Bel Air Man Pleads Guilty to Participating in $20 Million Kickback Scheme

From the U.S. Attorney’s Office in Baltimore:

Elliott Dennis Kleinman, age 68, of Bel Air, Maryland, pleaded guilty today to conspiracy to commit wire fraud and tax evasion, in connection with a kickback scheme that defrauded his employer of more than $20 million.

The guilty plea was announced by United States Attorney for the District of Maryland Erek L. Barron; Special Agent in Charge Thomas J. Sobocinski of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Darrell J. Waldon of the Internal Revenue Service – Criminal Investigation, Washington, D.C. Field Office.

According to his guilty plea, Kleinman was a longtime employee of Company 1, a family-owned global business headquartered in New York, but with manufacturing facilities in Belcamp and Abingdon, Maryland, both in Harford County. Beginning in 2012, Kleinman and another employee (Employee 1) began to use their management positions at Company 1 to execute a fraudulent billing scheme whereby they would get illegal kickbacks from various drum vendors doing business with Company 1, which used drums to store and transport its products. As the facility managers, Kleinman and Employee 1 oversaw the purchasing and storing of drums for use at the Harford County manufacturing facilities. They also had authority to review drum invoices and authorize payments to the drum vendors.

Anthony P. Urcioli, Sr., is the owner and President of Tunnel, Barrel & Drum Co, Inc. (TBD), located in Carlstadt, New Jersey, and of another drum supply company called Hartford Fibre Drum, Inc. ( Hartford), both of which did business with Company 1. After TBD became a drum supplier to Company 1, Kleinman and Employee 1 entered into arrangement with Urcioli whereby TBD could continue selling drums to Company 1 if Urcioli agreed to fraudulently invoice Company 1 for more drums than TBD actually sold and delivered to the company. If Urcioli agreed to falsify its invoices in this way, Employee 1 and Kleinman said that they and TBD could split the extra money Company 1 paid TBD for the made-up drum deliveries 50/50. Employee 1 told Urcioli that he would split his share of the kickbacks with Elliot Kleinman 75/25. Urcioli agreed to participate in the false billing scheme.

From approximately January 2012 to January 31, 2020, Employee 1 contacted Urcioli at least once a week to discuss the number and type of drums that Employee 1 actually wanted delivered to Company 1’s Maryland facilities. During the same conversation, Employee 1 told Urcioli how many additional drums to charge, but not deliver, to Company 1. After Urcioli created the invoices that fraudulently billed Company 1 for both delivered and undelivered drums, Employee 1 approved the invoices and sent them to Company 1’s headquarters to be paid.

In addition, Urcioli would create a handwritten purchase order ticket that summarized the breakdown of actual and bogus drum orders and how the kickback amounts were calculated. Urcioli would put a copy of the purchase order ticket in an envelope along with Employee 1’s and Kleinman’s share of the kickback amount payable via checks from TBD and Hartford, and then send the envelope to their personal residences in Harford County, Maryland. In December 2013, Urcioli told Employee 1 about Hartford, the other drum supply company Urcioli owned. After receiving records that proved that Hartford was a legitimate company, Employee 1 and Urcioli agreed to expand the kickback scheme to include Hartford.

Urcioli wanted to pay the kickbacks to Kleinman and Employee 1 by check so the payments would look like payments to drum wholesalers and be deductible as a cost of goods sold on TBD’s tax returns. Kleinman advised that he wanted his kickback checks payable to a company he formed called “EDK Management, LTD.” Urcioli agreed, and in addition to making the kickback checks drawn on TBD and Hartford accounts payable to that company, Urcioli wrote the word “drums” on the checks to further the pretense of legitimate purchases.

Between January 2012 and January 31, 2020, Urcioli falsely invoiced Company 1 a total of $20,300,757. TBD and Hartford kept half that amount while the remaining funds were sent to Employee 1 and Kleinman. Kleinman’s share of the kickbacks was approximately $2,307,121. Kleinman opened and maintained two commercial bank accounts for EDK, one in the name of “EDK Management Ltd,” and the other in the name of “EDK Management Ltd t/a Main Street Cigars,” a retail store he owns, located in Bel Air, Maryland. Kleinman deposited the drum vendor’s checks into EDK’s business account, where it was withdrawn as cash, spent on personal expenses, or transferred to the bank account for Main Street Cigars.

For the period of 2017 through 2019, TBD paid Kleinman a total of approximately $1,034,911 in kickbacks for his role in the fraudulent billing scheme. Kleinman’s 2017 through 2019 income tax returns filed with the IRS did not report those kickback payments as personal or business income, resulting in a loss to the U.S. government of approximately $291,143.

Kleinman faces a maximum sentence of 20 years in prison for conspiracy to commit wire fraud and a maximum of five years in federal prison for tax evasion. U.S. District Judge Lydia Kay Griggsby has not yet scheduled sentencing.

Anthony P. Urcioli, Sr., age 78, of Park Ridge, New Jersey, previously pleaded guilty to conspiracy to commit wire fraud and filing a false tax return for his role in the scheme and is awaiting sentencing.

United States Attorney Erek L. Barron commended the FBI and IRS-CI for their work in the investigation. Mr. Barron thanked Assistant U.S. Attorneys Martin J. Clarke and Harry M. Gruber, who are prosecuting the case.

For more information on the Maryland U.S. Attorney’s Office, its priorities, and resources available to report fraud, please visit www.justice.gov/usao-md and https://www.justice.gov/usao-md/report-fraud.