In the past few months, Amazon has barred dozens of third-party vendors from its platform for allegedly offering goods they knew to have been stolen. Those vendors, however, insist that they had no clue; they also argued that Amazon does not offer sufficient evidence to help them locate the suspect items and vendors. In response to inquiries from CNBC, Amazon confirmed that it is in touch with the Washington State Office of the Attorney General regarding the issue of retail crime.
Dozens of small businesses have recently been removed from Amazon's website for purportedly offering stolen merchandise from renowned brands such as Breville, Keurig, Levoit and SharkNinja. Nevertheless, sellers claim they were unaware that what they were selling was stolen. Amazon has supplied little evidence for their claims, causing the merchants to investigate if they unknowingly acquired the pilfered merchandise from one of the multiple wholesalers, closeout businesses or distributors from which they get their Amazon stock. Amazon's marketplace of third-party sellers makes up more than 60% of goods sold on the platform, leading to an increase in counterfeiters and spammers seeking to exploit it, causing Amazon to raise its enforcement. As an outcome, retailers, lawmakers and trade groups have repeatedly commented on the expansion of organised retail crime and the part that online marketplaces have had in it. Amazon's recent crackdown affirms the company's recognition that criminals are using its platform to put up illegally acquired merchandise. Though sellers can be suspended for a variety of reasons, including offering dangerous or outdated items, giving bad customer service and using distorted product descriptions, none is as detrimental as being accused of selling stolen items. Affected merchants state that Amazon is not eager to grant them a second opportunity or many chances to prove their innocence. CNBC communicated with six sellers who had their accounts suspended and each provided the names of their suppliers. Upon examining their invoices, conversations with suppliers and other papers, an intricate network of liquidation companies, wholesalers and traders was discovered that sold similar products, e.g. espresso machines from Breville, Keurig coffee makers, Levoit humidifiers, LG computer monitors, Shark mops and vacuums, and Ninja appliances. In response to CNBC's queries, Amazon said in an email that it is collaborating with law enforcement and does not comment on active law enforcement investigations. The company also added, “Amazon does not permit independent vendors to list stolen items in our store and we work closely with law enforcement, retailers and brands to close down bad actors and mete out the necessary punishment, including making law enforcement referrals, withholding funds, and cancelling accounts."
Two years ago, Frank shifted his Amazon business from selling home goods under his own brand to running a wholesale business. Intending to be more cautious due to the competitive marketplace, he decided to settle for selling products consumers are familiar with instead of promoting an unfamiliar brand. On March 14th, his three-year-old successful business abruptly ceased operations when Amazon informed him his account had been suspended for selling stolen goods, without offering any details that would allow Frank to identify the offenders. Amazon, when asked to comment on his case, stated they frequently request documents to confirm the source of goods if suspicions arise and that they have a process for appealing decisions. Documents provided to CNBC indicate one of Frank's suppliers was identified as KZ International, a major distribution company owned by an Amazon millionaire. When asked about the suspension, an Amazon representative informed Frank that KZ had been placed on an internal list of "risky suppliers." KZ's warehouse was then raided by the California Highway Patrol, apprehending various products, hence an investigation dubbed Operation Overloaded was launched, to which Amazon aided by providing intelligence. Despite the unclear situation, Frank's store has been offline for almost four months, along with four other merchants that reported facing similar circumstances. They all reported that they had previously never received any warning of selling stolen goods and were unaware of which of their products had been flagged or who their suppliers were.
Millions of online merchants from around the world are part of Amazon's third-party marketplace. They either create their own branded products such as clothing, exercise equipment, or household items; or they serve as retailers, selling products from well-known brands. Regardless, it is a highly competitive, low-margin venture with fees to be paid to Amazon for warehouse storage, shipping, customer service, and advertising. Unfortunately, despite Amazon's Account Health Assurance program, designed to protect sellers from sudden closure, Amazon can still deactivate accounts if they believe the seller has been involved in fraudulent, deceptive, or harmful activity.
Amazon employs technology to monitor items as soon as they are received in a fulfillment center, seeking out counterfeit or fraudulent items. In cases with the potential for fraud, the company will contact investigators and provide information to law enforcement. To address organized retail crime, Amazon has created an internal ORC Engagement Team which is made up of law enforcement professionals. This influx of activity comes on the heels of government agencies and lawmakers pushing to control stolen goods from being sold on Amazon. This has resulted in legislation which compels online marketplaces to check the identity of frequent vendors with the aim of avoiding deception.
Getting reinstated on Amazon is difficult; sellers have the possibility of appealing their suspension through a live video discussion with an Amazon representative. The interview time is typically 45 minutes and the vendor is required to provide documentation such as a driver's license, tax ID, invoices, bank statements, and so forth. Amazon should notify the seller within 5 business days if they succeeded in the interview, although some merchants say they are still waiting for an answer to their interview weeks later. According to Chris McCabe, a previous Amazon employee who has dedicated nine years to helping suspended sellers get back in business, “These people can't provide proof, because the items were stolen or the suppliers won't cooperate and provide proof. You start from a guilty-until-proven-innocent standpoint, and if you can demonstrate that it was a mistake, there is a chance of being reinstated.” Amazon, however, does not screen third-party sellers.
Before Amazon sellers can list their products, they are required to validate suppliers. Nonetheless, tracing the origins of products is difficult, since it is common for multiple merchants to buy and resell those items before they are finally purchased by an Amazon merchant. In spite of giving Amazon documentation and receipts, sellers feel helpless to solve the issue. This has caused many to let go of their staff or have to declare bankruptcy. The co-owner of Oregon Prep Center, Ricky Sala, said it has been "devastating" to his business, and he is scared to buy wholesale products since he is unsure of what Amazon will consider as illegally obtained.
As a result, sellers from different places have formed chat groups in order to share their stories. Since travel restrictions were imposed, the process of sourcing inventory went digital. Sellers used Instagram and Facebook to obtain virtual tours of merchandise, as well as subscribe to Telegram channels with names like "Amazon wholesales" and "Amazon deals" that advertised in-stock products and their prices.
It is important for sellers to act quickly due to the large membership of these groups; the offers usually get taken quickly. CNBC also observed that small kitchen appliances and electronics were the most popular products. To save money, sellers do not physically handle the items; instead they have them shipped directly to Amazon warehouses. Amazon's FBA program then takes over in terms of sorting, packing, and delivery. However, Amazon does not check if the products were obtained legally by third-party sellers.
A Miami seller told CNBC in an interview that in the second half of the previous year, he had connected with a number of new suppliers he had found on Instagram, with the goal of penetrating the trendsetting home appliance market. Documents and bank statements revealed that he had spent in excess of half a million dollars purchasing pallets of air fryers, food processors, and espresso machines, which the suppliers claimed to have bought from brands or liquidators at "standard wholesale" prices. On the 17th of March, Amazon suspended his account on account of allegedly selling pilfered items, without specifying which items were in breach of their policies. He then contacted the FBI, hoping they could assist him, though they made clear that they would be unable to help without knowing the precise items in question.
A New York-based trader attested that on the 6th of May, Amazon sequestered roughly $17,000 worth of "questionable inventory", as an account representative had told him pointed to it being stolen goods. CNBC was able to peruse the warning Amazon sent out, which read: "We have taken this measure because we believe that your account is offering items that are unsuitable and may have been used to engage in deceptive or illegal activity that harms our customers, other selling partners, and our store." The vendor managed to source the goods and sent in as many invoices as he could to Amazon as part of a hearing on June 1. His account was not suspended, though the inventory continues in its frozen state more than a month later.
A few of the sellers reached out to the Attorney General of Amazon's base state, Washington, to bring to light what was occurring. Sources told CNBC that the Attorney General's office had been in contact with the company in June in relation to the suspensions. Amazon acknowledged its communiqué with Washington State Office of the Attorney General in matters of organized retail larceny, though did not offer any other details. The Attorney General's office did not return CNBC's request for comment.
Patterns began to appear when following the supply chain of suspended sellers. As many as three of them purchased items like monitors and air fryers from Ngo Wholesale Distributors (also known as Ngo Trading Co.), with two sites in California: one in Los Angeles County's Santa Fe Springs area and the other in Orange County's Garden Grove. In an interview, the company's proprietor Tien Ngo said he's also purchased products from other suppliers in Southern California, among them a business by the name of Stride Trading outside of Los Angeles. When asked about their supply chain, Ngo remarked that vendors had professed that their goods were not swiped but he had refrained from researching further, so as not to damage the working relationship. Stride Trading's name resurfaced in other suspended sellers that talked to CNBC. Since Amazon doesn't divulge information about suppliers, CNBC couldn't ascertain if the reappearance of Stride Trading was a mere happenstance or not. Multiple attempts by CNBC to reach out to Stride Trading were unanswered.
A seller reported that a Ngo worker had disclosed to them that the suspensions were due to a recent CHP crackdown. This was supported by a news report about the "Operation Overloaded" mission in which 40 suspects were apprehended, $50 million in pilfered merchandise, 20 stolen cargo trailers, numerous firearms and 13 gold bars were retrieved. The employee involved stated that this indicated "stolen items or related ASINs/serial numbers most likely leaking into every supply chain." ASINs refer to the 10-digit code necessary to locate products on Amazon's website.
Complaints from KZ, the wholesaler and distributor in Huntington Beach, demonstrate what happened before the suspensions. In late March, KZ sued TV Wholesale Outlet, managed by Armen Babayan from Los Angeles, claiming they had been sold $3.8 million in "illegally secured" products, and that CHP raids of their facility had revealed the goods had been stolen. Now KZ is facing "over $376,000 in shipping and storage fees, removal fees, and reserved inventory charges," and other sellers have initiated several legal cases against them because their own storefronts have been frozen or closed by Amazon. Babayan filed a motion to dismiss the complaint on June 14 and rejected KZ's allegations.
In May, KZ filed another lawsuit against Juniper Holdings, a L.A.-area supplier, claiming they sold the company goods that exceeded $500,000 in value and had been stolen. Some of the products had been seized by CHP during the raid of KZ's warehouse, and KZ had been notified that the items were stolen months earlier when a client was sent a letter from TP-Link alerting them that routers they had sourced from KZ had been taken. Juniper commented to KZ that they could not bring back the goods, according to the petition. Babayan didn't answer to a request for comments. Cameron Webb, the CEO of Juniper, denied the accusations in KZ's lawsuit.
CNBC made multiple attempts to contact Sobrie, the proprietor of KZ, at numbers in California, Florida and New Jersey, but he did not respond. The owner of the Huntington Beach property, which was raided by law enforcement, declined to comment. However, the owner acknowledged the raids had happened and added that Sobrie's company is no longer a tenant. Kevin Cole, Sobrie's attorney, declined to respond to questions about his client's business activities or association with Amazon, saying in an email that "the allegations in our lawsuits speak for themselves."
Sobrie is well-known to Amazon resellers. Articles have been written about his success selling wholesale goods on the site, and his Instagram page includes several posts of him relaxing in luxury vehicles and offering e-commerce business advice. Sobrie now operates KN Trading LLC, a new wholesale business in New Jersey, according to records filed in the state. Its Telegram channel, which has over 1,100 users, is consistently updated with new offers. A new video on the company's Instagram page features a warehouse loaded with boxes of merchandise, with employees packing packages to ship with UPS. The caption reads, "Ready to boost your Amazon business? KN Trading is the associate you need!"
The suspended sellers are frantic as they continue to expend money. They will likely miss out on Prime Day, the big sale event scheduled for next week, and are only hoping they can restore their accounts in time to get ready for the holidays. They frequently check in with each other in a group chat, sharing insights they should use in their appeal interviews, hoping to boost their chances of getting back their accounts. One of them stated in a recent message, "I'm praying we all get great news very soon and this will be a story that ended well."
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