 You know, I was talking to someone in the 19 Legislature. At the end of the session, we were 20 really hoping that we could get a little bit of 21 traction, even on the "emergency exit" bill. 22 And the question that came to me was: Well, 23 but we don't want to charge the 10-year-old, who has 24 stolen a candy bar and runs out the emergency-exit 25 door, with a felony. 1 And, you know, at first I thought: Well, 2 come on, that's not what we're talking about. 3 But it did lead to a better conversation, 4 where I had the chance to explain, no, that's not 5 who we're going after. That's not who these bills 6 would go after. 7 These bill go after the people who are 8 stealing thousands of dollars worth of merchandise, 9 not the "candy bar out the back door." 10 So, with that, I'll conclude my statement. 11 You've got a copy of my written statement. 12 And, I would be happy to take a shot at 13 answering any questions that you might have. 14 SENATOR ZELDIN: Assemblyman Montesano? 15 ASSEMBLYMAN MONTESANO: Thank you, Senator. 16 I just want to ask if you could give us a 17 couple of examples -- I understand the concept of 18 how this occurs. 19 And you had mentioned in your testimony that 20 they get them -- a lot of these items find their way 21 back into the retail stream, or whether they're sold 22 on the Internet, they're sold. 23 Can you give us a couple of examples of how 24 they circulate it and get it back into the market, 25 by what means they do this? 1 TED POTRIKUS: Well, what we've seen in other 2 parts of the country, is they ---well, I'll pick on 3 myself. 4 I steal and it -- 5 And I'll pick on you. 6 -- and then I give it to -- I sell it to you. 7 I'm the booster, the street-level criminal. 8 You're the guy that I'm working for. You 9 fence it. 10 And then we -- you can sell it to a 11 legitimate -- a distributer who's legitimate, or 12 otherwise. 13 Now, the retailer -- now we come back into 14 the retail chain -- they're buying it. And chances 15 are, you know, especially if you're a small 16 retailer, you don't -- you think you're working with 17 somebody who's completely on the up-and-up, 18 completely legitimate. 19 And that distributor may be. The distributor 20 may not be. 21 But essentially what's happening, is the 22 stolen merchandise starts here at the retail level, 23 it goes through that chain of distribution, and -- 24 which begins with the theft, goes to the fence, goes 25 to the distribution center, into the truck, and then 1 back to the retailer. 2 It could, and in some cases, you know, we've 3 had members purposefully tracking their own goods, 4 and buying their own stuff back, just to -- as they 5 create their cases, and they see how it all goes. 6 They see how the chain goes. 7 ASSEMBLYMAN MONTESANO: All right. Thank 8 you. 9 ASSEMBLYMAN GRAF: Do we know how their -- 10 the distributers, I guess, are the main guys in 11 this. 12 And, how are they recruiting these people? 13 Do you know? 14 TED POTRIKUS: They recruit -- "60 Minutes" 15 did a piece about a decade ago on this, where they 16 talked about a lot of the -- and I don't want to 17 overgeneralize, so I'll just cite the "60 Minutes" 18 report -- and they had come up from South America; 19 they had come from all over the country, I mean, 20 essentially. 21 And, you know, if you wanted to talk about it 22 in Albany, for example, let's just pick on a city 23 specifically -- 24 And this speaks to why, in our view, the 25 bills appropriately go to the people at the top of 1 the chain. 2 -- a lot of times, they'll just drive down 3 the street and they'll look for, you know, somebody 4 who might be down on his or her luck, and might be 5 in need of something, and they'll say: Hey, you 6 want to make a quick $100? Push this cart out the 7 door. 8 And they push the cart out the door, and next 9 thing they know, they're either arrested, or, not, 10 they get away with it. 11 So, you know, the recruitment procedure 12 probably comes the same way that one would recruit 13 anyone for -- for less-than-legal activity. You 14 just look for someone in need. 15 And, they're doing -- you know, they're doing 16 what they're paid a small amount of money to do. 17 It's the people who are paying them who I 18 think the bills appropriately go after. 19 ASSEMBLYMAN GRAF: The modern version of 20 "Oliver Twist," I would gather. 21 TED POTRIKUS: Yeah, yeah. Yeah, in some 22 way, yes, it is. 23 ASSEMBLYMAN GRAF: Do you know if there has 24 been any RICO prosecutions -- 25 TED POTRIKUS: I don't, Assemblyman, and I 1 wish I had a definitive answer to your question. 2 We focused -- at the Retail Council, we focus 3 so much on what goes on in New York State. 4 Some -- you may get a better answer to that 5 later. I would hope that someone knows something 6 more about that than I, as far as the prosecution -- 7 prosecution in other jurisdictions go. 8 But, I think that it's safe to say that the 9 federal government and the federal law enforcement 10 has taken a far more active interest in this over 11 the past few years. 12 Senator Zeldin mentioned in his opening 13 comments a report from the FBI, talking about the 14 chain. 15 The FBI has agents, ICE has agents, devoted 16 simply to this. 17 So, how the chain of prosecution goes is 18 something that I'd love to be able to tell you the 19 answer to, but if I did, I would be making it up, 20 and I don't want to do that. 21 ASSEMBLYMAN GRAF: Okay. 22 One other question. 23 TED POTRIKUS: Certainly. 24 ASSEMBLYMAN GRAF: You said you deal with 25 New York City also; correct? 1 TED POTRIKUS: Yes. 2 ASSEMBLYMAN GRAF: Has the Organized Control 3 Crime Bureau looked at this? 4 TED POTRIKUS: They have. 5 And there's a -- there's a specific division 6 in the New York City police force devoted strictly 7 to this. 8 In fact, in the "60 Minutes" piece that I 9 referenced -- 10 And I do have a copy of that. If you'd like 11 to see it, I can make sure that you get a copy of 12 it. 13 -- where they highlight the work of that 14 specific division. They follow a couple of the 15 officers. 16 They start their day in New York City, and 17 they end up traveling through New Jersey, and into 18 Pennsylvania, where they actually make the -- they 19 actually make the bust in Pennsylvania, but their 20 morning started here in Manhattan. 21 ASSEMBLYMAN GRAF: Right. 22 And one other. 23 I worked in the penalties unit for a while in 24 the Sixth Precinct in New York City. 25 Is there a way to flag your merchandise, that 1 you could make them aware of it? 2 TED POTRIKUS: That's a good question. 3 You know, as we've met with prosecutors in 4 different parts of the state, that's a question that 5 we've gotten. And, in some cases, you know, we've 6 heard from district attorneys and from ADAs, that 7 the judge will say: Well, how can you tell me that 8 this iPad came from your store? How do you know? 9 You know, I think when you get to the point 10 of putting a little blue dot or a red dot, or taking 11 a chunk out of the side of the package, so that you 12 know that it's yours, that gets very 13 labor-intensive, and cost -- the costs goes up for 14 the retailers. 15 And retailers really have to walk a very fine 16 line between making sure that their customers and 17 their visitors and guests are protected from this 18 activity, and from, that they can just feel like 19 there's no difference to their shopping experience. 20 You know, if you go in, and for the -- 21 sometimes we joke about it, but it's kind of a 22 chilling joke if you think about it, that 23 everything's going have to be behind the counter, 24 like it was on the "Little House on the Prairie," 25 because you have to keep everything behind the 1 counter so that nobody steals it. 2 You know, one of the things that gets stolen, 3 diabetic test strips. 4 You know, I don't want to buy a stolen 5 diabetic test strip. 6 But -- but, flagging each item of 7 merchandise, I think that puts -- it's a real 8 operational challenge for the retail industry. And, 9 I think it adds to that discomfort that the 10 legitimate shopper might feel when they go into the 11 store, that they're always being watched. 12 ASSEMBLYMAN MONTESANO: But I think -- if I 13 may, Senator. 14 I think, though, that -- I mean, when it 15 comes to the larger pieces of merchandise, like my 16 experience has been at Bed, Bath, and Beyond, you 17 know, anything you buy there, especially if it's 18 electronic or an electrical, and breaks, you bring 19 it back, no receipt, no nothing, they change it. 20 But how they know is, and having gone through 21 this, is that, the serial-number sequence on the 22 items, they know whether or not their company 23 distributed that sequence of serial numbers. 24 So, I mean, I know that does exist on those 25 high-end types of items. 1 TED POTRIKUS: It does. 2 And with larger items, it does. 3 ASSEMBLYMAN MONTESANO: Right, but I can see 4 the practical problem you would have, when you talk 5 about the sundry items and the razor blades, and -- 6 so -- I mean, right now, I go to CVS, or many of 7 those stores, and you buy the [unintelligible] and 8 all that type of stuff, everything's locked behind 9 the counter now. You know, you take the little 10 coupon up. 11 And, you know, it's discouraging, because 12 it's complicated to buy. You have to wait for 13 somebody to unlock the cabinet. You have to, you 14 know -- 15 TED POTRIKUS: Yes. 16 ASSEMBLYMAN MONTESANO: -- so it is -- but 17 the question, as my colleague raised, is when you're 18 tracking items like that, we'll talk about these 19 razor blades, because they tend to be, you know, 20 very expensive items -- 21 TED POTRIKUS: Yes. 22 ASSEMBLYMAN MONTESANO: -- how do you make 23 your case, if you do grab somebody and they have a 24 trunk load of these items? 25 How do you track it back to the origin of 1 where they stole it from? 2 I mean, it's all a common package. I don't 3 know of anything on there that, you know -- 4 TED POTRIKUS: Well, in some cases, you know, 5 if they're on to -- you know, there's a group or a 6 gang that's hitting one particular store or one 7 particular location -- 8 And I mentioned earlier, with reference to 9 your question about, How do you follow it through 10 the distribution chain? 11 -- they can do it. 12 And, you know, there will be times when they 13 do it. But, you know, other times -- and I'm sure 14 you'll hear this today from others as well, you 15 know, the things that are stolen the most, the most 16 frequently, are those small, easy-to-conceal, 17 high-value items that they know, you know, are going 18 to be difficult, if not impossible, to track. 19 You know, computer printer cartridge, things 20 like that, they're small. You can steal a bunch of 21 those. 22 You know, I've hung around with our members 23 now, with their loss-prevention guys, well enough 24 to -- I've learned all of the tricks. So, come on, 25 you know -- 1 [Laughter.] 2 TED POTRIKUS: -- I've figured out how to do 3 this, but it -- it's -- still, you know, it amazes 4 me, that. 5 And that's what they go for, the small stuff. 6 ASSEMBLYMAN MONTESANO: Thank you, Senator. 7 SENATOR ZELDIN: Well, first, I want to thank 8 you for your testimony. 9 I do want to highlight a couple of points. 10 One is, you were talking about the 11 "emergency exit" legislation. 12 TED POTRIKUS: Yes. 13 SENATOR ZELDIN: And the version that passed 14 was the B version. 15 And in the B version, I guess, going back to 16 the story of the 10-year-old who might be stealing 17 some candy, I'd like to just, you know, read one of 18 the -- one of the main lines in there. 19 It says: "For purposes of this subdivision, 20 'organized retail crime' shall mean the stealing, 21 embezzlement, or obtaining by fraud, false 22 pretenses, or other illegal means, of retail 23 merchandise in quantities that would not normally be 24 purchased for personal use or consumption, for the 25 purpose of reselling, trading, or otherwise 1 reentering such retail merchandise into commerce." 2 And, I'm happy that that particular sentence 3 is in there, because it goes back to that point of 4 that 10-year-old stealing a piece of candy. They 5 would not be prosecuted under this legislation. 6 This legislation specifically does not address that 7 case. 8 Now, one of our important goals, which I 9 think is shared amongst the three of us here at this 10 panel, yourself, and the other speakers, is for 11 anyone who, going into this hearing, did not know 12 what "organized retail crime" was, when we had our 13 hearing in Albany, I remember you referencing and 14 explaining it as "shoplifting on steroids." 15 TED POTRIKUS: Yes. 16 SENATOR ZELDIN: And, you know, it's only a 17 few words, it's -- but it really sums up this very 18 complex network. 19 It's not the 10-year-old stealing candy from 20 a -- from the 7/11. It's shoplifting on steroids. 21 These people are -- they're intelligent -- 22 they -- intelligent, as far as knowing what the laws 23 are and how to get by them. 24 They're -- I guess they're intelligent, as 25 far as their -- you know, their street-smarts and 1 working around the laws. 2 And we just have to make sure that they have 3 the right teeth so that we can prosecute them. 4 But one of our shared goals here is, there 5 are a lot of people out there who may not even know 6 what organized retail crime is. 7 TED POTRIKUS: Right. 8 SENATOR ZELDIN: And for them, they need to 9 know that it's shoplifting on steroids. 10 Now, Ted, you and -- 11 Melissa Googas? 12 TED POTRIKUS: Yes. 13 SENATOR ZELDIN: -- you and Melissa have 14 taken a lot of time to personally educate lawmakers 15 in Albany, to not just understand what a bill says 16 and what it means, but, to give us firsthand 17 knowledge, taking us, you know, into department 18 stores, seeing loss-prevention units, looking at 19 film. 20 And, I just want to, you know, commend you on 21 those efforts, you know, going the extra mile, to 22 make sure that we, not only understand what a bill 23 means, as far as the literal words of the text of 24 the legislation, but actually being able to envision 25 how it might be implemented with the networks out 1 there. 2 TED POTRIKUS: Thank you, Senator. 3 SENATOR ZELDIN: A couple of specific 4 questions, hopefully, that you can answer for us. 5 TED POTRIKUS: Sure. 6 SENATOR ZELDIN: Can you give us a -- I 7 guess, a little bit of an explanation of -- and with 8 some of the speakers to follow you, we're going to 9 get into a little bit more depth -- but can you talk 10 about the variety of ways that we're seeing these 11 products reemerge, and how consumers are purchasing 12 these products? 13 TED POTRIKUS: Well, I think, predominantly, 14 it's -- it's through itinerant-vendor situations. 15 You know, the stores that pop up out of nowhere, and 16 you wonder where that store came from, and then, 17 suddenly, it's gone. 18 Sometimes it's back into the -- what we all 19 think of as the legitimate stream of commerce. 20 Occasionally it's online. You know, there's 21 a pretty vast network out there. 22 And I know that -- that eBay is on the list 23 today. And I have to commend them because, really, 24 as an organization, they've done a lot in the last 25 few years to partner with the retail industry, to 1 make sure that the worst players are the ones who 2 are caught and shut down at those sites, that, their 3 offerings are not really found. 4 But, you can't control everything. 5 You know, so, e-fencing, which is kind of the 6 moniker given to it, is -- is a quick way to do it. 7 There are -- there are some who think, you 8 know, they'll put up things on -- for auction, or 9 for sale on something like -- well, you know, 10 Craigslist, or something like that. And people will 11 buy it; then they'll go out and steal it, the person 12 that you bought it from. 13 So I'll list, you know, I'll say, this pen. 14 You say, Oh, I want that pen. 15 And then you send me the money for the pen 16 and I go steal it, you know, so that I can fulfill 17 the order. 18 So, you've got this huge electronic 19 marketplace out there. 20 And every -- I think everybody first points 21 to the auction sites, but I don't think that the 22 industry does that necessarily, because the 23 partnership, as it has with law enforcement, has 24 grown. 25 So it really comes in any number of ways. 1 You know, and then it goes back to the 2 identity theft, and the retail manifestation of 3 identity theft. 4 So, it shows up on your credit card bill, and 5 then you say, I didn't do that. 6 And you call and you get the charges 7 reversed, and it's the retailer that gets hit for 8 the charge. 9 So, really, it shows up in just -- if you can 10 think of a way to buy it, that's where it shows up. 11 SENATOR ZELDIN: And I remember you showing 12 me the website. It looked like a business. 13 TED POTRIKUS: Oh, yeah. 14 SENATOR ZELDIN: And I guess, in way it is, 15 except it's an illegitimate business. 16 TED POTRIKUS: Yeah. 17 SENATOR ZELDIN: But from the website, it 18 looked like a legitimate business option -- 19 TED POTRIKUS: Sure. 20 SENATOR ZELDIN: -- and just getting the best 21 cost. 22 The reason is, is because it's stolen. 23 TED POTRIKUS: Sure. 24 And, you know, you will find, you know, so 25 much of what happens on the Internet is a social 1 experience now. 2 That, if I get a good deal somewhere, I'm 3 going to say: Hey, friends, look where I just got 4 my Advil for $2, rather than $4. 5 And it's a specific website that you go to 6 that looks very -- well, it looks very legitimate. 7 SENATOR ZELDIN: Well, I remember you telling 8 me the story of the $4 perfume of Macy's that might 9 get sold in a bodega. 10 TED POTRIKUS: Yeah. 11 SENATOR ZELDIN: And the reason why the 12 $4 perfume of Macy's is sold in that particular 13 bodega, it's not because Macy's is charging an extra 14 $36. It's because that $4 product, essentially, was 15 bought for free. 16 TED POTRIKUS: Yeah, that's -- that's a -- 17 potentially, a $4 profit for the person selling it. 18 ASSEMBLYMAN MONTESANO: And I just -- I hate 19 to ask this question, I really do, because I don't 20 want to label any particular business or store, but 21 it's the curiosity that I have. 22 And, I grew up in Brooklyn, and, you know, 23 I'm out here about 35 years. So, I seen this 24 concept go back to the day I grew up in Brooklyn, 25 but I see it more and more readily in our 1 communities; and this is the advent of the 99-cent, 2 you know, store that has evolved. 3 And -- I mean, but, you know, they buy things 4 at auction. I do realize they're surplus inventory, 5 and things like that. 6 TED POTRIKUS: Right, right. 7 ASSEMBLYMAN MONTESANO: But is there any 8 indication that these type of stores are -- you 9 know, are a gateway? 10 You know -- I mean, because I do find the 11 artist's names of toiletries in there. And even 12 when you see canned goods. 13 And I realize there's factories throughout 14 our country, you know, that, you know, manufacture 15 things. 16 And I was just wondering, could you speak on 17 that? 18 TED POTRIKUS: I can't specifically, simply 19 because I don't know. 20 You know, some of the folks, the 21 professionals who follow me today, may be able to 22 answer that: Are they finding their products 23 showing up on the shelves of that type of store? 24 There's a whole community of stores out there 25 that are -- the distress merchants who buy -- 1 ASSEMBLYMAN MONTESANO: Okay. 2 TED POTRIKUS: -- you know, legitimately. 3 You know, they'll buy the going-out-of-business 4 sales or the liquidations from the distributers. 5 Or, last season's stuff, you know, and then they'll 6 sell it for this season's prices. 7 So -- or two seasons ago. 8 So, you know, there -- I think with -- like 9 with any part of the chain, there's legitimate, and 10 there's less-than legitimate, in that particular 11 circle. 12 ASSEMBLYMAN MONTESANO: Thank you. 13 ASSEMBLYMAN GRAF: Now, are you the person 14 that's dealing directly with the DA's Office and the 15 different DAs' office? 16 TED POTRIKUS: We've done -- really, what the 17 Retail Council has done, and you'll hear this too 18 from our colleagues at the Food Industry Alliance, 19 you know, we've gone together, to the different 20 district attorneys, to start the education process, 21 or, jump start, if they are already familiar with 22 the situation or with the terms. 23 So we've done that. 24 But, at that point, really, it's -- it's -- 25 we turn it over to the loss-prevention professionals 1 from the different stores. They're the ones who are 2 going to be dealing at the local level, on a weekly, 3 or daily, or monthly, basis with the DAs, so we just 4 turn it over to them. 5 ASSEMBLYMAN GRAF: Well, here's my question: 6 When you catch these people, is there any type of 7 database that you're keeping? 8 Because, let me -- especially Mike and I come 9 from a different perspective. We're both ex-City 10 cops, and we're both lawyers also. 11 And I practiced over here for Legal Aid for a 12 little while. 13 And, when I'm listening to this: I had an 14 individual that walked into K-Mart and, basically, 15 stole two duffle bags, and he emptied out the whole 16 razor display. 17 TED POTRIKUS: Yeah. 18 ASSEMBLYMAN GRAF: And when I talked to him, 19 I looked at him and I said: You know, you've been 20 arrested 50 times for petty larceny. 21 And he goes: I know. 22 And I said: They you have as a career 23 criminal. 24 He goes: I know. 25 I go: Apparently, you need a new career, 1 you're not good at this one. You keep getting 2 caught. 3 But the thing is, if he's -- you know, what 4 I'm thinking right now, is, they're going in, 5 they're going after an item; so, like razor blades. 6 TED POTRIKUS: Yes. 7 ASSEMBLYMAN GRAF: So if I have a guy that's 8 sitting there -- and what happens when you come into 9 court over here, especially if you have a 10 petty-larceny crime, they'll plea bargain it down. 11 All right, well, you've been caught, five, 12 six times. All right, we'll give you nine months 13 instead of a year. 14 All right? 15 But the thing is, if they're stealing items, 16 and it's a large amount of the same item, that would 17 lead me to believe that they're engaged in this. 18 All right? 19 And one of the things I'm looking at is, once 20 they come into the court system, and you know that, 21 on multiple occasions, he gets locked up for 22 stealing 50 razors, or the whole display of razors, 23 or he goes and steals a whole display of aspirin, 24 then, this is one of these people that are involved 25 in this organization, and you can, during the plea 1 bargain negotiation, right, to flip this guy, to 2 really get the idea of what's actually going on. 3 But, are we tracking people that steal, like, 4 one item but it's the whole display case, or, 5 multiples of the same item? 6 I mean, are you doing that in the retail part 7 of it? 8 TED POTRIKUS: I think that would be a good 9 question for the people who follow. 10 But I think the short answer to your question 11 is: In different ways, different organizations, the 12 State -- the Division of Criminal Justice Services, 13 for example, in Rochester, and now in Albany, are 14 collecting this as -- collecting this information as 15 data -- you know, what's being stolen? how's it 16 being stolen? -- sharing the information. 17 The retailers, together, are on secure 18 websites, trading the information back and forth: 19 Here's this person coming in. 20 But as far as when they get to the 21 prosecution stage, I think they're being sent out to 22 steal different things each time. 23 You know, they might not be the razor-blade 24 specialist anymore, but I think they get to that 25 point. 1 ASSEMBLYMAN GRAF: Well, what I'm trying to 2 get to here, all right: I have a guy that steals. 3 One day he takes a whole display case of 4 razors. He gets caught. 5 I catch him over here, stealing 30 pairs of 6 jeans. 7 Then he gets caught another time stealing, 8 you know, something else. 9 And if you guys are sharing this data, and 10 you have the person's name, now your theft 11 prevention catches him. 12 Okay? 13 Running it through your database, to say: 14 Look this guy's been arrested numerous occasions, 15 and this is what he keeps doing. 16 And hand that off to the police. And hand 17 that off to the prosecutors. 18 TED POTRIKUS: Yeah, that happens. 19 ASSEMBLYMAN GRAF: Okay? 20 So -- I mean, that -- it just -- when you do 21 that, the normal shoplifter, everyday shoplifter, 22 you know, you look at it and you deal with it. 23 But if you have a pattern for, like, that 24 individual, 50 times, for petty larceny. 25 TED POTRIKUS: Yeah. 1 ASSEMBLYMAN GRAF: And, really, where he 2 steals the entire display case, we're going beyond 3 that. 4 So that puts the prosecutor in a better 5 position, right, to hold this guy, where, you might 6 be able to look at, he may have three different 7 crimes charged, three different stores, if they go 8 back on tapes and stuff, doing the same thing, and 9 you can sentence him consecutively. 10 So now he's not looking at a year in jail, 11 he's looking at three years in jail. 12 To get more information, to try to break this 13 stuff up, but that's how your industry may be able 14 to help law enforcement. 15 And I'm wondering if you're doing that? 16 TED POTRIKUS: Yeah. Assemblyman, yes, 17 that's what they -- that's what they do do. 18 You know, the law enforcement teams at each 19 of the companies, I mean, you know, they know who 20 they're looking for. Sometimes they know exactly, 21 Oh, he's with this gang, she's with this gang, so 22 they can watch that. 23 I think where the bills that we're talking 24 about today come into play is, as Senator Zeldin 25 said in his comments, you know, putting some teeth 1 into the state law, to give the prosecutors and to 2 give the judge in those cases a little bit more room 3 to really follow through and do what you're talking 4 about doing, as far as consecutive sentencing. Or, 5 having -- having a little bit more leverage, to sit 6 down with that -- that career criminal who may have 7 been caught 50 times, but may also have gotten away 8 with it 250. 9 You know, so -- so I think -- I think, in 10 some ways, these bills do give more leverage to the 11 prosecutors, to the criminal justice system, so that 12 we can get to the people up at the top, you know, 13 and reserve -- reserve the penalties that these 14 bills call for, for the people who are really 15 running the business, rather than the -- the 16 down-and-outs who might be their unwitting 17 participants. 18 ASSEMBLYMAN GRAF: Thank you. 19 TED POTRIKUS: Thank you, Assemblyman. 20 SENATOR ZELDIN: Well, Ted Potrikus, 21 executive vice president, and director of government 22 relations, for the Retail Council of New York, thank 23 you for your testimony, and traveling down here to 24 Central Islip. 25 TED POTRIKUS: A pleasure. 1 SENATOR ZELDIN: And, hopefully, navigating 2 the Long Island Expressway is a little bit easier on 3 the way out. 4 TED POTRIKUS: I will figure it out. 5 Thank you so much for having the hearing, 6 Senator, Assemblymen. 7 I appreciate it very much. 8 ASSEMBLYMAN MONTESANO: Thank you. 9 SENATOR ZELDIN: Our next three speakers 10 coming up together: 11 First is, Michael Rosen, who's the 12 senior vice president of the Food Industry Alliance 13 of New York State; 14 James D'Arcy, who's a security expert with 15 A&P, Pathmark, and Walbaums; 16 And Justin Dietel, who's a security expert 17 for ShopRite. 18 I would like to thank all three of these 19 gentlemen for being here today. 20 I especially would like to recognize the 21 efforts of Michael Rosen of the Food Industry 22 Alliance. 23 Michael, along with Ted, have given the extra 24 effort to make sure that the legislators, not only 25 understand the literal meaning of the legislation, 1 but to understand its implications. 2 And it's really -- I don't know, without the 3 hard work of Ted and Michael, if this legislation 4 would be to the point that it is today, due to the 5 increased amount of education that you have given 6 all of us as legislators. 7 So, Michael, thank you for being here. 8 James and Justin, thank you as well. 9 And, Michael, if you would like to begin. 10 MICHAEL ROSEN: Well, thank you, Senator. 11 And, good morning, Assemblyman Graff and 12 Assemblyman Montesano. 13 Let me begin by thanking you for holding this 14 hearing. This is a critically important issue to 15 our members. 16 As you referenced earlier, Ted's comment, 17 this is a growing crime. This is not ordinary 18 shoplifting. 19 These are professional gangs who are going 20 out with selected shopping lists, who are stealing 21 products for resale. 22 And, we see the same items being stolen in 23 supermarkets, that includes, very often in our 24 stores, items like infant formula; foods, like 25 seafood and steaks; razor blades; dental whitening 1 strips; and Red Bull. And for some reason, Tide 2 detergent. 3 But, they seem to go after the same products 4 all the time. 5 And as you and Ted had referenced, this is 6 not items stolen for personal use. These are 7 professionals selling for resale. 8 Supermarket losses, just to give you a feel 9 for how big this problem is, they're placed at 10 15 billion a year, with all retail loosing between 11 30 to 40 billion per year. 12 So it's a huge crime. 13 And we very much appreciate the package of 14 bills that you introduced. We think they were 15 carefully crafted to assist law enforcement to 16 prosecute these crimes. 17 Of particular interest to us is the one bill 18 that would make it a crime to present a false sales 19 receipt or UPC code. 20 We see people coming into stores, fixing a 21 UPC code to a lower-priced item, and then, of 22 course, the cashiers are trying to move things 23 along, so they may not notice it. 24 The other bill that is particularly important 25 to us, is the one that would allow a single DA to 1 prosecute multiple crimes committed in different 2 jurisdictions. 3 Because, although Ted referenced how hard it 4 might be to get around Long Island, what we see 5 upstate, for instance, in the Capital District, is, 6 they'll come up the thruway, they'll hit a store in 7 Albany. They'll jump across the river to Troy, 8 which takes 15 minutes. Then they'll go to 9 Schenectady. Then they'll go to Saratoga. 10 All of that can happen in a few hours, and 11 then they'll disappear. 12 So, allowing one DA to take charge of those 13 crimes, as long as one crime occurred in that 14 jurisdiction, is critically important to us. 15 And we think it's extremely relevant that 16 you, as the Chair of the Consumer Protection 17 Committee, are -- have taken this package, because 18 it's -- there is clearly a consumer element to this. 19 It's more than just a crime against business. The 20 public is affected. 21 One thing that we see, is that they'll target 22 items like infant formula, and infant formula are 23 sold in standardized packages. 24 So, they may steal an item like Similac. 25 But these groups are so big and so 1 sophisticated, that they often then will relabel it. 2 Why will they relabel it? 3 Well, they may want to, one, relabel it as an 4 item that's WIC-eligible, which means it would have 5 a higher street value. 6 So they'll take a non-WIC-eligible item, 7 relabel it as a WIC-eligible item. 8 The other thing they may do is, to enhance 9 the value is, they may change, actually, what the 10 product is. 11 So, this is a regular milk-based infant 12 formula. 13 They may relabel it a as soy-based formula. 14 Or, they may relabel it as a formula specially 15 designed for premature babies. 16 And so what you have is, a mother who now is 17 spending more money to buy a specialty product 18 because their child has a specific need. They may 19 have an allergy, may need additional nutrition, and 20 they're not getting it. 21 The child doesn't get better, they don't know 22 why. 23 The reason is, they're not getting the right 24 product. 25 Now, we know what you said, you know, how -- 1 How do you track these products? 2 On a more expensive item, like infant 3 formula, it's, actually, there's a code on the 4 bottom. 5 So when we recover it, we can say: Hey, 6 that's not Enfamil. That's really Similac. 7 So, we can tell that this product has been 8 relabeled. 9 And, I had a conversation with your counsel, 10 Jennifer, the other day. And we noted that they'll, 11 very often, take these items, put it in a warehouse. 12 If it's past its expiration date, they don't 13 care. They'll just relabel it, because they know it 14 won't be tracked back to them because it's not part 15 of a legitimate distribution scheme. 16 The other thing we see is, they may steal an 17 item like seafood or steak. 18 And since they can't take a ShopRite product 19 and resell to a small retailer or restaurant, so 20 they'll repackage it in the back of a van. 21 Well, you can imagine how sanitary the 22 conditions are in the back of the van. 23 But, once again, they don't care because it's 24 not traceable back to them. 25 So, this is a serious problem. 1 I have several members here who are really 2 the experts in this area, who can give you some 3 specific examples. 4 In particular, Jim from A&P has a PowerPoint, 5 where I think he can give you some really good 6 examples of the kind of crime that we're wrestling 7 with. 8 So, thank you for inviting us this morning, 9 and I'll be happy to answer questions, maybe after 10 these guys do. 11 JUSTIN DIETEL: Before we start, I just want 12 to answer a question from Assemblyman Graf earlier. 13 As far as us putting together information, we 14 do internally track certain shoplifters and look for 15 certain individuals, so, we may know that this 16 person has been going from location to location. 17 At the last hearing, I spoke about one person 18 in particular, and his group of people, that were 19 hitting us in the Hudson Valley, Chester, Monroe, 20 Middletown area. 21 It worked out that, at times, we would catch 22 one of the individuals, and be able to go back and 23 say: You know what? I have video of that person, 24 three days earlier, in a store five miles away. 25 Let's go charge them, there. Let's charge them, 1 here. 2 The problem is, without this legislation, 3 they were individual charges. 4 So you would have three shoplifting charges 5 in three different jurisdictions, hoping that the 6 prosecutor actually goes forward and charges them 7 with something. 8 And, many times, they're not dealing with 9 people that have shoplifted 50 times and been caught 10 50 times. They're dealing with the low-level street 11 criminal who's maybe been caught three or 12 four times. 13 He doesn't even know where the product's 14 going. 15 He's just picked up in the morning, taken 16 there, told to steal this. 17 So, he gets a slap on the wrist. 18 And they'll tell us: Hey, you locked me up? 19 They're just going to find somebody else. 20 There's plenty of people around looking for a 21 quick buck. They'll just pick somebody else up in 22 the morning, and take them. 23 We really need to go after the person who's 24 behind it and who's driving the issue. 25 We even worked together with our competitors 1 to go after these individuals, where, we'll have 2 alerts that will go out: We just apprehended this 3 person with $500 of baby formula. Here's his 4 information. If you have him elsewhere, you 5 probably want to charge him also. Or, this is where 6 they say they're selling it. 7 You want to work together, and meet with the 8 prosecutor and meet with the DA, maybe we can go 9 after those bodegas that are buying it. 10 So, we do work together in an attempt to go 11 after these individuals and places. 12 Let me get started. 13 My name is Justin Dietel. I'm an asset 14 protection specialist at (SRS) ShopRite. 15 We are a full-service grocery store operating 16 in the New York and New Jersey area. 17 We operate a total of 31 stores, with 28 of 18 them in New York, from Yonkers to the Capital 19 region, and employ approximately 8,000 associates. 20 We are a wholly owned subsidiary of the 21 Wakefern co-op which operates multiple locations 22 throughout Long Island, including Patchogue, 23 Commack, and Bay Shore. 24 I appreciate the opportunity to present 25 testimony today on this important but troubling 1 topic. 2 Over the last several years, all retailers 3 have seen an explosion of organized retail theft. 4 SRS has not been immune to this. 5 Some of the items we have seen losses on are 6 razor blades, baby formula, Red Bull, meat, seafood, 7 cosmetics, and analgesics. 8 We have even experienced some losses on 9 non-traditional theft items, such as gum and Tide. 10 These losses are taking place on any item 11 that can be easily resold. 12 Some of the items in question have ended up 13 at gas stations, bodegas, and flea markets, where 14 they're purchased from the shoplifter, and then 15 resold. 16 Many times, the person running the location 17 will request certain items to be stolen, even giving 18 the shoplifter a shopping list. 19 And we find this, when we stop the person, 20 they actually have a shopping list on them of 21 exactly what they needed to bring back with them. 22 These items either end up at the location 23 being resold, or, they are shipped out, repackaged, 24 and then resold back to unsuspecting retailers 25 through redistribution centers. 1 More recently, these items have begun showing 2 up at on-line sites. Here are just a couple of 3 examples found this past week: 4 Mach3 razor blades, which are right here, 5 8-pack for $12, while most retailers are selling 6 that same item for 22. 7 Mach3 Turbo razor blades, 5-pack for $10, 8 while most retailers are selling the same item for 9 16. 10 This seller is advertising multiple razor 11 blades for sale from the Queens area that are at 12 prices below what the manufacturer sells the item 13 for. 14 It's unclear how the seller has -- is able to 15 obtain these items and resell them at such a steep 16 discount, but we can all imagine. 17 To be clear, these -- those involved in this 18 type of theft are not your traditional shoplifter; 19 instead, they are professionals who conduct these 20 actions for financial gain. 21 They are stealing large quantities of items, 22 and many times, are planning out their actions. 23 Many are also knowledgeable of the laws that 24 they can be held to, and where they're more likely 25 to be fully prosecuted. 1 Again, to them, this is their job. 2 These losses impact all of us in different 3 ways. 4 For the retailer, there is the obvious loss 5 of merchandise, but there is also the loss of sales, 6 since, most times, those involved in ORT clear the 7 shelf of the item stolen. 8 Customers lose out, since they are now not 9 able to buy the items they want, and may need to 10 make several shopping trips to other locations to 11 find the item. 12 There's also the major concern over how 13 products are being handled once they leave our 14 premises. 15 The new mom who purchases a can of baby 16 formula from the corner store or online thinks it's 17 okay since the package is sealed, but has no idea 18 that the nutrients her baby needs are breaking down 19 due to the extreme heat the can may have been left 20 in in the shoplifter's trunk. 21 Worse yet, there have been incidents where 22 baby formula is repackaged from a less-desirable 23 brand or type to the WIC-accepted brand. 24 This is done, so that once it is sold, they 25 can get the largest return, which is the amount 1 reimbursed on the WIC check. 2 We all lose out by continued loss of revenue 3 since sales tax is rarely charged on these items. 4 There is also a drain on local law 5 enforcement, since they are continuously dealing 6 with the same person and prosecuting them again. 7 As you can see, the retailers and retail 8 community have come together to help fight these 9 issues. 10 Traditional competitors in the on-line 11 community are meeting and working together on a 12 regular basis to identify those involved in these 13 type of crimes, but there's only so far that we can 14 go. 15 We need your help in passing legislation that 16 will help us send a message through strong 17 prosecution of the individuals and groups that are 18 engaged in these activities. 19 Thank you for giving me the opportunity to 20 give testimony this morning. 21 Now, I'll turn it over to Jim D'Arcy from 22 A&P. 23 JAMES D'ARCY: The document is thick, but 24 there's plenty of pictures. 25 All right, so, good morning. 1 I want to thank you for the opportunity to 2 testify on the growing problem of organized retail 3 crime. 4 My name's Jim D'Arcy. I'm the director of 5 asset protection for the Great Atlantic & Pacific 6 Tea Company. 7 Since 1859, the simple letters "A&P" have 8 stood for a trusted source of fresh, high-quality 9 food for the family dinner table. 10 Starting with our first store at the corner 11 of Vesey and Church Streets in New York City, the 12 Great Atlantic & Pacific Tea Company continually 13 strives to better meet the needs of families in all 14 the neighborhoods we serve. 15 Today, with more than 300 stores operating 16 under the A&P, Food Basics, The Food Emporium, 17 Pathmark, Super Fresh, and Walbaum's banners, we're 18 proud to be one of the largest grocery companies in 19 the northeast. 20 So what I would like to do, is kind of change 21 perspective here in this presentation. 22 I think, as an industry, we do a very good 23 job of kind of covering it at a 50,000-foot level, 24 and talking about the growing problem at a federal 25 level, and we talk about, billions, and millions, of 1 dollars. 2 I would like to change perspective a little 3 bit, and talk about how this impacts the individual 4 store. 5 Okay? 6 So, quickly, I have been invited here by the 7 Food Industry Alliance of New York State, to submit 8 testimony, and share my experiences with the growing 9 problem of ORC. 10 Shoplifting is an unfortunate cost of doing 11 business for retailers, but let me be clear, 12 shoplifting is not organized retail crime. 13 Rather, ORC involves sophisticated criminal 14 enterprises that move from town to town, and across 15 state lines, stealing large quantities of 16 merchandise from retail stores. 17 ORC is a nationwide problem that requires a 18 legislative solution. 19 According to federal law-enforcement 20 officials and law-enforcement experts, losses 21 attributed to ORC activity are as much as 22 $30 billion annually. 23 And I think we all know that. 24 Every segment of the retail community is 25 being victimized by these sophisticated theft rings, 1 including supermarkets, pharmacies, specialty shops, 2 and department stores, among others. 3 [PowerPoint presentation begins.] 4 JAMES D'ARCY: So, to answer the question 5 that was asked earlier, the typical ORC ring is 6 operating in this manner. So, this is a pretty 7 clear view of what we're looking at. 8 So here's your retailers; 9 Here's your low-level booster; 10 And your fence. 11 After the boosters obtain the product, the 12 fence is going to decide how to distribute it. 13 So, typically, close-coded or damaged product 14 is going to go to a -- to an Internet auction site, 15 a flea market, a neighborhood bodega, because it's 16 less desirable and it's easier to sell that way. 17 Product that has a long shelf life and is in 18 a perfect condition is going to find its way to a 19 buyer or a middleman, often to a repackaging 20 operation that we've spoken with, to illegitimate 21 warehouses and delivery agents, who ultimately 22 recycle the product back into retailers. 23 So, I hope that gives a little bit of clarity 24 on how that happens. 25 So what is A&P doing about it? 1 Like most retailers, A&P's approach to 2 mitigating the impact of ORC touches every business 3 area. 4 Our process begins at the source with our 5 merchants and buyers. 6 Purchasing decisions are often affected by 7 the risk of theft. 8 Category business plans and store layouts are 9 created with risk in mind. 10 While high-traffic areas are certainly the 11 most desirable areas of the store, from a sales 12 perspective, our merchants must also consider 13 utilizing those areas for high-risk product. 14 So, an area that would typically be most 15 desirable for displaying a product that's hot, and 16 is getting a lot of promotions, isn't necessarily 17 used to the largest impact because we have to 18 merchandise that area with high-risk product that's 19 more visible to employees and other customers. 20 After merchants make product decisions, the 21 burden is transferred to the warehouse and 22 suppliers. 23 A&P employs an investigations' team to ensure 24 the security and integrity of every delivery to our 25 stores. 1 When product is securely delivered to the 2 store, the product is most at risk. 3 A&P continuously is refining its 4 merchandising protection plan, that includes the use 5 of expensive fixtures, to make large-scale theft 6 difficult, to reduce exposure by limiting the number 7 of items available to the customer. 8 Additionally, high-risk product is tagged 9 with labels meant to identify A&P's product sold in 10 other formats. 11 So to your point earlier: Are we doing 12 anything? 13 We source tag all high-risk product from our 14 warehouses with a sticker that's similar to what 15 Justin brought here, that identifies it as our 16 product. 17 It's marginally effective, in that, the 18 less-intelligent criminals will leave the sticker on 19 there, right, and it will be sold right at the front 20 of a corner bodega. So, as we're passing, we can 21 see our product on the shelves. 22 And that's the really simplest way of 23 mitigating that. 24 However, your more sophisticated rings and 25 their repackaging operations will use things like 1 lighter fluid to remove that tag. So, not only does 2 it remove the tag, but it will also remove the 3 residue left behind that's intended to collect dust 4 and still help us in identifying that product. 5 Outside of that, the company invests in a 6 monthly core-watch program, which essentially is 7 designed to teach our associates how to mitigate 8 theft with great customer service. 9 A&P has also invested millions of dollars in 10 CCTV technology, to provide law enforcement better 11 high-quality evidence when we're going after these 12 ORC crews. 13 In addition to the asset-protection teams 14 that work in our stores every day, we've 15 supplemented their efforts by creating an 16 investigations' team whose sole purpose is to track, 17 identify, and prosecute these folks in these ORC 18 crews. 19 Despite all of these efforts, the impact of 20 ORC continues to become larger. 21 And I'm going go show you analytics around 22 that that will prove that case. 23 So, at the store level, I'm going to tell you 24 about a situation that we're actually prosecuting 25 currently. I've taken a few steps to help to keep 1 the names of the guilty, you know, anonymous. 2 So, I'd like to give you a clear picture of 3 how an ORC group operates. 4 Imagine for a second that a 20-year-old man, 5 21-year-old man, Tim Smith, wakes up one morning to 6 a phone call from his brother. 7 His brother manages a popular nightclub and 8 is trying to lower his overhead. 9 Smith's brother asks him to steal Red Bull 10 from local grocery stores and deliver it to him, and 11 in exchange, he'll give him one-third the retail 12 value. 13 Smith visits an urban store close to his home 14 and attempts to steal six cases of Red Bull 4-packs, 15 and is apprehended by the store's loss-prevention 16 team. 17 He's arrested, charged with shoplifting, and 18 released before dinner. 19 That evening, Smith reflects on what's 20 occurred, and changes his approach. 21 Smith recruits two of his friends to assist 22 him with his efforts, and in exchange for their 23 help, Smith offers to pay them in bags of heroin. 24 That evening, Brian Fischer [ph.] drives 25 Tim Smith and Seth Brown to a suburban grocery store 1 located off an interstate highway approximately 2 50 miles from their home. 3 Smith has chosen this location because he 4 believes it will be less likely to have asset 5 protection in the building, and he's right. 6 Smith enters the store and empties the entire 7 Red Bull category into a shopping cart. 8 Brown acts as a lookout, often distracting 9 employees in the area. 10 Less than five minutes from the time they 11 pulled into the lot, Smith and Brown are outside the 12 store with the loaded cart. 13 They -- 14 Yeah, go ahead. 15 So, I think it's just an excellent depiction 16 of what a cart full of Red Bull looks like, in case 17 you were wondering. 18 That cart is probably exceeding seven hundred 19 to nine hundred, maybe near to a thousand dollars, 20 in a single cart. 21 They're able to leave through the entrance 22 door by having the gentleman outside come in, open 23 the automatic doors, and then they escape through 24 those doors, because, typically, those doors are 25 meant to be one-way to prevent those type of thefts. 1 That trio hits more than four stores -- I'm 2 sorry. 3 That trio hits four stores that evening, and 4 they're using our website's "Store Locator" to 5 identify the stores, because they're way past where 6 they're used to -- well, you know, where they live, 7 and where they grew up. 8 In five hours, this team has stolen $5,000 of 9 product from us. 10 Smith also expands his network offenses to 11 include an Internet wholesaler, as well as four 12 neighborhood convenience stores. 13 Prior to their apprehension and subsequent 14 arrest, Smith's group stole nearly $40,000 of 15 product from us. 16 And the most interesting and staggering part, 17 is we caught them after only four weeks, and they 18 were able to take $40,000 off our shelves. 19 So when I tell you that I'm trying to 20 approach this from a different perspective, $40,000 21 may not seem a lot compared to 30 billion, but we're 22 talking about a small group of stores. And in the 23 supermarket business, our margins are not very high. 24 Think about what it takes to recuperate 25 $40,000 in losses. 1 So in late spring, three men entered a 2 grocery store in the suburbs of New York City. Each 3 of the men was pushing a shopping cart, and upon 4 entering, walked into three separate HBA aisles. 5 The men began sweeping the entire shelves of 6 product into their respective carts, and in less 7 than 90 seconds after entering the store, they've 8 left the store with three full shopping carts full 9 of HBA. 10 Their crime spree only lasted for three days 11 before Mike and his team apprehended them, but in 12 that three days, they stole over $18,000 worth of 13 product from us. 14 So when you ask, "What's being stolen?" -- 15 I've kind of cut off the end here, to limit 16 the amount of information because, to an extent, 17 it's proprietary. 18 -- but this is, as of our most recent period 19 close, in terms of number of items, the most 20 frequently stolen items from A&P's families of 21 supermarkets. 22 So, this is in terms of quantity. 23 So, these are based on actual shoplifting 24 apprehensions made by my team. 25 And I think what's most disturbing, outside 1 of the fact that the order ends at the top of the 2 list, right, is meat and seafood. 3 So we spend a lot of time talking about 4 razor blades and infant formula, and, you know, all 5 those things are kind of sexy, because it's linked 6 to terrorism, and it's high-value product. 7 When you think about, from a 8 consumer-protection perspective, meat and seafood is 9 at the top of the list. And I doubt they have the 10 same food-safety regulations and standards as we do 11 at A&P. 12 Go to next slide, Mike. 13 So now we're talking about dollars, the value 14 of the items that have been stolen, and meat and 15 seafood far eclipses any other category. 16 So I've given you guys a copy of this, but 17 this is real data. None of this is assumptive. 18 This is what we catch every single day. 19 And, you know, in five years worth of data, 20 this is tens of thousands of shoplifters. 21 Okay? 22 I think what's also important to note, is 23 that, we often speak to high-dollar items. That's 24 not necessarily what's most at risk. 25 What's most at risk is whatever is most 1 desirable. 2 So, AXE body spray, for the other retailers 3 in the room, I'm sure, or Dove body wash, is an item 4 that is consistently being hit. 5 It has nothing to do with the value and the 6 item, it's just desirable. 7 In our stores, the most commonly stolen item, 8 in terms of brand, is Dove. But Dove isn't overly 9 expensive in comparison to its competition. It's 10 just the most desirable item. 11 SENATOR ZELDIN: Seems like these criminals 12 definitely know the importance of good hygiene, 13 though. 14 [Laughter.] 15 JAMES D'ARCY: Absolutely. Absolutely. 16 So, again, I've taken some steps to protect 17 our proprietary information, but you're looking at 18 our external theft cases, year over year. 19 So in terms of the grocery industry, A&P 20 probably operates one of largest loss-prevention 21 teams in the northeast, in terms of headcount, for 22 investigative-level apprehensions, and those are the 23 folks that focus on shoplifting. 24 So when you look, year over year, "blue" 25 being 2012, versus 2011, the fact of the matter is, 1 external theft is up. 2 And this is apples to apples. 3 We haven't increased our staff. We haven't 4 changed much. Our approach is still the same. 5 We're just catching a lot more shoplifters. 6 SENATOR ZELDIN: The spike is -- why is there 7 a spike in September, October? 8 JAMES D'ARCY: I can't tell you. I don't 9 know. 10 I don't know. 11 UNKNOWN SPEAKER: Is it because the stores 12 are more busy and, simply, it's easier to steal, 13 because -- 14 JAMES D'ARCY: I don't -- I don't -- I 15 couldn't tell you. 16 It's been my experience that, at least in 17 grocery, a lot of those trends with sales don't 18 necessary impact the amount of shoplifting that 19 happens in a store. 20 Shoplifting is every day. 21 It's just the extent of the damage caused by 22 that shoplifting that really varies from week to 23 week. 24 ASSEMBLYMAN MONTESANO: I just have one 25 question, and I guess I'll ask you this, if you 1 know, industry wide, because I don't want to ask you 2 anything that you may be doing, you know, in your 3 operations, but, has the industry looked at the 4 facial-recognition-software area, like the casinos 5 use, you know, when they -- 6 JAMES D'ARCY: Every trade show any of us 7 attends, it's front and center. 8 There's recently an as-is conference in 9 Philadelphia, and facial recognition is out there, 10 front and center, on the floor. 11 I got to tell you, my board of directors is 12 never going to support the capital for 13 facial-recognition software. 14 I think it's just unrealistic. 15 And this is a company that's already spending 16 millions every year, efforting, you know, mitigating 17 this risk. 18 ASSEMBLYMAN MONTESANO: Yeah, the only reason 19 why I asked, is because, as you know, in the casino 20 industry, you know, when they black-ball, you know, 21 someone from the -- and they put them in the system, 22 the minute someone comes into one of their doors, 23 that system kicks them -- you know, or raised the 24 red flag, and the security people will be on top of 25 them. 1 And, you know, they have their reasons, of 2 course, for doing it. 3 And I was just wondering, in an industry, you 4 know -- 5 JAMES D'ARCY: It's certainly available, but 6 I don't -- 7 ASSEMBLYMAN MONTESANO: I didn't realize it 8 was that cost -- 9 JAMES D'ARCY: Yeah, I -- especially across 10 300 stores. 11 ASSEMBLYMAN MONTESANO: Right, but then 12 again, from what yous lose on a yearly basis also, 13 you know, so I didn't know if there was any, you 14 know, relative basis or justification, you know -- 15 JAMES D'ARCY: It's a valid question. 16 We have not gone down that road yet. 17 ASSEMBLYMAN MONTESANO: All right. 18 JUSTIN DIETEL: I think, just to add to that, 19 one of the problems is the accuracy, so far, is -- 20 just hasn't been up to that level. 21 Some of the numbers I've heard, it's anywhere 22 between 25 and 30 percent accurate. 23 Years ago, right after 9/11, you heard about 24 airports installing it, and then they ended up 25 having to pull it out. 1 One of the big things is, being able to 2 capture that person's face with the sheer volume of 3 people coming in and out of our stores every day; 4 whether they're wearing hats and jackets, and, you 5 know, scarves, and what have you; or just how they 6 turn their head, because they're looking at product 7 when they walk in. 8 It would be a great tool, but, unfortunately, 9 it's still many years down the road. 10 JAMES D'ARCY: We don't have the resources, 11 in terms of manpower, to necessarily react to that 12 either. 13 So, in the majority of our stores, it's no 14 secret that you won't find loss-prevention there 15 every single day, with the exception of the urban 16 environments where they're an absolute necessity. 17 So if we a had a store out in suburbia, that 18 that system identified a career criminal walking in 19 the front door, to a certain extent, I don't know 20 that I want my management team reacting, only 21 because, the trend over the past three years has -- 22 these folks have become more brazen and more 23 violent. Physical alterations with my folks 24 continues to rise. 25 So, a store management-level person, I don't 1 think I even want to tell them. 2 We're probably better off letting them go out 3 the door with it. 4 ASSEMBLYMAN MONTESANO: And just let me ask 5 you, if I may, Senator: Is -- in your experience, 6 have you seen any particular places where your 7 merchandise continually surfaces? 8 Can you -- 9 JAMES D'ARCY: I'm going to show you some 10 great pictures. 11 ASSEMBLYMAN MONTESANO: Oh, okay. Okay. 12 JAMES D'ARCY: So here it is, in terms of 13 value of apprehensions, again, the same trends that 14 you saw in the previous slide is here as well. 15 Go ahead, Mike. 16 So this is kind of my last story for the day. 17 This group operated a warehouse that supplied 18 its own, as well as other grocery stores across two 19 states. 20 The group obtains stolen merchandise by 21 bribing our employees to supply them with product. 22 The employees would load the stolen product 23 into a box truck while stores were closed overnight. 24 Although the total extent of damage done to 25 our organization cannot accurately be estimated, 1 it's absolutely known, that after we seized all of 2 products in this warehouse, we pulled back $70,000 3 worth of product. 4 But the retailer was certainly not the sole 5 victim in this criminal enterprise. 6 Thousands of dollars of unwholesome product 7 was fenced through this warehouse and, ultimately, 8 sold to unknown customers. 9 And I think as we go through these slides, 10 you'll get a good picture of what "unwholesome" is 11 when we talk about this. 12 Go ahead, Mike. 13 So -- 14 You don't have to go back, Mike. 15 SENATOR ZELDIN: Is this New York, or 16 somewhere else? 17 JAMES D'ARCY: This is Philadelphia. 18 So on the left-hand side here you'll see milk 19 bossies. That -- the product on those milk bossies 20 is perishable product that needs to be refrigerated. 21 Go ahead, Mike. 22 Go ahead. 23 So this is when we get into the basement part 24 of their operation where, really, it becomes the 25 most unsanitary. 1 And I think the next picture is probably the 2 most accurate depiction of the conditions that that 3 food product is being held in. 4 I don't think that they're taking any steps 5 to mitigate rodents in that basement, that's for 6 certain. 7 ASSEMBLYMAN GRAF: Can I ask you something? 8 JAMES D'ARCY: Sure. 9 ASSEMBLYMAN GRAF: Are you finding cases 10 where they send in groups of people into -- 11 What they were doing in the city for a while, 12 is they would actually send in groups that would 13 just snatch-and-grab and run out. 14 Are they doing this a lot too, or -- 15 JAMES D'ARCY: The "flash rob" is probably -- 16 is kind of a new and hot term in the media with loss 17 prevention. 18 It's nothing new to any of us in the room 19 today. It's been going on for years. It's 20 certainly not a new trend. 21 We have groups of folks that come in and 22 steal and run all the time. 23 And in our urban environments, quite -- quite 24 honestly, they'll come in in groups and not run. 25 They'll walk out the door, knowing that -- that, 1 potentially, the police are as much as 20 minutes 2 away. 3 ASSEMBLYMAN GRAF: Yeah, are we addressing 4 that in this legislation, any of that? 5 How often does that happen? 6 JAMES D'ARCY: Yeah, I can't speak to that. 7 JUSTIN DIETEL: I don't believe it's part of 8 this legislation. 9 I mean, we don't see this in the way you hear 10 about on the news. 11 There are those occasions where that flash 12 rob, you know, 200 people show up at a location, but 13 I don't think we see that on a regular basis. 14 We're seeing more of the, three, four people 15 working together, like he showed the picture of, 16 coming in, separating, they each hit an aisle. They 17 kind of planned this out. 18 The idea of, you know, 100 kids on social 19 media getting together, hitting a location, it's 20 happened, but I think the most recent cases I've 21 seen of that have been more in the northwest of the 22 country. 23 ASSEMBLYMAN MONTESANO: Mike, could you -- 24 you addressed in your testimony earlier about the 25 fraudulent sales receipts and the UPC stickers. 1 Could you give us a little bit on that, 2 especially on the receipts? 3 I mean, I know, you know, people will take 4 the receipt, bring something back that was stolen. 5 You know, that type of thing. 6 But, is -- is any of the information, were 7 these receipts generated proprietary to the 8 individual businesses? 9 I mean, how are they able the do this? 10 You know, without maybe giving away, maybe, 11 industry secrets. 12 MICHAEL ROSEN: Well, they're just incredibly 13 sophisticated. And, they'll generate a receipt that 14 looks like it's the store receipt, and bring back 15 our merchandise that they stole from us, so they 16 convert it to cash. 17 Or, we'll see them counterfeit a UPC code, 18 and they'll have the ability to put it on with a 19 sticker. And, so, the cashier is just trying to 20 move the product along at the register, and they'll 21 get a $10 item for $2. 22 SENATOR ZELDIN: Has there been any 23 conversations with the State Attorney General on 24 this issue? 25 Have we gotten any feedback of -- whether 1 it's this one, or, you know, when Governor Cuomo was 2 the AG, or Governor Spitzer? 3 MICHAEL ROSEN: I approached the 4 Attorney General's Office about your package, and we 5 haven't heard back yet, but we've suggested this was 6 worthy of his attention. 7 SENATOR ZELDIN: Well, it's very easy to see 8 the impact on consumers. Obviously, that point 9 really has been hit home, so far, during this 10 hearing. 11 I'm almost, when you put Enfamil and Similac 12 on the table, I had like these bad flashbacks. My 13 daughters, fortunately, are a few years out of it. 14 But the one thing that I do remember, that's 15 very important, these are expensive items. And -- 16 and as these items get stolen, it ends up costing 17 even more for those who are actually purchasing 18 these items from the retailers. 19 So, for that young family struggling to get 20 by and make ends meet, they have to go out and make 21 these purchases of Enfamil and Similac, and now 22 they're going to be paying more. 23 MICHAEL ROSEN: You're absolutely right. 24 This -- 25 SENATOR ZELDIN: And it weighs on my mind 1 while I listen to it. 2 MICHAEL ROSEN: This, by the way, represents 3 $50 worth of merchandise. 4 So, that's one of the reasons it's a 5 high-target theft item. 6 JUSTIN DIETEL: And I think one of the big 7 issues we found is, partially the education piece, 8 like you just mentioned. 9 I was telling Michael the other day, that, 10 probably about, two, three years ago, I was speaking 11 to a police officer, and he pointed out, you know, 12 that, oh, he had this great deal. His wife was 13 buying baby formula online, so they were saving all 14 this money. 15 And I looked at him, and said: Where do you 16 think it's coming from? How do you know it's safe? 17 How do you know it's right? 18 "Well, the package is, it's sealed, it's 19 all" -- but there was never even that concept from a 20 police officer, that: How is it being stored? Is 21 it even what you think it is inside that package? 22 So, I think that as the education piece comes 23 about, in the general public, but also in law 24 enforcement, and legislatively, will help us a lot. 25 SENATOR ZELDIN: Now, I didn't mean to 1 discourage my counsel, Jennifer Slagen, who is 2 getting pretty close to the end of her ninth month 3 of pregnancy. 4 [Laughter.] 5 SENATOR ZELDIN: I had great flashbacks to 6 Enfamil and Similac. 7 I didn't mean to discourage you. 8 ASSEMBLYMAN MONTESANO: But there was 9 something you just touched on, and I was going to 10 ask you about the -- the -- you know, when you're 11 buying these things, you know, online, you know, and 12 you shop around, and, you know, like sometimes you 13 look for a sale on something. You know, and you go 14 to amazon.com and you type in a particular item, and 15 they pop up 20 different vendors that, you know, are 16 carrying this item, and here are the prices that 17 you're carrying it for. 18 I guess we'll have someone later speak to 19 that. 20 But, the question is: Do you find, in your 21 analysis and investigation that you're doing, that 22 these retailers -- you know, these on-line 23 retailers, this is where this stuff is coming from? 24 Or just, realistically, can they buy it, you 25 know, from the manufacturer at a -- 1 JAMES D'ARCY: I think it's a little bit of 2 both. 3 So, the Internet-auction aspect of ORC is 4 certainly a hugely growing trend. 5 But, you know, we also have folks who do 6 smart shopping, and, you know, they -- all the shows 7 on TLC -- 8 UNKNOWN SPEAKER: "Extreme Couponing." 9 JAMES D'ARCY: -- with coupon after coupon 10 after coupon. 11 You know, my girlfriend tried that for a 12 while, and we weren't as successful as the TV shows. 13 But -- so to a certain extent, some of that 14 merchandise is out there, but I think that's, 15 probably, it's more incumbent on us to make sure 16 that our investigations are as tight as they need to 17 be. 18 So, yes, I think the Internet sites are 19 diluted with perfectly legitimate merchandise as 20 well. 21 ASSEMBLYMAN MONTESANO: Right, because we've 22 had this incident with the medications coming in, 23 you know, from outside the country, or from the 24 different places. And, you know -- I mean, I could 25 see, you know, sometimes a two or three dollar 1 difference in an item where -- that would give you 2 some cost savings. But, when there's that dramatic 3 shift, you know, there has to be something wrong. 4 But people today, with the economy being what 5 it is -- 6 JAMES D'ARCY: It is absolutely certain that 7 there is no Internet auction site who has the buying 8 power of an A&P, to undercut us in cost from the 9 manufacturer. 10 That's absolutely certain. 11 ASSEMBLYMAN MONTESANO: Okay, thank you. 12 SENATOR ZELDIN: Jim, I know that you weren't 13 done yet in your presentation -- 14 JAMES D'ARCY: Oh, it's all right. 15 SENATOR ZELDIN: -- and we kind of -- oh, no, 16 no. I'm actually -- I was apologizing. I think I 17 started it. 18 But, I apologize for cutting you off. 19 JAMES D'ARCY: Oh, no problem. 20 So, retailers across the United States are 21 spending million of dollars combating the epidemic 22 of organized retail crime, but the losses continue 23 to climb. 24 A&P's asset-protection department has closed 25 over 50 known fencing locations -- and this is 1 incorrect -- in the past two years; however, ORC 2 activity remains the same. 3 Without strong legislation, retailers and law 4 enforcement will continue to charge these rings with 5 petty shoplifting of fences across multiple 6 jurisdictions. 7 State budgets are also impacted by these 8 criminal enterprises. 9 The Food Marketing Institute estimates that 10 of the 46 states that have a state sales tax, these 11 jurisdictions are forgoing about $1.6 billion in 12 lost tax revenue as a result of ORC activity. 13 ORC gangs once relied exclusively on the 14 black market and locations like flea markets and 15 spawn shops, but now these criminal enterprises have 16 embraced technology and they're selling stolen 17 merchandise over the Internet. 18 Retailers' levels of awareness regarding the 19 problems that ORC creates for their business has 20 never been higher. 21 With reports of violent, brazen, and 22 aggressive criminal behavior increasing every year, 23 retailers are on full alert. 24 Organized retail crime is a serious issue for 25 A&P, but locking high-risk product behind customer 1 service counters hurts our sales. It dramatically 2 impacts the revenue for the store and tax revenue 3 for the state. 4 Expenses to ORC -- to combat ORC have become 5 a part of our construction, merchandising, 6 information technology, and staffing budgets. 7 Needless to say, this is an enormously 8 expensive effort. 9 Lastly, the health and safety of our 10 consumers is at risk because ORC rings are engaged 11 in the theft and resale of products that are 12 regulated by the FDA, including meat, 13 infant formula, over-the-counter medicines. 14 ORC rings will often tamper with these 15 products or change their labels. 16 I think we've beat that to death. 17 The financial losses caused by organized 18 retail crime would certainly be better spent on 19 inventory, more employees, store remodels, customer 20 promotions, new stores, and most importantly, lower 21 prices. 22 Instead, some retailers are forced to 23 increase their prices on merchandise to compensate 24 for what's lost to criminals. 25 So the next few slides -- 1 Mike, just -- did we go through all of them, 2 or is this the first? 3 Back up through, real quick. 4 Right there. 5 So to your point earlier about 6 99-cent stores? This is one of them. 7 This store resides no more than 75 feet from 8 one of our New York City locations, and was 9 purchasing merchandise. This store, specifically, 10 was not making that product available for sale on 11 their shelves. They were shipping it to Yemen. 12 Go ahead, Mike. 13 This is in New Jersey. 14 Go ahead, Mike. 15 Go back one. 16 I think it's probably good common sense not 17 to purchase fresh meat from any location that spells 18 "fresh" wrong. 19 [Laughter.] 20 JAMES D'ARCY: Go ahead, Mike. 21 Again, just more examples of some of these 22 fences. 23 This is probably most concerning because 24 we're not dealing with the bodega or convenience 25 store here; right? 1 They were purchasing chicken stolen from our 2 locations, walked on foot through the hot summer, 3 putting it in batter and frying it for their 4 customers. 5 Go ahead, Mike. 6 A Chinese-food takeout restaurant, purchasing 7 seafood. You know? 8 [Laughter.] 9 JAMES D'ARCY: I was going to leave that 10 alone. 11 Go ahead, Mike. 12 So there's just a sample. 13 [End of PowerPoint presentation.] 14 JAMES D'ARCY: Clearly, we have a very robust 15 external-theft program, and it's certainly fun to 16 show it off. 17 But the reality is, the amount of money that 18 we're spending in losses and mitigating could be 19 better spent in so many other areas. 20 Are there any questions? 21 SENATOR ZELDIN: A lot of questions. 22 We're trying to pace ourselves. 23 ASSEMBLYMAN MONTESANO: I want to know why 24 you didn't give any plug to the 25 Eight O'Clock coffee? 1 JAMES D'ARCY: Because we sold it, 2 unfortunately. 3 [Laughter.] 4 ASSEMBLYMAN MONTESANO: I remember growing up 5 in Brooklyn, that was the only store we shopped in. 6 It was right around the corner from our house. It 7 was a small, two-aisle A&P. So I -- my father 8 was -- you know, worked in the grocery area, but I 9 remember it, you know -- 10 JAMES D'ARCY: It's certainly our beginnings. 11 ASSEMBLYMAN MONTESANO: Yes, I remember it so 12 well. 13 The -- with the -- just ask a question, 14 because, you know, from my background, I'm just 15 cognizant of certain things when I go in certain 16 stores. 17 And I have this beef that, you know, we have 18 to address up in the State, why a lot of stores are 19 able to purchase and there's no accountability as to 20 where their inventory comes from. 21 Like, I know it's very common with stores in 22 a lot of communities, you know, we call them 23 "bodegas" or we call them "discount stores," or 24 whatever, but I noticed this in the bodega stores, 25 is that, a lot of their sodas and their merchandise 1 is from outside the state. 2 I can just tell from the bottling, you know, 3 that it's from outside the state. 4 And, I know when stores like yourselves buy 5 from the legitimate distributor or manufacturer, you 6 know, there's certain bills of lading that travel 7 with that, or origin papers, that will give you an 8 indication that -- where it was purchased or where 9 it came from. 10 And I think it's something that, on the state 11 level, we have to go out and enforce, that these 12 stores -- you know, we certainly have the 13 tax-and-finance inspectors that are going to go 14 there and question where this merchandise originated 15 from, because they go out and they buy in cash. 16 They go out of state and they purchase these items, 17 they bring them back in without the tax consequence 18 on it. And, who knows where they purchased it from, 19 you know. 20 And I see that as a big issue, and something 21 that, you know, on a state level, we have to 22 address. 23 But I -- I didn't realize that this was to 24 the magnitude of where it was. 25 I knew in the clothing stores they had a big 1 problem. You know, I know the counterfeiting, we're 2 well aware of that issue that goes on, especially 3 having worked in the city. 4 You know, and I used to appreciate those 5 counterfeit squads that used to go out and just, you 6 know, jump everybody and confiscate everything. 7 You know, it's just mind-boggling how they 8 can duplicate what they do today, you know, with the 9 technology. You can't even tell one from the other 10 anymore. 11 JAMES D'ARCY: So, I've been with A&P for 12 3 1/2 years now. 13 Prior to A&P, I worked for a hardware 14 retailer. A Big Orange hardware retailer. 15 And, I thought I had a very firm grasp on 16 organized retail crime, and how it impacted 17 retailers. 18 And when I came to A&P, I honestly had this 19 perception that I was going to get a nice vacation. 20 But I have to tell you that working in 21 groceries really opened my eyes, because the extent 22 of theft that we have to deal with every single day 23 is much larger in scope than I ever had to deal with 24 my previous employer. 25 Absolutely. 1 ASSEMBLYMAN MONTESANO: This is an eyeopener. 2 SENATOR ZELDIN: Well, and it also ends up 3 leading to jobs too, and it affects the profit 4 margins of these businesses. It's less money that 5 might be available for an employee. 6 Well, I thank all of you gentlemen for being 7 here. 8 Just -- you know, just only for the sake of 9 time, we're going to have to move on to the next 10 couple speakers. 11 But, just, thank you all; Michael, 12 especially, for all of your hard work in Albany on 13 behalf of all of the members of the Food Industry 14 Alliance. 15 It really -- I don't think, without you and 16 Ted, as I said earlier, that we would be as far as 17 we have been. 18 So, thank you for that. 19 ASSEMBLYMAN GRAF: Thank you, gentlemen. 20 ASSEMBLYMAN MONTESANO: Thank you. 21 SENATOR ZELDIN: Our next two speakers are: 22 Charles Rosaschi, who's a security expert, 23 and one of the executives at King Kullen; 24 And Jon Greenfield, who is the owner of 25 Food Parade. 1 I thank both of you gentlemen for being here. 2 I guess I'll leave it to you to decide who 3 will start off. 4 Jon, it's -- I'm very happy that you were 5 able to make it, to get a perspective from an owner 6 of one of these supermarkets. 7 And, very close to home for me in the 8 3rd Senate District, King Kullen, which is a 9 New York State company with a lot of deep roots in 10 the 3rd Senate District. 11 So, it's nice to have you here as well. 12 So, please go ahead, gentlemen. 13 CHARLES ROSASCHI: Good morning, gentlemen. 14 Thank you so much for inviting us here today. 15 My name is Charlie Rosaschi. I'm director of 16 security for King Kullen. 17 As you might or might not know, King Kullen 18 is a relatively small grocery company, consisting of 19 approximately 50 stores, limited to Nassau and 20 Suffolk Counties. It's a family-owned business, and 21 happens to be America's first supermarket. 22 And I couldn't resist getting that in, 23 gentlemen. 24 [Laughter.] 25 CHARLES ROSASCHI: Prior to my employment as 1 director of security with King Kullen, I had the 2 privilege of serving as an FBI agent, assigned to 3 organized crime, supervisory roles, where -- in 4 New York for my entire career. 5 Much of what I was going to talk about this 6 morning was very eloquently covered by my 7 colleagues, so rather than taking the time of this 8 panel here, I'm going to address my comments 9 specifically to the legislation. 10 And I'm going to -- my dad used to say, when 11 I was a young boy, he says, "Charlie, when all you 12 have is a hammer, everything looks like a nail." 13 Coming from an FBI background, having worked 14 organized crime, I'm going to look at it -- 15 Assemblyman, as you stated earlier, I'm going to 16 look at it from a RICO perspective. 17 I think Jim and our other colleagues did a 18 great job explaining our day-to-day problems. Of 19 course, King Kullen shares in those problems. 20 But, specifically from the legislative point 21 of view, if you look back, historically, in 22 organized crime -- 23 And I'm not saying that the retail organized 24 crime is the same as Don Corleone or John Gotti or 25 Paulie Castellano. 1 -- they're an individual group of people 2 working in concert to perform criminal activities. 3 Prior to the RICO statute, law enforcement, 4 in general, had a very difficult time prosecuting 5 successfully or having an impact on organized crime, 6 specifically, the five families within New York. 7 We would make arrests in bookmaking, or loan 8 sharking, or extortion. They were relatively minor 9 offenses. Prosecution would be lucky to get a 10 couple of years. 11 There was no motivation for the defendant to 12 cooperate with the investigations. 13 There were basically no tools for law 14 enforcement to adversely impact on these groups of 15 people. 16 That all changed with "RICO"; racketeer 17 influenced and corrupt organizations. 18 It gave law enforcement tremendous tools on 19 the federal level to attack these organized groups. 20 And that's something I would like to see on a 21 state level, not only in New York, but in every 22 state. 23 Let me try to explain. 24 Under RICO statute, offenses -- specific 25 enumerated offenses were cumulative. 1 Once an enterprise, once an organization, was 2 identified -- whether it be the Genovese family, 3 Gambino, Columbo -- once that organization was 4 identified, a specific individual who was convicted 5 of a specific enumerated crime under RICO could be 6 prosecuted under RICO. 7 Penalties were substantial. 8 One of the most effective tools under RICO 9 was the identification, the seizure, and the 10 forfeiture of assets. 11 That's something I'd like to see done on a 12 state level. 13 Once these organized groups of organized 14 retail criminals are identified, okay, it would not 15 be a bad thing to seize their warehouses, seize 16 their trucks, seize their cars, seize their homes. 17 That would have a tremendous impact. 18 Secondly, as progressive punishment became 19 available under RICO, if the same thing happened on 20 the state level, after identification of these 21 individuals, I think there would be more motivation 22 on behalf of these defendants to cooperate. 23 As you know, Assemblyman, you know, being 24 prior law enforcement yourself, that you could 25 squeeze -- as we say in the business, squeeze these 1 individuals, provide intelligence information, in 2 not only identifying their groups, but other groups 3 involved in this industry. 4 That's about -- the rest of the material, 5 gentlemen, was covered. 6 I would be happy to answer any questions. 7 Again, thank you for doing what you're doing. 8 It certainly does impact on our day-to-day 9 activities. 10 ASSEMBLYMAN GRAF: If I could just clarify, 11 as far as the legislation that we have here, I'm in 12 support of it. But one of the things that I'm 13 looking at, is if this is organized, and it's crimes 14 in furtherance of an organized criminal 15 organization, the problem is stopping it. 16 So, some of any questions have been, as far 17 as: 18 How are they recruiting people to do this? 19 Okay? 20 Is there one centralized location? 21 And that's what I was aiming at in my 22 questions, just to let you know. 23 And, the other thing is, as far as RICO is 24 concerned, that's why I was asking whether -- you 25 know, a lot of times, what can happen, we can put 1 pressure on the federal people, and say: Look, 2 here's a good example of a case. 3 I mean, if we get the paramount case to 4 really bring this into the forefront, to make sure 5 that RICO is applied, then it's a big deterrent to a 6 lot of other people when you see somebody going to 7 jail for a really long time. 8 All right? 9 And that's where my questioning was going, 10 just to let you know. 11 I'm favor of the legislation that we have. 12 What I'm wondering is: Is there more that we 13 can do in order to -- to kill this before it really 14 grows even further? 15 CHARLES ROSASCHI: I think your comments are 16 right on point, Assemblyman. I would certainly 17 concur with you. 18 I think the legislation, as far as it goes, 19 is incredible. 20 I think what you're doing, Senator, is 21 tremendous. 22 I think everyone in this room would applaud 23 your efforts, and I would urge everyone to support 24 those efforts. 25 Do they go far enough? 1 Should we rely on the federal government to 2 intercede on a state-level matter? 3 A petit larceny, it's a slap on the wrist, go 4 forth and sin no more. 5 There's no motivation for your defendant who 6 was arrested 50 times. 7 Where's the motivation? 8 How is this person recruited? 9 Who you going to ask? Ask that individual. 10 Is he going to cooperate? Of course not. 11 Make him face 5 years, make him face 12 10 years, under a state RICO charge, in organized 13 criminal activity, okay, I think he would be 14 motivated. Knowing that he's not going to see his 15 friends or his family or the streets for 5 years, he 16 might be willing to tell you where he comes from, 17 who he's working with, where this property is coming 18 from and where it's going to. 19 ASSEMBLYMAN MONTESANO: I think, also, a 20 couple of avenues to look at, one is: Can we 21 enhance the penalties on the current statutes we 22 have now? 23 You know, a B misdemeanor; right now, you're 24 convicted of a B misdemeanor, the maximum jail time 25 a judge can give you is 90 days. 1 You know, if we put some change of sentencing 2 on the -- even on the misdemeanor charges, 3 especially for different categories, the 4 misdemeanors, if they deal with the recidivism, that 5 the judge could enhance the penalties without even 6 using the RICO statute. 7 Not that I'm not in favor of instituting one, 8 and, certainly, we will support the Senator in our 9 House of getting this legislation, you know, through 10 this year. 11 But, also, and I'm sure you may be aware of 12 this, I don't know about the other people that 13 spoke, but in this state, we do have a procedure 14 under the current procedure law, Article 35, where 15 all prosecutors have the ability to seize and 16 forfeit all the proceeds of a crime in the 17 instrumentality of the crime. 18 So, if they do grab these groups, and they 19 have trucks, they have warehouses, they have an 20 account somewhere, the DA can seize all of that upon 21 the conviction. 22 And even before the conviction, they do it 23 outright. They seize it up front. 24 The DA's photo is famous for doing that out 25 here. Before he grabs you, he's got your assets. 1 And then, at the completion of the case, they do it. 2 And I think it might be incumbent, 3 respectfully, on the different speakers that were 4 here today, and the organizations, to encourage 5 these DAs, when they do grab the larger people 6 involved in here, to use that Article 35 proceeding, 7 to start making them more uncomfortable. 8 And then, hopefully, you know, in the 9 interim, we could push through, maybe, a federal 10 RICO version here in New York, and maybe convince 11 our colleagues in the House to start changing the 12 sentencing guidelines on some of these crimes. 13 You know, right now, I know in Nassau County, 14 if you're under 18 years of age and they get you on 15 the basic petit-larceny charge, you know, the kid 16 taking a $10 item, a $20 item in the store, you know 17 under the general business law, the retailer gets 18 back, he can go civilly for you, and the parent pays 19 or the child pays the claim based on the value of 20 the item. 21 But I know now, that if the defendant 22 complies with certain mandates of the Court, you 23 know, the charge is outright dismissed, the record 24 is sealed, and away it goes, because they just can't 25 even handle the volume. 1 I witnessed last week in one of the 2 courthouses, 200 -- on one day, in one day, 3 250 defendants in the courtroom, all on the same 4 charges. 5 They just don't know what to do with them 6 anymore, you know. 7 And that's not an excuse. 8 But I think that if the penalties are 9 enhanced, and if they find it more costly when they 10 get involved with this activity, that's the 11 deterrent, you know. 12 So, I -- you know, we're certainly going to 13 support the Senator on what this -- I would say, 14 this is a no-brainer, so to speak. 15 But I do think we have to encourage our 16 prosecutors to go after that forfeiture aspect, and 17 then hopefully bring in, you know, a RICO provision 18 here in the state law. 19 Thank you. 20 SENATOR ZELDIN: Good point. 21 And I would also like to bring into the 22 conversation, Mr. Greenfield. 23 Welcome any of your introductory remarks. 24 JON GREENFIELD: First, I just would like to 25 tell people in the room who Food Parade is, because 1 I was introduced as the president of Food Parade. 2 We operate -- we own and operate three stores 3 in the ShopRite co-op. It's called "Wakefern Food 4 Co-Op," just as my associate here is the security 5 director of a ShopRite group in the Hudson Valley. 6 We have three family-owned stores: two in 7 Plainview, one in Suffolk County. And we employ 8 1,000 people in the three stores. 9 And, we take a very, very aggressive approach 10 to store security. 11 I'll give you an example. 12 All of my remarks, I just brought -- you 13 know, my remarks will be based on my Commack store. 14 That's my newest store. And I knew the other people 15 here have large groups of stores they cover. 16 I thought I'd sort of isolate it and show you 17 what it looks like in one store in the neighborhood. 18 And, in that store, when we built the store, 19 it cost us $318,000 to put our camera system in. We 20 have 168 cameras and they are staffed full time. 21 There is -- I have my security manager, 22 Jim Zoitis [ph.], is here. 23 And all of the stores, we are constantly 24 monitored. It's not that we look at the cameras 25 after the fact, and say: Gee, we had a really bad 1 day, look at the merchandise we lost. 2 We have people there making the stops. 3 And I want to discuss what some of the 4 challenges are for those of us on the ground. 5 I've been in stores now, June 1st was 6 40 years. So, I've seen one of just about 7 everything. 8 And the issue for us is -- by the way, I'm 9 thrilled with the legislation that's supported. 10 But, I would like to talk about, where you 11 take a step back from that, from before we get to 12 the legislation, nothing that's been proposed will 13 go anywhere if we don't make the initial stops. 14 And that's the challenge that we have. 15 You were talking about the -- the Assemblyman 16 was talking about the problem of the courts being 17 overwhelmed. You had 250 people in court on one 18 day, all facing the same issues. 19 Because of that, and because we know the 20 courts are overwhelmed, we self-police on what we 21 call the police for. 22 Give you an example. 23 We -- in the Commack store, we average 24 15 shoplifting stops a month in that store. Of 25 those 15 stops a month, we only average one police 1 call a month. 2 But, that call -- you know, whether the 3 police are dealing with the DWI, or there's a murder 4 investigation, and we don't know what are the 5 demands that are being made on the police assets, 6 but the calls don't always result in an arrest. 7 We had one recently, we caught a guy stealing 8 $155 of products. A substantial shoplifting bust. 9 Whether it was organized, we don't know, 10 because that's the whole point here. We don't 11 always have the information to know who got caught 12 where. 13 But, we called, and because of whatever 14 problems may have been going on in precinct, we 15 ended up having to release that person. 16 The police did respond, and when they 17 responded, they got a $140 arrest, because we let 18 the first guy go, and we already caught the second 19 guy. 20 But, we're afraid to press the issue. 21 We need good relations with the police. And 22 we understand, that at any given moment, we don't 23 know what -- what more serious demands may be made 24 on their resources. 25 So, we don't want to press, but, there are 1 some things that I think the -- are considered too 2 minor to handle, in terms of shoplifting arrests, 3 where we really have an uncomfortable feeling. 4 Like, we had a $70 razor-blade arrest, we had 5 a $80 razor-blade arrest -- or, excuse me -- stop. 6 These did not result in an arrest. 7 So these are people that I'm sure left me and 8 went to King Kullen, after they got off, and then 9 they hit them. 10 And then, sometimes, you know, we stop 11 people. When the police do come down -- maybe it 12 wasn't a monumental arrest, but the police come 13 down, and they run the person's ID, and they find 14 out they got 13 warrants on this guy, and they've 15 been looking for him. 16 The best is, my security people caught a guy, 17 a small shoplifting bust, and they said -- you know, 18 it was -- honestly, it was $1.49, but the guy's ID 19 obviously looked forged. 20 Forged ID is something that we would be 21 inclined to call on, but we didn't. We said: We 22 call in a $1.49 bust, we're dead. 23 You know -- or, you know, our name's going to 24 be out there. 25 We let him go. 1 The store closes, the manager goes home, 2 turns the TV on, there's our shoplifting friend on 3 "America's Most Wanted," for attempted murder of a 4 Jersey State trooper. 5 He had -- he had -- there were two -- there 6 were warrants on him, numerous ones, for assaulting 7 a police officer; and then, the most recent one, 8 attempted murder. 9 We called "America's Most Wanted," and they'd 10 been looking for him in the American southwest. 11 Found out he was on Long Island. 12 They caught him three days later. 13 Not too hard to spot. He was six-foot-two 14 and 370 pounds. 15 But, we respect the limit -- the fact that 16 there are limited resources. But when we do call, 17 if the State is -- with the legislation the State is 18 proposing, we need more ability to give those people 19 to you so that the cases can be made. 20 So that, at a store level, that's what we 21 need. 22 We don't want to be labeled as uncooperative 23 by the local precinct, but, we have plenty of 24 ammunition to give to you. 25 1 ASSEMBLYMAN MONTESANO: If I may, Senator? 2 You may know this, you may not know this, 3 but, you know, there is a provision in the state 4 law, that employees of your stores can be deputized, 5 you know, a special patrolman, to make their own 6 arrests. 7 And many of the larger, like Macy's, and 8 those types of stores, they have that, you know, in 9 effect. 10 You know, their protection people are 11 deputized, to make the arrests, because they know 12 that the police can't keep up with the volume. 13 So basically what happens is, the store 14 personnel effects the arrest, and they just call the 15 local police for the transportation to the police 16 station. But, the theft-protection agent processes 17 his own arrest, and then, you know, takes the case 18 to court. 19 So, they do that quite frequently also. 20 You know, I can understand your frustration 21 because, with the volume of calls that go on, and 22 you get a shoplifting call, and, you know, they go. 23 And, of course, to you -- and you were right, your 24 hunch was right, you know, $1.49 theft. 25 Look, my colleague Assemblyman Graf will tell 1 you, in our experience in the areas we worked in 2 New York City years ago, is you would be shocked. 3 You know, you grab somebody for the most petty 4 offense, and you got a murderer in your lap. 5 You know, so, I can understand, and I assure 6 my colleague understands that, very well. 7 So, you shouldn't be discouraged, but, you 8 might want to look into that avenue also. 9 Listen, I just saw something come out of 10 Kohl's, and it was a $10 petit larceny. And the 11 officer was on the fence about, hey, you know, he 12 didn't want to be bothered. And, the store has a 13 very aggressive program. 14 And they told the officer: No, there's no 15 way. We want this done. 16 And the police officer had to write this in 17 his statement, that at the direction of the store 18 manager, he's affecting this arrest. 19 So I understand. 20 But, you know, you're a taxpayer, your 21 business is a taxpayer, you have the right to that 22 service. But, this is one of the things that you 23 might want to consider, because, on the state level, 24 we've given that ability to stores to do that. 25 It's just whether or not you decide to 1 institute that. 2 JON GREENFIELD: No, I understand that. I 3 was aware that was available. 4 It's the transportation. 5 ASSEMBLYMAN MONTESANO: Right, well, they 6 have to come. 7 And, you know, I don't think you have a 8 problem. Again, I'm just -- you know, my own 9 speculation is, I think there's a big difference 10 when they know they're coming to give you a ride -- 11 your agent a ride to the police station, with the 12 prisoner. It's a dropoff, versus they have to come 13 there and -- to take a 6- or 8-hour arrest on a -- 14 JON GREENFIELD: Who do we -- 15 ASSEMBLYMAN MONTESANO: Well, that would 16 be -- it goes to the county police department. They 17 issue those licenses. Applications are filed, and 18 then they issue those -- 19 JON GREENFIELD: Okay, so afterwards, someone 20 could tell me how to proceed with that? 21 ASSEMBLYMAN GRAF: Yes. 22 JON GREENFIELD: Okay, we could do that. 23 ASSEMBLYMAN GRAF: They're "specials." 24 We used to call them "specials." 25 ASSEMBLYMAN MONTESANO: Special patrolmen, 1 right. 2 ASSEMBLYMAN GRAF: And there's another 3 avenue. I don't know if you're doing this, but a 4 lot of times, if a person catches a shoplifter, say, 5 you're gonna release him, all right, they actually 6 put him on notice that he's not allowed in the store 7 again. 8 CHARLES ROSASCHI: Yeah, we do that. 9 JON GREENFIELD: Yeah, because it results in 10 a trespassing charge. 11 ASSEMBLYMAN GRAF: Yeah, then you have a 12 trespassing charge on top of that. 13 But, yeah, it would behoove you to have 14 specials, because, you know, I -- look, I'll be 15 quite blunt about it: I worked in east New York, 16 okay, where we had a sign above the desk that said, 17 "Give us 22 minutes, we'll give you a homicide." 18 And I'm getting called for a guy that stole a 19 pack of gum. 20 You know? 21 So, I mean -- but when we got a call down 22 there, if it was, you know, you'd walk in, we'd have 23 shots fired all over the place, and I'd have a store 24 calling me where the guy stole $10. 25 And I'm like, "Really?" 1 You know, have him sign the form. 2 But if it was a special, right, where the guy 3 can make the arrest, Yeah, everybody get in the car. 4 And we'd bring them to the precinct. 5 So, you know, that could help you too. 6 JON GREENFIELD: Well, now that I know, that 7 would be -- we'll gladly -- we'll do any work we can 8 do on our end, because we understand the resources 9 are limited. 10 So that's fine, because we have the resources 11 to do that. 12 ASSEMBLYMAN GRAF: Well, realize, that you 13 lose your -- you're gonna your special for a couple 14 hours after he makes an arrest. 15 JON GREENFIELD: But we have the resources. 16 ASSEMBLYMAN GRAF: All right. 17 SENATOR ZELDIN: I think that, one of the 18 things that really is apparent from all of the 19 testimony that's been given this morning is, you 20 know, in addition to any type of legislative 21 solutions found to put more teeth beyond the 22 crackdown on ORC, is a culture within law 23 enforcement, whether it be on -- whether it's police 24 or prosecutors, whether it's here on Long Island, in 25 Suffolk, or Nassau, or anywhere else in 1 New York State, there really needs to be a culture, 2 from the top down and the bottom up, where you feel 3 comfortable, because, you shouldn't -- when you 4 have, you know, 15 different instances over the 5 course of the month, and you're only able to report 6 that once, that's one of the reasons why there's so 7 much theft, is because people are convinced that 8 they're going to get away with it. 9 And even without taking away as much time 10 of -- from a policeman who might be doing something 11 else instead, if they didn't have to respond to that 12 call, there needs to be a better system of being 13 able to share intelligence, and to be able to 14 database these instances. 15 Because it's obvious that, within the 16 industry, and it's good that everyone's, you know, 17 working together, even though they may be 18 competitors, to share this intelligence, because 19 you -- it might be, they might go to King Kullen 20 today, and they might go to ShopRite or A&P. They 21 might -- they're not loyal to just, you know, one 22 company. 23 So, I think that something simultaneously 24 really needs to be looked at. 25 It's not only providing more teeth to the 1 law, but also making sure it's being enforced, and 2 that you have the tools where you feel encouraged to 3 make sure that this information has been databased. 4 Even if that $1.49, or that $70 or $80 razor, 5 theft, even if it doesn't result in an arrest, at 6 least that information is getting databased, and 7 it's being shared, because they might be stealing 8 from you, they might end up on the black list of 9 your particular company, but they may not be on the 10 black list of others, and, they'll just find 11 somewhere else to commit their thefts. 12 So -- 13 ASSEMBLYMAN MONTESANO: I'll give you an 14 example. 15 In Nassau, Roosevelt Field, you may have 16 heard of it, they have such a complex situation and 17 system there with thefts, that the Nassau County 18 Police Department has established a substation 19 within the building, and there's two officers 20 assigned down there. And the respective 21 theft-prevention agents from all the different 22 stores just bring them down one after another. And 23 they process them right there because, a lot of 24 times, they result in a desk-appearance ticket. You 25 know, you fingerprint them, photograph them, give 1 them the ticket, and send them on the way. 2 A lot of them don't have to be transported, 3 depending on their prior history or if there's any 4 warrants. 5 So, you know, when it's to those magnitudes, 6 they recognize these things, but, you know, for the 7 30 or 40 arrests a day that get processed through 8 there, if the Nassau County police had to do that 9 themselves, they just don't even have the manpower. 10 So what they do is, the theft-protection 11 agents come through and they assist them. And 12 that's how they do it. 13 So, that's just one avenue. 14 Again, we'll do what we can. I mean, the 15 Senator has taken the extraordinary steps in his 16 House, and myself and my colleague Mr. Graf will 17 do what we're going to do. And then, hopefully, 18 some new legislation could come out of this, 19 regarding, How do we enhance, you know, the 20 penalties from the current laws we have now? 21 Because, you know, some people, they get a 22 little nervous up there when you start introducing 23 new levels of laws. So sometimes we have to revisit 24 the ones that we have currently, and just see what 25 more teeth we can put in it, and just make it very 1 costly when you engage in a certain type of 2 activity. 3 You know, when I heard about the orders being 4 put in for the certain types of merchandise, it just 5 reminded me of years ago with the car-theft rings. 6 You know, you would -- in the city, you'd go 7 to a salvage yard and say, you know: I need the 8 fender for a '62. 9 Well, we don't have any, but we'll put it on 10 the teletype for you. 11 So they put the order on the teletype to the 12 other places, and that's the code word for, go out 13 and get one. 14 And, sure enough, somebody would be missing 15 one the next morning, and this guy would have the 16 part for you, you know. 17 So, it's -- nothing has changed over the 18 years, they've just gotten a little bit more 19 sophisticated. But, they've put a tremendous bite 20 on that industry because they've enhanced the 21 penalties. 22 And that's really, you know, how you do it. 23 SENATOR ZELDIN: One of the pieces of 24 legislation, to that point, I remember having an 25 earlier conversation with one of our previous 1 speakers, Ted Potrikus, about someone who -- or, a 2 particular enterprise that knew the $1,000 limit, 3 and they would steal -- they know the total value of 4 their products. And they made sure that they did 5 not steal more than $1,000, then they would go 6 somewhere else. And, they're stealing product, and 7 they're making -- so, I mean, the figures of -- the 8 amount that's -- that they would steal would be 9 900-and-change. They go somewhere else, 10 900-and-change. Somewhere else, $800-and-change. 11 And I think that if it's part of, and it's 12 really one -- the intent of the one piece of 13 legislation. But if it's part of one of the these 14 enterprises, if the aggregate value is over $1,000, 15 they shouldn't get away with it just because of the 16 individual thefts are under 1,000. 17 I want to thank both of -- both you gentlemen 18 for being here. 19 And, you know, especially, I'd really like to 20 recognize King Kullen for all of -- you know, 21 their -- every -- the history, everything they do 22 within the 3rd Senate District. A lot of my 23 constituents are employed. And, also, just being 24 great computer -- community neighbors. And, have 25 done a lot to help causes outside of your industry. 1 I know Mr. Kullen's very active with the 2 Long Island Association. He's a member of the board 3 in [unintelligible] Long Island. 4 And, you know, for being great stewards, I 5 just want to say thank you. 6 Thank both you gentlemen for being here, and 7 for taking care of so many of our constituents in 8 communities, just being great employers. 9 JON GREENFIELD: Thank you very much. 10 CHARLES ROSASCHI: Thank you. 11 JON GREENFIELD: Could I ask one quick 12 question? 13 Does the -- under the legislation, does it 14 address someone who is simply a multiple offender, 15 even if it doesn't fit the profile of the 16 organized retail crime? 17 Like that person who has 30 arrests, I mean, 18 we get them all the time. But, we wouldn't be able 19 to keep them -- 20 ASSEMBLYMAN MONTESANO: Under -- 21 JON GREENFIELD: -- that category. 22 ASSEMBLYMAN MONTESANO: Under current law, 23 you know, a judge has a lot of latitude to enhance a 24 sentence. But, I mean, if a person -- it depends 25 what the -- the person's convicted of an 1 A misdemeanor, and he has 30 priors, the only thing 2 the judge could do -- and that's what I was alluding 3 to before, the only thing the judge could do is give 4 him the maximum of one year in jail. 5 And that's unfortunate. 6 So, you know, one of things I was trying to 7 throw out was, for us to consider with our 8 colleagues up in Albany, is: So, if you have an 9 A misdemeanor, and the guy's a recidivist in this 10 category, can the judge enhance the penalty, you 11 know, instead of adding a new classification of 12 crime? 13 So, I think that's something that we need to 14 look at. 15 JON GREENFIELD: Okay. Thank you very much. 16 CHARLES ROSASCHI: Thank you. 17 SENATOR ZELDIN: Our next speaker is 18 Catherine Riccards. 19 Catherine is the senior director of 20 professional standards for Sak's Fifth Avenue. 21 After hearing a lot of testimony recently 22 about -- from the Food Industry, we now shift gears 23 and hear a different perspective, from Sak's. 24 Thank you, Catherine, for being here this 25 morning. 1 And, we welcome your testimony. 2 CATHERINE RICCARDS: Absolutely. 3 Thank you for having me here. 4 As you know, I'm here on behalf of 5 Sak's Fifth Avenue, and I'm going to take you into a 6 whole different world. 7 I'm going to take you into the world of 8 luxury retail, and how organized retail crime 9 affects us and a lot of department stores that carry 10 higher-end merchandise which is extremely sought 11 after. 12 In the state of New York, we have eight 13 Sak's Fifth Avenue stores, two of them are actually 14 located out here in Suffolk County. And we have 15 3,400 employees, total, in the state of New York. 16 You've heard all the statistics, how 17 95 percent of retailers are affected by organized 18 retail crime, and we're part of those statistics. 19 But, what we see on a regular basis is, 20 professional thieves coming into our stores, and 21 coming in, which you -- as somebody mentioned 22 before, about, with an order or a list. 23 And that's what we get. 24 We have the high-priced merchandise, the 25 sought-after merchandise. You know, your Gucci, 1 your Chanel, Christian Luvitan shoes that every 2 woman wants. 3 And these professional thieves come in with 4 their lists, and they know, that day, they're not 5 going to go steal the 50 items you might hear at a 6 grocery store, a whole shopping cart full of items. 7 They're going to steal one item. That's what 8 they're there for. 9 They're told: Go get me that Chanel 10 Signature clutch. It retails for $3,000. 11 Go get me a pair of shoes, a men's suit. 12 These are the things that these criminals 13 come in for, and they're only stealing maybe one 14 item a day. 15 But, the way that they're organized, these 16 boosters are organized by these fencing operations. 17 And there could be one person coming in, 18 five times a week. 19 There could be five people coming in in one 20 day and pulling out five items. 21 But, they are organized. They're not just 22 petty thieves. 23 We often see, we've all heard from all the 24 other retailers, about just a shoplifter. The 25 person gets picked up for shoplifting, it's a petty 1 offense, slap on the wrist. 2 You know, I've personally seen it, working in 3 New York City. Before I came to Sak's Fifth Avenue, 4 I was a prosecutor, and I know the offenses for 5 shoplifting. Most people get an adjournment in 6 contemplation of dismissal. It's not even a 7 conviction. 8 We are very aggressive at Sak's Fifth Avenue. 9 You know, we do seek the police in almost 10 every single case that we have. 11 You know, we have a great relationship in 12 midtown Manhattan with the particular precinct 13 there. Often, they're just in our store, you know, 14 waiting for cases to come about. 15 But, what we really focus on is looking at a 16 person's whole criminal history, all the offenses 17 that they've committed. 18 And I know that you asked in some of your 19 prior questions about databases and types of 20 information that are kept. 21 And although we have an internal database, 22 what I find really drives success in prosecution of 23 ORC rings, is communication among retailers and law 24 enforcement. 25 At Sak's Fifth Avenue, we -- particularly, 1 we've had some meetings with other retailers in the 2 area, in midtown Manhattan; organized-retail-crime 3 meetings, so that we can discuss particular people 4 that are affecting our stores. 5 I think Targets attended some of the meetings 6 that we've had. 7 But what I do is, I look at other states. 8 And a lot of our states have been really 9 successful in creating, they're commonly called 10 "ORCAs," but, it's organized-retail-crime 11 associations. 12 I think that the one in Los Angeles, the 13 LAPD, is probably the best example of how they fight 14 organized retail crime with the laws that are 15 available to them. 16 It's all -- I think at their last conference, 17 they had over 1,000 people there. People came from 18 out of state to attend this Los Angeles conference. 19 And sitting here in New York, I actually am 20 signed up to receive their alerts, where they send 21 out alerts about criminals who are involved in 22 organized retail crime. 23 And it's been the case that, here in 24 New York, we've seen people who are out there in 25 California committing crimes, and we get an alert, 1 and we know: Oop, this person's active again. They 2 might come to New York. 3 Because they do travel from -- in the same 4 day, from California, all the way to New York. 5 So, I've seen different states. 6 We've just recently attended an 7 organized-retail-crime conference in Chicago. 8 I know that Ohio's created one. 9 A lot of the retailers in this room are 10 particularly good at the communication. 11 I know eBay is here. They're always at 12 those. 13 And by communicating with our fellow 14 retailers, by sending out alerts, that's how we 15 communicate and try to build the cases against the 16 larger organized-retail-crime groups. 17 You also had mentioned technology. 18 You know, Sak's Fifth Avenue really tries to 19 stay ahead of the game in technology, and actually 20 is starting a proof of concept for the facial 21 recognition that you mentioned. 22 You know, we do have a lot of people in our 23 store. 24 At the height of Christmas season, we can 25 have upwards of 45,000 people in our store in one 1 day, in our midtown store. 2 But, we are going to try that. 3 Because right now, you know, we have our 4 security people, our asset-protection people, who, 5 they're watching the cameras, they're watching for 6 those same faces that come through. 7 But, we're trying all the technology 8 available, to try to really combat that and stop 9 these groups. 10 What I would like to do is, I would actually 11 like to show you three very short video clips, just 12 to show you, specifically, how organized retail 13 crime has affected us in New York stores. 14 All three of these clips are from our 15 New York stores. 16 [Video presentation begins.] 17 CATHERINE RICCARDS: This first one is our 18 Woodbury store in Upstate New York, in Woodbury. 19 This person is a professional suit booster. 20 As you can see, he just popped the sensor off 21 of a $700 suit in a matter of seconds. 22 He now takes the suit behind a rack, and 23 you're going to see him conceal it up his shirt. 24 I mean, obviously, he looks pregnant there, 25 but, he eventually gets it down his pants, and 1 that's how he walks out. 2 And that's just $700 in a matter of seconds. 3 But what was unique about him, is we had been 4 waiting for him. He was a professional suit 5 booster. He had stolen from us before. And his 6 activities over a several-month time period, took 7 him into a total scheme of tens of thousands of 8 dollars, which, if you look at the them separately, 9 yes, they're misdemeanor crimes. But if you take 10 them into the whole scheme of how we would like to 11 prosecute organized retail crime, his actions in a 12 short period of time could successfully fall into 13 revised New York State laws. 14 The next video clip that I'm about to show 15 you is someone who came into our New York store. 16 What he's doing is, popping a sensor off of a 17 Montclair jacket. It's an ink tag that's on it. 18 And, by wrapping a grocery bag around it, and 19 taking a pair of pliers, he's able to defeat that 20 sensor in less than five seconds. 21 He was someone that we apprehended as part of 22 an ORC group, where he was reselling merchandise 23 there in midtown Manhattan. 24 And, when we apprehended him, and he told us 25 about the fencing operation, he said: You know, 1 Sak's is pretty hard the steal from. You guys are 2 watching. You know, some of other retailers in 3 Manhattan are much more difficult to steal from. 4 But, let me show you how easily I can steal from 5 you. 6 And he gave us that demonstration, which we 7 filmed. And he took that ink tag off in less than 8 five seconds. 9 The final clip I want to show you is out here 10 in Suffolk County, in our Deer Park store. 11 We -- that gentleman, if we'll call him that, 12 he walked out of our store with $14,000 worth of 13 denim in his hands. 14 He had come in from Brownsville, but, you'll 15 see our store director there, she stops him. She 16 actually pulled the denim out of his hand. And he 17 drove away in that getaway car, with nothing. 18 SENATOR ZELDIN: She's good. 19 CATHERINE RICCARDS: But, the reason she did 20 that, and the reason she acted so aggressively, is 21 because this wasn't the first time that crew had 22 been in her store. 23 Repeatedly over the summer, they had been 24 coming in from Brownsville, going to these outlets 25 and looking for the premium denim. 1 You know, one pair of premium denim, you know 2 what? It's going to fall as a misdemeanor. 3 That was $14,000 in just a few seconds. 4 But she just took her own life into her 5 hands. 6 We would never recommend that she go out and 7 do that, but she was a store director who was so 8 frustrated at seeing tens of thousands of dollars go 9 out of her store, that she took it into her own 10 hands, and she actually recovered it. 11 That individual was, actually, he was 12 apprehended a few weeks later. We were able to 13 identify him, and by working with the NYPD, they 14 were able to get him from Brownsville, and we 15 apprehended him. 16 So, I mean, those are just three video clips 17 that show, in New York, how we could use ORC 18 legislation to our benefit in prosecuting people. 19 We've had other circumstances that I can just 20 tell you about. 21 We had a booster, he was coming into our 22 store, and he just stole one men's suit that day. 23 When we apprehend him, he was the one who 24 specifically told us that he was working with a 25 fencing operation in the diamond district. And, 1 that he and groups of other petty criminals would 2 come in and steal one item a day, but they were 3 coming in five days a week. And then they were 4 going and reselling it for pennies on the dollar to 5 this fencing operation. 6 I think he said he would get $50 for a suit 7 like the one that he had stolen from us that day. 8 We work with the NYPD and their theft task 9 force, and they instituted a much larger 10 investigation of this fencing operation, and they've 11 been very successful in that. 12 Another group that we've dealt with, and 13 retailers nationwide, that they've dealt with, is a 14 group that's been identified, it's called the 15 Lazonovich [ph.] group, based on the head of the 16 group, Oleg Lazonovich. 17 And they're a refund-fraud group. And they 18 travel from New York to Florida, to California, to 19 Texas, all of our stores, as well as many other 20 retailers have been affected by them. 21 And they basically steal from us, and then 22 refund back to us, because a lot of our retailers, 23 you know, will accept receipts -- returns without 24 receipts. They refund it back, and they get credit 25 back from a store, basically paying for our own 1 stolen merchandise. 2 And they're able to sometimes get the credits 3 back to their third-party cards so that they can use 4 that credit to shop anywhere they want. 5 Sometimes they have it placed on merchandise 6 credits, where they'll then use it to buy more 7 merchandise from us. 8 And it's just this complete laundering of 9 merchandise. 10 And we've had them, we spotted them in our 11 New York stores, and then we've received phone calls 12 that, later in the day, they were in our Florida 13 stores, because it's just a plane ride away. 14 So by working in that particular case, we've 15 been working with other retailers, the 16 Secret Service, and the Department of Homeland 17 Security, to really try to stop this organization. 18 We know that, since 2009, we've lost at least 19 $500,000 to them. 20 And other retailers estimate same losses. 21 And the Secret Service has estimated that 22 this group makes over $400,000 a year in just refund 23 fraud. 24 We've worked to trespass them, we've worked 25 to arrest some of them, but the laws that are in 1 place right now in some of the jurisdictions, 2 they're just not strong enough. 3 You know, you may have one petty offense in 4 Florida, and then they're doing it in New York. 5 So, in all states, you know, we support ORC 6 legislation because it's really the only way to 7 combat these groups. 8 SENATOR ZELDIN: It seems like there -- one 9 of the pieces of legislation is county to county, 10 but, seems like there's, obviously, a big importance 11 for there to be coordination state to state. 12 CATHERINE RICCARDS: You know, there is. And 13 I know that, federally, that they've tried to 14 implement organized-retail-crime legislation. 15 But, I can say, just from an internal-state 16 perspective, because of how easy it is to travel, 17 especially in the New York metro area, you know, I 18 think about just our two stores here in 19 Suffolk County. They're based, both, in an outlet 20 malls. 21 And what we frequently see is, groups of 22 people, they pile into the car, they'll go to 23 Deer Park, go to all the stores, try to steal. Then 24 they'll head out to Riverhead and do the same. 25 And for them, they're just earning a day's 1 income, you know, stealing a few items. 2 And those petty crimes really just need to be 3 aggregated, and really take into account the actual 4 criminal enterprise behind what they're doing. 5 SENATOR ZELDIN: That one store manager must 6 be like a hero now inside Sak's. 7 CATHERINE RICCARDS: She is. 8 SENATOR ZELDIN: A little woman went out 9 there and -- 10 CATHERINE RICCARDS: She is. 11 I mean, we gave her a stern talking to. You 12 know, "Don't ever do that again," but thanks for 13 saving $14,000 in merchandise for us. 14 ASSEMBLYMAN GRAF: Did you give her a raise? 15 [Laughter.] 16 CATHERINE RICCARDS: Well, she's still there. 17 And, you know, what's unique about that 18 particular store is, if you saw the car pull up? 19 And, in Deer Park, we have two entrances to 20 that store. There's the one that goes into the 21 outlet mall, but there's a road that goes right by. 22 And we always have to take into account, 23 particularly with that entrance where most of the 24 crimes happen, is, there are people walking out 25 there, there are cars going by. You know, you try 1 to apprehend somebody, a lot of these groups, 2 they'll fight you. 3 So we have to be cognizant of the danger to 4 our associates, the danger to customers in the area. 5 So all of that is taken into account. 6 SENATOR ZELDIN: There's a scene from the 7 movie "Major League," where Willie -- Wesley Snipes, 8 his name was Willie Mays Hayes, he makes the basket 9 catch, and he goes back in and the coach said, 10 "Nice catch. Don't ever do it again." 11 ASSEMBLYMAN MONTESANO: You know, your 12 comment, just now, that you made about taking into 13 consideration the public walking outside, and 14 everything, makes me think back -- somebody in the 15 room may be too young to remember this -- but, you 16 know, banks, over the years, always had armed 17 guards, if some of you may recall that, in the 18 branches. And then they stopped it, the insurance 19 industry stopped it, because, you know, the armed 20 guard would act when there was a robbery taking 21 place. 22 And this happened out on Long Island quite a 23 few years ago. 24 And, of course, you know, most of the guards, 25 some of them were younger, some of them were 1 retired, you know, law enforcement, they were from 2 other jobs. And they would spring into action, and 3 not realizing there's someone else in the bank 4 working with them, or, they would go outside to try 5 to stop them, a shooting would occur. And, 6 inevitably, it was always the bank security guard 7 that got shot, and a couple of bystanders, and the 8 thief got away in many of the cases. 9 So the insurance industry got together with 10 the banks, to, first of all, they don't keep on hand 11 what they used to have anymore, except for certain 12 times. You know, you want a large cash withdrawal, 13 you got to order it. 14 And, the insurance company made a decision, 15 as, We'd rather pay the claim on the loss than we 16 will for the dead person laying in the street. 17 And not that I say this mitigates anything, 18 but it just -- you made me think of that when you 19 brought that out, because you're also handicapped by 20 that issue. 21 You know, that, you go out, and, you know, as 22 brazen as this individual was to steal that much, 23 and run out the front door and have his car sitting 24 out there, waiting, you don't know who's waiting 25 with him -- for him, you know, that could have 1 waylaid this woman. 2 You know, so it's just frightening as how 3 brazen people have become. 4 You know, it's -- we've gotten them out of 5 the banks, and now we have them in stores. 6 And it's just -- this has been a whole 7 enlightenment today. 8 I mean, we're familiar with seeing different 9 things going on in stores, and -- but now to see it 10 to this level is just -- it's just scary. 11 It's gotten scary, to be quite honest with 12 you. 13 SENATOR ZELDIN: Well, Catherine, just for 14 the sake of time, we're going to bring up the next 15 speaker. 16 I just want to thank you for being here, 17 bringing your expertise, a different perspective 18 from another end of retail. 19 Next time, if we do another hearing, I'll 20 wear my Sak's suit, and -- 21 [Laughter.] 22 SENATOR ZELDIN: All right, please do. Keep 23 buying them. 24 [Laughter.] 25 1 SENATOR ZELDIN: Our next speaker is 2 Shane Nielsen. 3 Shane is a member of the investigations team 4 at Target. 5 I recently had the opportunity to go to 6 Target with Mr. Potrikus, and, it seems like you 7 have quite an operation. You're taking organized 8 retail theft quite seriously, as all of our other 9 speakers. And it's great to have you here, to hear 10 your perspective. 11 So, Mr. Nielsen, you can start your remarks 12 now. 13 SHANE NIELSEN: Thank you so much, and I'm 14 hoping to give you guys a little bit of a different 15 perspective as well. 16 Some of my testimony I had prepared, it kind 17 of overlaps with a lot of what the other people have 18 spoken about today. 19 So, again, my name is Shane Nielsen, and I'm 20 an investigator for Target. So, I cover the 21 New York metro area. There's about 43 stores in the 22 area that we cover. 23 Here in New York, we experience organized 24 retail-crime issues like the rest of the country. 25 Much of the theft we see involves infant 1 formula, razor blades, and other health and beauty 2 items, like the other retailers have spoken about. 3 We also get a lot of theft in video games, 4 flat-screen televisions, and other expensive 5 electronics. 6 These items are stolen because they present 7 quick resale value, whether it's at a pawnshop or 8 through Internet auction sites. 9 The individuals involved with this activity 10 often steal to support criminal enterprises, such as 11 drugs, weapons, or gang activity. 12 So I'm going to give you guys an example of 13 one of these cases that we recently had, and we shut 14 down here -- out here in Long Island. 15 There was an extensive theft ring that was 16 targeting our stores out in Long Island. 17 They were taking Dyson vacuums and LCD 18 televisions, and they were utilizing our fire exits, 19 in a lot of these instances, to get out of the 20 stores without being apprehended. 21 We started a full investigation into this 22 crew that was targeting us, and we ended up 23 discovering that they were taking it to a particular 24 individual who was reselling these items on 25 Craigslist. 1 We partnered with Suffolk County Police 2 Department, and it turned out that this location was 3 actually already on their radar for selling 4 narcotics and prescription drugs. 5 And it turns out that some of these boosters 6 were actually trading these items that they were 7 stealing from Target for prescription drugs. 8 Most of the time, only between 25 and, maybe, 9 50 dollars in prescription drugs for a TV that would 10 go anywhere from 400 to 800 dollars. 11 Through the partnership of the Suffolk County 12 PD, they served a search warrant into the location. 13 And the on-line fence was subsequently shut 14 down, and the subjects were charged with grand 15 larceny, possession of stolen merchandise, 16 possession of narcotics with intent to sell, 17 possession of illegal firearms, and, they also 18 condemned the residence itself due to just complete 19 deterioration of the location and the way it was set 20 up inside. 21 Probably the thing that was the most scary to 22 myself observing this location, was that there was 23 actually multiple children living inside of this 24 location. 25 Even with the firearm in there, it was 1 unsecured, it was fully loaded. And in addition to 2 that, it was less than a half a mile from a school. 3 So, when we talk about community impact, it's 4 a little bit of a different perspective than some of 5 the other things that the other retailers have 6 discussed. 7 So just to give an example of the impact to 8 Target within -- with this crew: 9 Within a two-month time period, they had 10 stolen about $16,000 worth of product that we were 11 able to prove. 12 They -- the boosters told us that they did 13 target other retailers, so this is just the impact 14 to Target, once again, that we're discussing. 15 We conducted a profit-impact analysis, where, 16 basically, we take the markup of the items that they 17 were stealing, and we do an analysis of how much, in 18 similar-department sales, it would cost us to make 19 up for those losses that we experienced. 20 And we discovered that it was $95,000 in 21 similar-department sales that would be needed just 22 to make up for that one booster crew that was 23 targeting those locations. 24 As we discussed earlier, different than 25 shoplifting, organized retail crime, it's typically 1 a large-scale criminal operation involving 2 individuals or gangs of sophisticated, 3 well-connected criminals with specific roles, who 4 steal products with the intent of selling them for 5 significant profit, or to fund criminal activity 6 and/or lifestyles. 7 Organized-retail-crime gang activity is 8 damaging on several levels: harming consumers, 9 business, and our communities. 10 There's no guarantee that popular stolen 11 products, like baby formula and over-the-counter 12 drugs, are stored safely prior to resale. 13 It costs retailers, consumers, and the 14 government through lost tax revenues. 15 Enormous profits have also fueled criminal 16 activity, hurting our communities. 17 It's rapidly growing because of the ease and 18 profitability of selling these stolen goods on the 19 Internet. 20 The rapid growth of organized retail crime 21 requires a solution beyond investigating and 22 apprehending individual criminals. 23 State organized-retail-crime legislation, as 24 you guys are putting forward, would clearly define 25 how organized retail crime differs from shoplifting; 1 thus, bringing harsher penalties to those 2 responsible for organizing criminal enterprises that 3 cause harm to our stores on a regular basis. 4 We appreciate the work that has been done to 5 find a legislative solution, making New York State a 6 partner with retailers to fight against this growing 7 problem. 8 So, Chairman Zeldin, and members of the 9 Senate Consumer Protection Committee, this concludes 10 my testimony. 11 I thank you for allowing me to speak in front 12 of you guys today, and allowing me to participate. 13 And, I invite any questions that you may 14 have. 15 SENATOR ZELDIN: Well, you know, it was great 16 to personally be able to see the operation from 17 behind the scenes, and it was some of the -- you 18 know, the video footage that Catherine brought from 19 Sak's. 20 It's -- you know, it's, obviously, the 21 technology, as it becomes more available, gives you 22 additional tools to crack down on it. 23 And we had, Jon Greenfield spoke about, you 24 know, the full-time operation of managing all of 25 these cameras. 1 And -- but it was nice to see behind the 2 scenes, what -- that you really have eyes on 3 throughout your stores. 4 And if you have a little bit of intelligence, 5 kind of as Catherine was talking about, you know, 6 the first video with the person who stole the 7 $700 suit, once you -- once you're following someone 8 long enough, you can get eyes on, and you can catch 9 them in the act, and have great evidence for 10 prosecution. 11 But, I was just blown away at, you know, what 12 a great operation that you guys had. 13 And, really, the message for anyone out there 14 who may be thinking about stealing from Target, 15 they're watching you. 16 But you guys are doing a great job. 17 I don't know if I have any new questions to 18 add on, you know, top of the ones that we asked 19 earlier. 20 I'm really happy that you came here, and was 21 able to present testimony to us. 22 And just, you know, hope that whatever type 23 of legislative efforts that we may do, or any 24 coordination with encouraging prosecution as well as 25 law enforcement, that you could just continue to be 1 an ally, especially through -- through Ted Potrikus 2 at the Retail -- and the Retail Council, to help us 3 help you guys. 4 SHANE NIELSEN: And we appreciate it. 5 Thank you so much. 6 SENATOR ZELDIN: All right, thank you, Shane. 7 Last, but certainly not least, we're very, 8 very excited that we've had some -- we have some 9 senior executives from eBay who have traveled to 10 New York to be here with us. 11 And, Paul Jones is the senior director for 12 global asset protection for eBay. 13 All of us can only imagine, as eBay grows and 14 is more utilized, not just around the state and 15 country, but globally, that eBay would be targeted 16 to potentially use as a part of these 17 organized-retail-theft enterprises. 18 It's my understanding that eBay has been very 19 aggressive, not just internally, but also working 20 with the retailers who have -- some of whom 21 testified earlier. 22 But, eBay has been very aggressive in 23 cracking down on it, and being part of the solution 24 to address organized retail theft. 25 And we welcome you, Mr. Jones, and your 1 testimony this morning. 2 PAUL JONES: Thank you. 3 Thank you, Chairman Zeldin, and Committee 4 members. 5 Maybe to start off, just to tell you a little 6 bit about eBay. 7 We were founded in 1995 in San Jose, 8 California. 9 We're a global e-commerce platform. We're 10 one of the leading people in connecting millions of 11 buyers and sellers together. 12 As of Q2 of 2012, there were 104 million 13 active users on eBay, and 113 million active 14 registered PayPal accounts. As you know, PayPal is 15 a company owned by eBay, Incorporated. 16 In New York alone, we have 2.7 million active 17 registered users in eBay, and in PayPal, we have 18 3 million active users. 19 So many of your citizens of the state are 20 selling and buying on eBay, transacting with us 21 every day. 22 We would like to envision that a lot of that 23 2.7 million active eBay users are sellers, that are 24 actually entrepreneurs making a living using our 25 marketplace. 1 We have five offices here in New York. Two 2 are GSI offices, a Hunch office located in New York 3 City. And we have just established, in May, an eBay 4 center of excellence, where we'll be placing 5 200 developers and data scientists in the New York 6 area. 7 So our approach to the sale of stolen goods 8 online, we're proud of. 9 I come to you today, after 25 years of a 10 career retailer, I joined eBay four years ago. And 11 spent a year in between eBay and retail as a 12 lobbyist for a trade association who represented 13 many of the large retailers on this specific issue 14 of organized retail crime, in D.C. 15 So it's near and dear to my heart, and I'll 16 talk to you a little bit about what I've learned 17 about that issue, and what we're doing with it at 18 eBay today. 19 Our approach to stolen goods online is, 20 really, figuring out a way and a mechanism, and how 21 we can prevent it, detect it, deter it eventually, 22 and have cooperative partnerships, while keeping 23 commerce open. 24 Organized retail crime, according to some 25 estimates, totals billions of dollars a year. 1 I heard the number "$30 billion" thrown out. 2 And I just caution people for using that 3 number. I've had the ability to study that number 4 for a long time. 5 This year, the annual shrinkage number that 6 retailers put out in the United States, that number 7 is 30 billion. 8 Historically, half of that number is due to 9 internal theft, which leads the leftover to be that 10 open space which could be somewhere along the lines 11 of $15 billion related to some type of crime, of 12 which, organized retail crime has a segment on it. 13 I can forward to this Committee afterwards, 14 there's a pretty good Government Accountability 15 Office report, where they spent a year studying this 16 number, and actually found how this number got to 17 30 billion when shrink results were going down. 18 Some of the good news that some of my retail 19 colleagues should be proud of, is the retail shrink 20 numbers have come down to one of the 10-year lowest 21 points. So there's a lot of good things happening 22 as it relates to fixing shrinkage in the retail 23 stores. 24 The losses from organized retail crime are 25 true, whether they're billions -- whether they're 1 5 billion, 10 billion, or 15 billion, they're big 2 money. 3 Experts believe that ORC eventually leads 4 them into more serious crimes. So, the money taken 5 from these nefarious acts are funded into other 6 crimes. 7 The retail industry has made monumental 8 strides in dealing with today's organized retail 9 crime, but the issue still persists. 10 EBay's committed to providing a safe shopping 11 experience for our members, and we're determined to 12 keep stolen goods off of our site. 13 Our commitment to curtailing the sale of 14 stolen and suspicious items online is evidenced by 15 our partnership with both the retail world and the 16 criminal justice communities. 17 EBay established the PROACT program, to work 18 directly with retailers. It's staffed with people 19 that came from the retail world, that understand the 20 problems that our retail partners are having. 21 It promotes the safe use of our platforms. 22 We collaborate can local, state, federal, and 23 international law enforcement in the prevention, 24 apprehension, and prosecution of criminals. 25 Our diligence in this area is demonstrated by 1 the continued partnerships we have made, and the 2 trust built within the retail community to have 3 these partnerships. 4 "PROACT" equals "partnering with retailers 5 offensively against crime and theft." 6 This team, as I mentioned, specializes in 7 working retail-theft cases through partnerships with 8 retail loss-prevention professionals and 9 law-enforcement officers; those people that in the 10 trenches, that actually have the data and the 11 knowledge of what's happening. 12 The PROACT program is dedicated to working 13 towards mutual solutions and issues involving 14 organized retail theft. 15 Each month we work hundreds of 16 cases/investigations in cooperations with retailers 17 and law enforcement. 18 Safe to say that, today, in the PROACT team, 19 we have 325 retail companies that make up about a 20 1.9 trillion in retail sales, and operate about 21 200,000 stores in the United States. 22 With these companies, through the PROACT 23 cooperative partnership, they have a way to engage 24 us, and we have a way to engage them, when there's 25 suspicious activity happening on the platform. 1 Hundreds of investigations and inquiries each 2 month take place, where the eBay team will work hand 3 in hand with the retail team and the law-enforcement 4 team to determine if a bad actor has resulted of 5 being on eBay. 6 We look at, when we do identify a bad actor: 7 What have we learned from it? 8 How do we prevent it, going forward? 9 What are the systems, either, glitches, or 10 what system hurtles could we put in place, to fix 11 this issue as we move forward? 12 The members of the retail program are very 13 important business partners, and they're excellent 14 sources of information. 15 We work together with them to produce 16 exception reports. 17 So we take the information of their known 18 loss/stolen data, we look at what maybe they could 19 buy the price [unintelligible] for. 20 And, for the gentleman that had an issue with 21 baby formula, we've worked with the baby-formula 22 companies, we've worked with the Wal-Marts of the 23 world, to say: What is best buying practices, say, 24 you can own this can of Enfamil for? 25 And then we always factor in what we've 1 learned through eBay, as there's always an 2 entrepreneur that may be clipping coupons, or has 3 the last buyout sale, or some other thing, but, in 4 the normal range, what would be the legitimate price 5 this item should go for? 6 We then develop trend reports to say: Who's 7 selling that type of product in volume? 8 We have a whole team dedicated to then taking 9 that data, and working with the retailers that have 10 lost that item, and working with police departments 11 in investigating that item, and working with our 12 seller-vetting department, to determine: Are they a 13 legitimate seller? Is it a legitimate source item? 14 So, that's just like one example of how we go 15 after a problem -- you know, a problematic category. 16 The exception reports that we develop, we do 17 so on a very dynamic basis. 18 The companies we work with, like Home Depot, 19 we probably have Home Depot in four times a year. 20 They take three inventories a year. 21 Four times a year, we'll get their hot items, 22 we'll get areas of the country that hot to them. 23 We get from the National Retail Federation, 24 the certain cities and geographies that are 25 concerning to them. 1 And then we'll match the listings on our 2 sites versus these hot spots, and come out with 3 reports, that we'll sit with our retail partners, to 4 say: What does this look like to you? How does 5 this look like -- does it look legit, not legit? 6 And if there's even a question, we then have 7 our seller-vetting team actually do a deep dive, 8 asking for the receipts and the origin of where that 9 merchandise has come from. 10 Fortunately, what we've learned -- 11 particularly through, PROACT's been, four years, up 12 and running -- two or three hundred cases a month 13 that we work with retail partners, less than 14 5 percent of them actually come out to be a bad 15 actor. 16 We celebrate that, because, in the past, when 17 they didn't have a path to work with us, it was easy 18 to believe that all of it was bad. 19 But having worked together and shared facts, 20 and actually opened the doors and shared information 21 with our retail partners, we're able to tell them 22 about: Gesh, you have a piece of your supply chain 23 you didn't know about. You actually gave 24 authorization to this wholesaler to sell off this 25 merchandise that, actually, you think you're the 1 only person that has it. 2 And, so, there's a whole lot of loops in 3 retailer supply chain that we end up learning as we 4 go through the process together. 5 But safe to say, today, less than 5 percent 6 of what retailers come to us with result in a bad 7 actor being on eBay. 8 EBay has many features on their site to aid 9 investigations. 10 The first feature that we recommend to 11 everybody, is the "Advanced Search" feature. 12 EBay built the site, prior to myself and many 13 of my colleagues coming, with the concept that they 14 wanted the site to be well lit. They wanted a buyer 15 that had a history and seller that had a history, 16 and they wanted tools on the site, to have everyone 17 be able to check on each other, and keep people 18 honest. 19 Well, on our site, and the "Advanced Search" 20 function, you can utilize this as an investigator's 21 great tool. 22 So if you have missing cell phones from this 23 building, and you have a specific patent or model 24 number on the cell phone, simply on our site, you 25 can go to "Advanced Search," you can get it from any 1 page, put in that cell phone number. You can tell 2 them to send you a report, by anyone within a geo 3 radius of this location, and send you an e-mail any 4 time one gets listed. 5 These are tools that we publicly make 6 available, both, to the deter bad actors from 7 getting on our site, as well as to help our friends 8 in the law enforcement and in the retail world. 9 We also allow them to contact the seller, by 10 asking for that information online. And we make 11 seller information available to eBay members if they 12 have an investigation, and we're comfortable working 13 together, we will work with them to make that seller 14 information available. 15 EBay today still leads in the e-commerce base 16 as being the easiest company to provide 17 law-enforcement officials with data and records. 18 We require a simple records request. An 19 e-mail will suffice. We have a couple of online 20 systems, to just ask for it. 21 We don't need to subpoena or a search warrant 22 for our simple records. 23 We're probably the last ones in e-commerce 24 space doing that, where we see a lot of our peer 25 companies going the opposite way and actually 1 getting tougher. 2 It's important to us to have law enforcement 3 as our partners, as they help us with the site. And 4 being able to help law enforcement have quick 5 investigations and efficient investigations is 6 something that we're proud of. 7 We have another system installed direct for 8 retailers called "e-stop." 9 So if you go on our site today and there's a 10 listing, on the bottom right-hand corner of every 11 listing is a "Report This Item." 12 Any member of our PROACT program, the 13 300 companies that are out there, can click on that 14 button. There will be a list that will come down, 15 it will say, "Report This Item For Theft." It 16 immediately goes to a PROACT investigator who will 17 take the item down, turn over that information to 18 the retailer and to law enforcement, and prosecute 19 that person. 20 We've made it that simple. 21 Incidentally, in general, any person that 22 shops on the eBay platform has the ability to use 23 the "report" that item. 24 There's many attributes: I think this 25 suspicious. This bike looked like my cousin's bike 1 that got lost. 2 And depending on what they check, and how 3 they do it, a trust-and-safety team will review 4 those types of actions, and do that. 5 But for retailers, we have a specific cue, 6 where, if they poke that button, it comes right to 7 us and it's immediately taken care of. 8 We felt that was important for our retail 9 partners. 10 Retailer and law-enforcement outreach has 11 been a big piece of what eBay's asset-protection 12 team has done over the last 10 years. 13 We've committed to outreach efforts, and some 14 of the ways we engage the -- our retail partners is 15 through industry trade conferences. And a few of 16 them I'll name. 17 We're members of the Loss Prevention Research 18 Council, trying to get at shrinkage and preventive 19 things through data; 20 We're members of the Loss Prevention 21 Foundation; 22 The New Jersey Food Council and Organized 23 Retail Crime Focus Group, we're part of; 24 We're part of the Los Angeles-area Organized 25 Retail-Crime Association; 1 The Retail Association of Massachusetts; 2 And, we are happy to have partnerships with 3 many organizations, like the National Retail 4 Federation, the Food Marketing Institute, the 5 Jewelry Security Alliance, the National Association 6 of Shoplifting Prevention. 7 And through this time, we've touched about 8 1,600 professionals this year, where we've talked, 9 gave them our insights, on how to use the site. 10 Presentation that we left for you folks, that 11 we actually cover with them, and let them know who 12 we are, and how they can get a hold of us. 13 We work both with federal and state 14 legislative groups, to help. 15 And, currently, with the National Retail 16 Federation; with "RILA," the Retail Industry Leaders 17 Association; the eBay government-relations team; 18 we're working on crafting a federal bill that could 19 help everybody involved, and support that bill for 20 our retail partners. 21 We have a working group at the 22 National Retail Federation. Kind of a "Tell us what 23 else we haven't thought of" group, that comes 24 together three times a year. We bring them to the 25 eBay offices and we kind of brainstorm. 1 And a lot of times we'll get great winds from 2 the trends that the folks in the retail stores see 3 firsthand. 4 And we can get our systems programmers right 5 in the same room, to say: Could you build this? 6 Because, you know, it sounds good to me, but I'm not 7 the programmer. 8 And we're able to connect that, and we see a 9 lot of good things come from that. 10 This year we sponsored the NRF fusion center, 11 where we brought law enforcement and retailers 12 together for the sole purpose of helping investigate 13 organized retail crime. 14 And we have today, over 2,000 law-enforcement 15 agencies worldwide that we've train, as it relates 16 to how to work with eBay, PayPal, to work criminal 17 cases. 18 So attending conferences has proven to be 19 very effective for us. 20 I've named most of those conferences that we 21 went to. 22 We feel that helping retailers is a key piece 23 to what we need to be, to help our marketplace be 24 clean, and help retailers be confident that the 25 marketplace is clean. 1 EBay has changed from maybe the eBay you've 2 known five years ago. 3 Today, I kind of think about other sites when 4 someone says "auction sites." 5 Today, we're probably more like 70 percent 6 "Buy It Now." 7 We probably have hundreds of retailers that 8 you would know from your mall that on our site 9 selling. 10 I kind of chuckled when someone said from a 11 relatively small food retailer, that nobody could 12 sell on eBay with smaller -- with their volume 13 buying power. 14 Well, Toys"R"Us, we're proud to have, sells 15 on eBay, and they sell baby formula on eBay. And 16 they have a lot of buying power. 17 Companies like Best Buy, Calvin Klein, 18 Lord & Taylor, Neiman Marcus, Coach; these are 19 companies that have, over the last two years, 20 entered onto our platform to use it as a 21 multi-channel. 22 And what I try to teach my friends in the 23 loss-prevention world is, it used to be 24 on-line/off-line worlds, as you looked at the 25 shopping place. But it really is all kind of gray 1 now, because you have, on-line channels, 2 multi-channels, off-line channels, then you have 3 local and social. 4 And all of this makes up our complexity of 5 shopping over the next few years. 6 And to add that, just a little bit more in 7 the complexity side, eBay will do $10 billion off 8 mobile transactions this year. 9 So of those people buying on our sites, 10 $10 billion will happen off of phones, and that's 11 just amazing to me. 12 Each year, to continue with the retail 13 partnerships, we invite senior loss-prevention 14 executives, legislators, for a daylong visit out to 15 our facilities in Salt Lake City where we house our 16 risk and analytics people. 17 That's where we sit and we go through kind of 18 a postmortem. 19 So, Dick's Sporting Goods, you've worked with 20 us the last six months. 21 How's your shrink doing? 22 Where are you pain points, what parts of the 23 country? 24 Let's talk about the cases we've worked. 25 What could we program to help get better so 1 this doesn't happen? 2 Can we program something that can prevent it, 3 and what are the key learnings? 4 And besides each and every retailer of those 5 300 retailers-plus that work with us, they have a 6 direct one-on-one contact; that they have a phone 7 number, that every single day, can get answered by 8 an investigator on other side of the phone. 9 And for this, the retailers have responded in 10 a very positive fashion, and is a real -- a real 11 camaraderie on how to share information and go after 12 bad guys. 13 From a preventive standpoint, eBay uses over 14 10,000 filters and rules that are in place, based on 15 the learnings. 16 So, if you have a baby formula, I'll use it 17 as an example, if you go to list a can of baby 18 formula, and you go halfway into listing it, and 19 you'll get a sign that says: Do you really want to 20 list this? And if you do, this is a sensitive item. 21 We want you to fill out the dates. 22 Before that goes live to site, we're going to 23 scan that to see if those dates are within range. 24 We're also putting you through rules and 25 filters in the back end of the system: Does that 1 match any type of fraud path that we've learned 2 about? 3 You know: Are you listing from the highest 4 baby-formula-theft place in the country? 5 Or, are you listing at a price point that 6 we've determined there's no possible way it could be 7 legit? 8 If it is, sometimes we just end it. 9 Sometimes it moves right to an investigator. 10 Sometimes it goes to our risk in -- risk team 11 that will actually do a series of vetting, where 12 they'll actually get the origin of the product, and 13 work with that merchant to determine that. 14 So, the 10,000 rules and filters is a 15 retailer's -- an on-line retailer's way of having 16 policies and procedures in real-time. 17 And these filters and fraud models are 18 always -- they're always in the learning 19 environment. 20 So today if we find the trend is now, 21 yesterday, iPhone 4 fraud was X, today's iPhone 5 22 fraud is Y, we then teach these filters to just 23 immediately get better, and maybe some small 24 adjustments. 25 When we bring our retail friends out to our 1 office, to visit with us, and work through the 2 reporting with us, this is where we sit down and 3 have a meet with our risk-analytics people, and we 4 throw out ideas of, What can we do? 5 At one point in time, we worked with a 6 government think tank that was looking at the issue 7 of baby formula funding terrorism, which, I'm a 8 believer that it's one of the worst talking points 9 that I used when I was lobbying for organized-crime 10 legislation. 11 I could never find the actual case that 12 actually had a terrorist and baby formula together. 13 So, I can tell you, we did a report at eBay. 14 And one of the first things I did is, I wanted to 15 know any baby-formula sales, tell me what day of the 16 week it was purchased, where did that money go. 17 One of the blessings of having the PayPal 18 side is, 90 percent of our transactions fall back 19 through PayPal. 20 And, then, where did it go after PayPal: 21 What bank? What countries? 22 And I can tell you, that I think it -- it 23 ended up being a whopping $30, ended up going out of 24 the U.S., as it related to baby formula. 25 But that's a report we keep an eye on. 1 And we can build, based on the technology, if 2 we have an understanding of the problem -- which we 3 get best from engaging our retail partners -- if we 4 understand the problem, we can get the folks at eBay 5 together, to build a smarter mousetrap, and try to 6 look at how we go about listing that. 7 Also, a number of retailers have pain points 8 that they know about ahead of time, that they'll 9 call us about. 10 We're launching a new product. It's going 11 right at the front of the doors. We're not allowed 12 to tie it down. We know we're going to have 13 problems. Can you get some rules built already? 14 "Sure." 15 We're able to partner in that way. 16 And that's why we've kept this team as the 17 team that works with the retailers. It's been in 18 place now, four years. They know each other very 19 well. The retailers rate this team on a very high 20 basis. 21 And we actually ask them to rate the 22 partnerships with the team. 23 So it's a pretty good environment, and that's 24 why we spend a great deal of time, during the 25 conferences, to make sure that those partnership are 1 built upon. 2 But these proactive measures in -- by ways of 3 rules and filters, they're really the engine of our 4 site. 5 They automatically block and flag. 6 So if we say, Gesh, you know, we're willing 7 to take the risk that an entrepreneurial mother may 8 have got four extra things of baby formula, but 9 we're not going to go five. 10 So, she may hit a filter that says, you can 11 list four, but you can't list five. 12 And that's just, internally, we've worked up 13 a system that says: Four has fit the model that 14 seems to be good. Five ends up being a whole 15 different model that we need to look at. 16 So with this filter system, we can block, not 17 let the stuff on the site all together, or totally 18 refuse it on the site. 19 And in the areas of stolen goods, we have a 20 number of blocks and filters very specific to key 21 categories for the retailers, to help deter that 22 stuff before it ever makes eBay. 23 So, the PROACT team, together with retailers, 24 have identified the high-risk items. 25 I think, together, the -- they measure and 1 block about 6,000 items within everybody's world of 2 high risk. 3 And, we've probably kept about 4,000 items a 4 year off of the platform, that's identified through 5 going through the policies and process like that. 6 So, moving to partnering with law 7 enforcement, eBay has a -- long had the relationship 8 with law enforcement. 9 Today we have contacts of over 20,000 10 law-enforcement professionals, that we've responded 11 to, and have cooperated with, through our database 12 system. 13 And during our course of working with law 14 enforcement, we listen to the issues that are 15 affecting them related to their investigations. We 16 look at what our resources are, and we try to come 17 up with solutions. 18 Through our internal systems, and external 19 programs, such as Leads Online, we demonstrate that 20 the we lead the industry in supporting law 21 enforcement. 22 EBay developed a system called 23 "Law Enforcement Request System," which is a 24 web-based system that enables law-enforcement 25 officers to safely get eBay and PayPal records by 1 going to our website, putting in their investigation 2 notes into the portal, and this will automatically 3 pull their records and give it to them in a very 4 quick period of time. 5 This is quick, efficient, fast. 6 And, again, the eBay records, we give as a -- 7 just a simple request, once we validated the 8 law-enforcement person. 9 There are many companies that I'm sure you're 10 aware of, that make everyone go through a subpoena 11 process. 12 We feel law enforcement are our friends. We 13 want to make it an easy environment for law 14 enforcement to work with us. 15 We developed the tool called the 16 "Law Enforcement Portal," which is really a 17 freestanding device, that website that you go to, 18 and it allows the law-enforcement officers -- it's 19 for the high-use law-enforcement groups. 20 Several officers of ICE and FBI, particularly 21 the offices that work organized retail crime, 22 certain cities that have organized-retail-crime task 23 force, we give them this level of access, through 24 this law-enforcement portal, because it pulls their 25 records quicker, faster, and more completely than 1 the normal subpoena. 2 The facilities at this -- excuse me. 3 The system facilitates a fast turnaround of 4 records in 48 hours on the law-enforcement portal; 5 where, I think our nearest competitor is about 30 to 6 45 days. 7 The law-enforcement portal has fulfilled 8 255,000 requests since 2009. 9 And we actually are leading the way of how to 10 cooperatively practice with law-enforcement 11 cooperation. 12 We also have Leads Online, which is a 13 third-party research tool, and it's available out on 14 the Internet. And Leads Online is a portal that 15 allows any officer anywhere in the country, 24 hours 16 a day, 7 days a week, to go on and get eBay 17 information without a search warrant, without -- 18 just a simple request, that, I'm the officer, and 19 I'm going in through the Leads Online portal. You 20 register there, and it will give you basic seller 21 information. 22 We connected up with Leads Online, because 23 their the major database that handles the pawnshop 24 databases nationwide. 25 So it's -- it felt, for us, to be a logical 1 place. 2 So when you go to this company to do your 3 pawnshop database, they have an eBay portal that 4 law-enforcement people are able to go in right away. 5 This is free. And this is, again, been in 6 place for five years, for law-enforcement people to 7 be able to search our site, get information very 8 quickly. 9 Lastly, we believe that there are not enough 10 law-enforcement people and/or enough court people to 11 fully address the issues of shoplifting, both 12 juvenile and organized retail crime. 13 We recently partnered with the 14 National Association for Shoplifting Prevention. 15 It's one of the key charities that we're going to be 16 involved with, to try to help educate people, why 17 selling online -- or, stealing property, in the 18 first place, is bad. 19 But if you steal it and try to sell it 20 online, talk to the young children about how that 21 leaves a digital footprint, and that's absolutely 22 the worst thing you want to do. 23 And try to help the people who know how to 24 best educate would-be people from not stealing at 25 all. 1 EBay's committed to having its -- a well-lit 2 marketplace, will continue to develop 3 industry-leading capabilities and programs to assist 4 law enforcement and private industry, and, PROACT 5 will be a vigilant partner of retailers and law 6 enforcement, with a goal of protecting consumers and 7 retailers from crime. 8 We recently struck a partnership with 9 Lurknet. 10 And if I may lean on my 20-plus years in the 11 retail world, chasing organized crime, what I've 12 learned about organized retail crime is, it's by 13 segments and categories, so that the crooks that 14 actually steal in grocery stay in grocery, for some 15 reason; and the apparel stay in apparel. 16 So if you have the type of data that says, 17 I've been hit in these five malls on Tuesday, at 18 3:00, that's meaningful data. 19 So Lurknet is -- has been newly launched, and 20 we're supportive of it. 21 So, Lurknet is a national database that all 22 retailers are being asked to subscribe into with 23 organized-retail-crime information. 24 Our goal, is they build an immediate 25 connection to eBay. 1 So, if you lost 10 Polo shirts today in 2 Poughkeepsie, New York, that, an hour from now, 3 there's a search calling eBay, looking to see if 4 someone listed one of those 10 in some type of 5 radius that would be reasonable in Poughkeepsie, 6 New York. 7 So we hope to help them and our retail 8 partners, as leveraging the technology to get us to 9 where we need to be as our world continues to change 10 in the shopping environment. 11 SENATOR ZELDIN: Thank you. 12 PAUL JONES: You're welcome. 13 SENATOR ZELDIN: Go ahead, Al. 14 ASSEMBLYMAN GRAF: Yeah, I want to thank you. 15 It sounds like we're going to have to get 16 your information, your cards, and stuff, in case our 17 law enforcement -- we pass legislation like this, 18 law enforcement may want to come to you, just for 19 you to give them a quick thing, how they can get 20 onto eBay and -- 21 PAUL JONES: Sure. 22 ASSEMBLYMAN GRAF: -- take a look at this 23 stuff. 24 But I thank you very much for your comments. 25 It was very informative. 1 SENATOR ZELDIN: I have one comment and one 2 question. 3 One of our -- the key -- one of the key 4 components of our approach, is to make sure that the 5 New York State Legislature is not -- we're not 6 trying to tell any of these businesses how to police 7 itself. 8 We just want to help to give prosecutors more 9 tools to crack down, and working with the companies. 10 I think it -- one thing that's very apparent 11 with your testimony, is that eBay is doing a great 12 job policing its own company, and doesn't really 13 need state governments or federal governments to 14 come in to tell us -- to tell you guys what to do 15 any better than what you're doing yourself. 16 It seems like you're ahead of the curve. You 17 take organized retail theft extremely seriously. 18 And, one of the takeaways from all of the 19 speakers today, is that all of these companies are 20 doing what they need to internally, to deal with the 21 problem. They just need more tools, and being able 22 to work with law enforcement. 23 My question is this, and I saved this 24 question for you, because it's just most 25 appropriate: 1 EBay has buyers -- simply buyers and sellers 2 going through your site. 3 Can you explain a little bit, with regards to 4 jurisdiction, whether a buyer happens to reside in 5 New York, a particular county in New York, and/or a 6 seller resides in a county or somewhere in New York, 7 jurisdictionally, as far as the State Legislature 8 goes, in trying to put more teeth behind some of the 9 laws, if you could kind of explain that 10 jurisdictional challenge, because you have -- you 11 know, you're based in California. 12 You know, a buyer might live in New York, the 13 seller may live in Oregon. 14 You know, how does organized retail theft 15 play into the jurisdictional challenges when the 16 buyer or seller does not reside in New York? 17 PAUL JONES: Well, I think -- I think that -- 18 it gets complicated, particularly where a lot of 19 buyers have several locations. 20 Right? 21 We have a lot of snowbirds that live in 22 Brooklyn, and move to where I live in Boca Raton for 23 a few months out of the year, that may sell in both 24 locations. 25 I haven't seen the issue of prosecuting ORC 1 be one where they can't because we couldn't figure 2 out the jurisdiction. 3 I've actually seen it, cases made in both 4 jurisdictions. 5 Cops being very comfortable that, you know, 6 the buyer [unintelligible] from Philadelphia, even 7 though it came from New York, it was delivered here. 8 It's stolen goods, we're still going to take the 9 case here. 10 On the federal level, I can tell you that 11 Eric Ives [ph.] and his team have made statements, 12 that, it's really not clarity on laws that we need. 13 We need more cops, is really what Eric put. 14 A lot of my retail partners, and I'd like to 15 support them, for the needs to have more teeth in 16 the laws, particularly when it's a -- not a federal 17 offense. 18 But, what I haven't seen is, the 19 jurisdictional issue be meaningful for any lack of 20 prosecution. 21 So, to me, it's -- you know, we've often gone 22 to both ends of where the crimes happened, and said: 23 Who has the police resources that are open? 24 So, if you have a crime here in New York, but 25 the New York City police are busy, is the AG's 1 Office open? Can they prosecute something? Would 2 they be open for a criminal that might be out of 3 New Jersey but victimized this guy in New York? 4 So, I think clarity around that could 5 possibly help; but, yet, it hasn't been a problem in 6 any of the things that we're working. 7 But I will tell you, and I think that 8 everybody that's in this space, when we get together 9 and talk, you know, 10, 15 times a year, there's 10 just a lack of police resources. 11 I mean, for our own investigations we have 12 thousands of people that will investigate, and can 13 prosecute, and we'll go after prosecutions in about 14 10 percent of them just for the mere sake of 15 resources. 16 And that's just not related to stolen goods. 17 That's all crimes that happened on our platforms. 18 So I think that that becomes the bigger issue 19 when you really peel back the layers of the onion to 20 go after ORC. 21 It's, you know, what are the right amount of 22 real police officers that you can dedicate to this 23 work, with all the other meaningful work that's 24 going on. 25 SENATOR ZELDIN: Thank you, Mr. Jones. 1 Assemblyman Graf, do you have any closing 2 remarks? 3 ASSEMBLYMAN GRAF: I just want to thank 4 Senator Zeldin for bringing us here today. 5 It has been very informative. 6 I'm sure Mike and I will push this on the 7 Assembly side. Hopefully, we can get some 8 legislation passed this year. 9 As far as your testimony, I believe that 10 we're going to wind up reaching out to you a little 11 bit -- 12 PAUL JONES: Sure. 13 ASSEMBLYMAN GRAF: -- to teach our police 14 departments how to use your site. 15 And, it wouldn't be bad for prosecutors 16 either. 17 So I want to thank you for coming today. 18 I want to thank Senator Zeldin, and all the 19 speakers here. It was a very informative and 20 enlightening day. 21 So thank you very much. 22 SENATOR ZELDIN: I would like to thank 23 Assemblyman Graf, Assemblyman Montesano. 24 I would like to thank: 25 Cablevision for being here and covering 1 today's hearing; 2 Senate Media Services, for traveling down 3 from Albany to webcast today's Consumer Protection 4 Hearing, our second hearing on organized retail 5 theft. 6 Our host was Touro Law College. 7 Touro has been a big help for my office for a 8 number of different types of meetings and hearings, 9 and I would like to -- especially like to recognize 10 our host, Touro Law. 11 I would like the thank Jennifer Slagen, and 12 my great staff. 13 I know Jen worked -- has worked very hard on 14 this particular issue, working very closely with 15 Michael, and with Ted Potrikus. 16 I know Peter Carr [ph.] is -- was -- yeah, 17 Peter is here as well. 18 Peter does a great job, I believe, 19 representing eBay. 20 Our speakers, Ted Potrikus, Michael Rosen, 21 James D'Arcy, Justin Dietel, Charles Rosaschi, 22 Jon Greenfield, Catherine Riccards, Shane Nielsen, 23 and Paul Jones, I'd like to thank everyone who has 24 taken the time out of their very busy schedules to 25 be here, to offer very enlightening, well-rounded 1 testimony. 2 Hopefully, the word we can get out through 3 all of my colleagues in the Senate, all of the 4 Assemblyman Graf's colleagues in the Assembly. 5 The individual who introduced it in the 6 Assembly is Assemblyman Mike Cusick, but he needs a 7 good team. And I'm sure Assemblyman Graf and 8 Assemblyman Montesano are prepared to provide him 9 that support. 10 Once again, thank you everyone else who is 11 here. 12 And, have a great rest of the afternoon. 13 I look forward to session reconvening in 14 January of 2013, to see this legislation passed in 15 the Senate and the Assembly, and hopefully signed 16 into law by our governor, Andrew Cuomo. 17 Thank you. 18 ---oOo--- 19 20 (Whereupon, at approximately 1:58 p.m., 21 the public hearing held before the New York State 22 Senate Standing Committee on Consumer Protection 23 concluded, and adjourned.) 24 25