Littleton made no effort to be discreet about the disparity between their two operations. Bartel clearly got the idea that Littleton was the one with the financial power and that with financial power comes the power to demand better cut of the profits. Bartel expected this from Littleton. He just seemed like the kind who would make no bones about his financial abilities and would exert the power at any given opportunity. About an hour so after their handshake, Bartel felt that Littleton had pretty much exhausted his grandiose show of financial might. It was probably as good a time as any to throw some numbers at Littleton and see if he would be a candidate to get involved in the Marlboro business Bartel was pursuing.
Bartel started off with, “Well, John, I have a situation that may be right up your alley. It has the profit potential of about $50,000 for an investment of $400,000. The amount of time that the initial investment of $400,000 would be tied up is approximately six weeks.”
Bartel stopped and let the silence permeate a little bit. He went on, “As you well know, that kind of financial capital is outside my capability. Going to a bank is not an option as I cannot secure it with any kind of asset for the banks. So we are looking for a partner with financial muscle to help us capture the profits. It would be a straight 50/50 split down the middle.”
Littleton was obviously very interested. He tried hard not to sound too excited and said, “There has to be a risk in this kind of a venture. What is the downside?”
“Well, the shipment will be in your name and you will own the goods until the buyer pays you. The idea is to bring the merchandise to the United States from overseas and sell it once it lands in the United States. The downside is that the buyer backs out and does not buy after the goods have arrived in Miami. Which means your investment of $400,000 will be tied up a little bit longer as we look for another buyer if the original buyer backs out. The market demand is very strong and finding another buyer is not likely going to be an issue.” Bartel stopped and waited for Littleton’s response.
“How many such shipments can we do at a time?” Littleton was hooked and now his greed started to play out. Bartel wanted to start slowly and with one shipment at a time. He made that recommendation to Littleton stating that too much exposure is not a good idea as no one knows what the market conditions will be if Philip Morris flooded the domestic market or changed their price structures. This opportunity only existed due to price discrepancy between Marlboro in USA and Marlboro overseas.
The discrepancy in prices between Marlboro duty-free in Europe and the prices prevailing in the United States domestic market was incredible huge. The duty-free dealers and operators and ship-suppliers were selling Marlboro at $400 per case or $8 per carton. Marlboro in the US domestic market retailed at $25 per carton and higher. One could potentially bring Marlboro from overseas to USA, pay duties of $4 per case and the local taxes of upto $2 per carton and still be well situated to make enormous profits. When one has a cost of $14 per carton and can sell at $25 a carton, the margin of profit is incredibly tempting. While Bartel’s plan for this business did not involve himself and Littleton to be involved in the complete operation from start to finish, he did foresee a 10% to 20% profit margin on each shipment easily. Bartel didn’t want to be involved with the phase of paying customs duties and local taxes. That would involve an even more amount of capital. Bartel only want to be involved in the phase of bringing the goods to Miami, storing it in a free zone bonded warehouse in Miami and selling it to a buyer. He would let the buyer take care of clearing US Customs, paying duties and taxes on the shipment. And the time frame that Bartel planned for the return of the original investment was only about 30-40 days. This meant Littleton would be required to put his money out for only about 30-40 days before seeing it back in his account. Bartel really did not like the deals that required to have the funds out for too long. There was way too much uncertainty in the world and waiting for money to come back after funds are tried up for long periods was not Bartel’s cup of tea. Littleton, on the flipside, was much more patient and willing to accept the risks of waiting for longer time for funds to come back.
It was a strange marriage but two different mentalities and personalities came together to make a mutually profitable arrangement. It was going to be very profitable for a long enough period of time for both sides to reap the rewards. It would be good for both entities as long as things were going smoothly. The real trouble would come about only when something went wrong.
In those days the laws were much more lax and open to such re-imports or imports of trademarked items. The law was slated to change as of January 1, 2001. That meant this opportunity would exist for 24 months before the loophole would be closed. But that was more than enough time to make a large profit if one had the knowledge and the financial resources.
Littleton thought for a moment and then said, “60/40. 60% for me and 40% for you. You cannot do these deals without the money. Money rules and we will need 60%. I have costs for financing as my banks charge me a fee too.”
Bartel looked at Marcia. Bartel maintained his low profile during the better part of the meeting. It was Marcia who was more assertive with Littleton when she said, “John, this is a two-way traffic. There are opportunities that we can bring to the table that are not available to you. We understand clearly that you have the funding, however, for this to work we have to be willing to split everything fifty-fifty.”
Littleton looked at Marcia and said, “Alright, you two. Everything split fifty-fifty in profits but all costs have to be accounted for first and then the net margin we split 50/50. That includes the costs of the credit line from the bank which is a hefty 1% per month.”
Bartel knew no bank charged such a large fee for borrowing for an established and credit-worthy client like Littleton. However, he was also of the opinion that this was the best he was going to get from Littleton. He glanced at his wife and Marcia replied, “Agreed.”
It was a handshake deal. Nothing was put down in writing. About the only thing that was mentioned was by Littleton where he confessed to be a habitual note-taker. He said that he takes notes on every phone conversation and to prove the point he pulled out a file which had “Silver International/Bartel” taped on it. He opened the file and showed the various dates he had a phone conversation with Bartel and there it was clear as a bell. Ron and Marcia peered over the table and saw handwritten notes that gave the gist of the phone conversations. The Bartels marveled at the amount of details in Littleton’s notes as Ron said, “I never ever write notes about my conversations. It is all in my head and I don’t have the need to write things down.”
“Probably because Ron is always upfront when he has things to say and completely silent when he does not see the need to say anything,” added Marcia smiling.
Later that night as Ron and Marcia Bartel headed back to their hotel for the night, Marcia remarked that Ron should be very careful in his dealing with Littleton as she had a strange gut feeling not to trust Littleton. Ron nodded his agreement.
Chapter 4: Money Starts to Rolls In
The first Marlboro shipment that Bartel arranged went by smoothly and without a hitch. The stock was at Tabaknie and held by one of Bartel’s long time suppliers. The sale price to Bartel was $400 per case and the full container cost $384,000. The shipping cost to ship the container from Tabaknie’s warehouse to Miami was $6,000. Bartel had insisted on Patrice van der Meer’s inspection of the cigarettes at Tabaknie before Littleton transferred the funds for the cargo. Patrice’s inspection report had shown the cigarettes to be original, made in Switzerland, produced at a Swiss Philip Morris factory three weeks prior to the date of inspection. The report had given a clean stamp of approval by Patrice. This inspection had cost Littleton an additional $250.
Littleton had wired the full amount of $390,250 to cover the cost of the cigarettes, Patrice’s inspection fee and the shipping fee to Tabaknie’s escrow account. Tabaknie had paid Bartel’s supplier his $384,000 and shipped the cargo to Miami.<
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The steamship vessel that carried this Marlboro container arrived to the port of Miami 21 days later. Upon shipment of the container, Tabaknie had sent the shipping documents or the bill of lading to Littleton. The bill of lading is the title document that Littleton had to hand over to the steamship liner in Miami and collect the container at the port of Miami.
At Bartel’s instructions, Littleton had sent the shipping document to Miami International Logistics Company in Miami, which was a bonded warehouse and customs broker in Miami. Miami International Logistics Company was run by Roberto Montoya. Being a bonded warehouse, Montoya collected the container on Littleton’s behalf as his agent at the port and unloaded the cigarettes into his warehouse in the free zone in Miami, without having to pay any duties or taxes as the cargo was still in the free zone and not customs cleared for sale into the United States.
Once the cigarettes were in Montoya’s warehouse, Bartel arranged for one his clients to come to Montoya’s warehouse to inspect the cargo for purchase. Bartel was able to get it sold for $460 a case. Littleton had given the green light for this price when he heard that Bartel had a buyer at $460. He was happy with this price that Bartel had secured for the cargo. At a sale at $460 a case, Littleton and Bartel would realize a profit of $51,600 for the shipment of 960 cases of Marlboro cigarettes. Take out Montoya’s fees to unload the cargo and store it until it was sold in Miami and Littleton’s banking fees, it would still leave a profit of $45,000. Not bad for one month’s investment of $390,000.
Bartel’s buyer came into Montoya’s warehouse in Miami, inspected the cargo and paid the price into Montoya’s escrow account in Miami. Montoya sent the payment to Littleton’s account in Norfolk and handed the 960 cases of Marlboro to Bartel’s buyer. Bartel’s buyer was a wholesaler of cigarettes in the United States and this client paid the import duty and local taxes on the cargo and distributed it to his retail clients which included the many grocery stores in and around the Miami area.
The entire transaction had been very smooth and went without a hitch. Littleton wired Bartel his portion of the profit which was $22,500. Now Littleton was really into this game and started asking for more volume of business from Bartel. Why only one container at a time? Why not ship 2 containers or 3 containers at a time?
Bartel told Littleton that first he had to check and see the kind of volume of cigarettes his buyers in Miami can absorb. He didn’t want to be sitting with a stock of cigarettes in Miami. Bartel wanted to be in a position where the day the cargo was unloaded in Montoya’s warehouse in Miami, a potential buyer would come and inspect the cargo and pay immediately. He didn’t like the idea of bringing large quantity of cigarettes in and then waiting around for days or weeks before the stock got sold. Furthermore, the supply of Marlboro overseas was limited and one had to be careful not to advertise the demand. If demand was advertised, prices would start to creep up and the price disparity would no longer be interesting. Everything had to be done discreetly. Bartel was the perfect man for such a discreet enquiry.
Littleton didn’t object to that thinking. Littleton was shrewd enough to know that Bartel was the man with the knowledge in this business and deferred to Bartel’s recommendation.
At around this time, Littleton set-up a new business entity to handle all the Marlboro shipments. He didn’t want these shipments under the name of Caravan Shipping. He wanted to keep the activities of Caravan Shipping and the ship-supply business separate from the Marlboro trading. His new company to deal with just the Marlboro shipments was called Sherwood Holdings LLC. From that point onwards all payments he made for the shipments and the funds that came back to him after the sale of his Marlboro shipments came to and from the account of Sherwood holdings LLC. It was barely noticed by Bartel that Littleton was operating under a new company. Later, some months later, it would come back to torment him and Marcia.
Once the shipments started to roll into the United States, Littleton found some buyers for the cigarettes from his own contacts in the United States. As the volume started to grow, there was a need for more buyers than what Bartel could bring in. This is where Littleton’s buyers started to pick-up the slack and provided more sales outlets for Littleton and Bartel. Littleton’s buyers never quite were able to pay the high prices Bartel’s buyers were able to pay but Bartel had only a couple of buyers. The volume of Marlboro that Sherwood Holdings was bringing in to Miami was more than what Bartel’s buyers could handle. Even though Littleton’s buyers were not paying the high prices that Bartel’s clients were, there was still plenty of profit for Littleton and Bartel to sell to the additional buyers that Littleton brought to the table.
The only difference was that Littleton’s buyers would send their wire transfer directly to Sherwood’s bank account bypassing Montoya’s escrow account at Miami Logistics. Littleton would then divvy up the profit and send Bartel his share. Bartel was the only one who had the sources for the Marlboro overseas. Littleton tried hard but never could find a good price overseas for Marlboro. Bartel’s sources were excellent and the price Bartel was getting was very attractive.
The two entities, Littleton’s Sherwood Holdings LLC and Bartels’ Silver International, continued their mutually beneficial cooperation for shipment after shipment as Bartel tied up shipment upon shipment for all the Marlboro that he could find in the overseas markets. There were other actors in this business who were also doing similar operations and as the year 2000 came, the time available to profit on this kind of operation started to diminish. There were new laws that were coming into effect that would disallow any re-import of Marlboro into the United States. The D-day was January 1, 2001 when no more Marlboro could enter the United States from overseas.
It was around the same time that Heineken Breweries raised its prices to Littleton. In turn, Littleton had to raise his price to Bartel. It was a chain reaction and Bartel was forced to raise his prices to his Chinese buyers. At the new higher prices, the trade was not economically feasible because the price advantage vanished for the Chinese. As a result, that line of trading came to a screeching halt. All of a sudden Bartel and Littleton lost the steady cash flow that they had come to expect for the last two years or so.
As the summer of 2000 came and went, Littleton was getting itchy fingers as he could now see the end of these glory days of Marlboro trading. He was getting uneasy as he had just lost the Heineken business due to price hikes. Now he would be losing the Marlboro business due to changing laws. Over the two years he was involved with Bartel, he had learned quite a bit and profited immensely, thanks to Bartel and his efforts. Littleton started to think that he was now just as knowledgeable as Bartel and had started questioning many of Bartel’s recommended decisions. Bartel had turned down a couple of Marlboro cargo lots available overseas as he felt the price demanded was too high and also the cargo was located in Cyprus. Sending Patrice van der Meer to go and inspect and load the cargo for shipment would cost an additional $10,000 and Bartel just couldn’t justify the investment. What if Patrice went and found the cargo to be old or counterfeit? Then the out of pocket costs of $10,000 would be for nought. That would be a $10,000 loss. The sale price for these cigarettes was too high in Bartel’s opinion to consider buying them anyway. He didn’t even mention these offers to Littleton.
Littleton had received the same offer for Marlboro in Cyprus from other brokers. He approached Bartel and asked him his opinion of the offer. Bartel said, “John, I am not comfortable with that offer. I had the same offer a couple of weeks ago and I passed on it.”
“But you didn’t even mention the offer to me! Why?” asked Littleton with some edge to voice.
“I didn’t see how the profit potential was worth the risk.”
“You have no right to not share the offer with me. I should be the one deciding which shipment makes us money and which one does not? You have no idea what I am capable of. Maybe I can get my buyers to pay a higher price to justify our higher buying price!” barked Littleton into the phone.
Bartel was taken aback for a moment by the harsh tone. He had not seen this side of Littleton before. He could see their cooperation was coming to an end. Bartel had an inbuilt mechanism to see when a relationship was going to end. Something was suddenly not the same. It was a subtle change but the hypersensitive instinct that Bartel possessed always gave him an advanced warning. This was one such instance.
Bartel took a deep breath and said, “John, if I ran through you every deal I come across on a daily basis, you and I would never have the time to do anything else but talk to each other on the phone all day. Neither of us wants that as we both are very busy and we have other things to attend to.”
He continued, “Cyprus, as you may know, is a major hub for cigarettes both legitimate and otherwise. The port of Limassol is one of the major trade routes for cigarettes to Israel, Syria, Iraq, Jordan, Ukraine and Latvia. While a major portion of the trade is of authentic merchandise, there is a sizable counterfeit cargo that moves through that port as well. Given that the authentic goods are usually chasing smuggling routes, the kinds of characters one encounters in the cigarette business in Limassol for the most part are unsavory and untrustworthy. I would never ever pay for anything there without Patrice van der Meer flying and inspecting the cargo first. Second, I would never send money directly to Cyprus. I would place the funds in escrow with Tabaknie and I would insist that the payment be released after Patrice flies there and inspects, approves and then oversees the cargo loading onto a steamship line. Only after the cargo is on the steamship would I be willing to release the payment to the seller in those parts.”
God Bless The Person Who Sues My Client - A True Story of Greed and Vengeance Page 3
