In March 11, 2011, a jury convicted well-known scrap dealer Robert “Bobby” Waxman, 56, on four counts of fraud over $5,000 and two counts of theft over $5,000. On October 20, 2011, in a Hamilton, Ontario courtroom, Superior Court Justice J. Lofchik sentenced Waxman to eight years in a federal penitentiary and ordered him to pay a fine of $15,514,643, the amount he stole; failure to pay will result in Waxman serving another six years in jail.
The sentence is the latest chapter in a long twisted tale of deception not only in the career of Bobby Waxman, but his family: a few years ago his Uncle Morris successfully sued his late father Chester for stealing his share of the family’s Hamilton-based scrap recycling company and profits in an elaborate scheme with which Bobby was intimately involved.
The in the 2011 sentencing arose from dealings in copper cathode, a pure form of copper used in various industrial applications, while Waxman was president of the Metals Recovery Group of Philip Services Corp. (where Waxman was also a director). Waxman diverted in excess of US $17 million of Philip’s money to separate corporate entities he controlled.
The judge’s decision reveals the details of a fraud that, when discovered in the late 1990s, triggered the unraveling of Philip Services and losses in the hundreds of millions of dollars for investors.
As president of the metals group, Waxman was in charge of buying and selling copper cathode on behalf of Philip. Most of the copper was bought from two US companies: Pechiney (in Connecticut) and Kataman (in Missouri). Sometimes the copper was legitimately sold to customers like General Motors. At other times, however, copper was traded in order to generate cash flow for the rapidly-growing Philip. With Waxman’s assistance, Philip also booked as inventory copper it didn’t really own.
Throughout 1994 to 1997 Philip was busy buying other companies across North America, and the expansion led to cash shortages. To raise cash, Philip would buy copper from Pechiney, for instance, and sell it right back. Because Pechiney offered Philip 30 day payment terms, Philip could use its sales invoice to Pechiney as a receivable to get a short-term bank loan. This process, called factoring, created artificial cash flow and inflated the value of Philip.
When Philip spent the bank money, it would have to factor another invoice to pay Pechiney for the original invoice in a process known as a “rollover.” While this shell game worked in the short term, rollovers were ultimately problematic for Philip due to money lost on high interest payments on short-term loans.
Bobby Waxman saw his opportunity to defraud Philip and enrigh himself in these complicated transactions.
In 1996 Waxman began turning the two-way deals with Pechiney and Kataman into three-way deals with a new company, Parametal. Often multiple transactions would take place on a single day. Parametal supplied cash immediately to Philip on 30 or 60 day terms, much as the bank had, so Philip didn’t have to factor invoices. What no one knew at the time was that Parametal, which was operated by a front man, was secretly 75 per cent owned by Waxman and that he personally profited from each deal, directing money through an offshore company to bank accounts in Switzerland. These funds were then used to buy horses, jewellery, expensive wine, art and clothing. This was not just so Waxman could live the high life; these items could then be resold, concealing the original source of the funds and effectively “laundering” the proceeds of the copper transactions.
Between April 1996 and April 1997, Waxman carried out 69 three-way deals involving Philip, Pechiney and Parametal, and one two-way deal directly between Philip and Parametal. The transactions were referred to as “ring outs” or triangles due to their three-sided nature. Waxman personally received over $4.9 million from these ring outs.
In order to facilitate the transactions, Waxman set up two companies in the State of Delaware — Monopol and Oracle — owned solely by him. The Deleware companies were in turn owned by a third company he set up in Ireland called Oracle International Holdings. Transactions were directed by Waxman in which Parametal (and ultimately Oracle) and Pechiney made profits, and Philip lost money. Instead of actually generating cash for Philip, the ring outs made profit for Waxman at the expense of Philip.
Waxman made more than $8 million on other crooked deals, some involving copper sales to a company called MIT in which Waxman had an indirect interest; other times Waxman brazenly directed Philip to ship copper cathode to Parametal, but issue no invoice (i.e., straight-out theft).
Unfortunately for Waxman, in 1997 an accountant noticed substantial losses on these transactions and in the summer of 1997 he was relieved of his authority to conduct copper transactions. By early January 1998, Waxman was gone from the company.
Bobby Waxman has enjoyed a wealthy life for a long time, but his methods hurt investors and undermined confidence in publicly-traded companies. When his appeal is over he’ll be where he belongs: behind bars made of iron, not copper.
Guy Crittenden is editor of this magazine. Contact Guy at firstname.lastname@example.org