Manufacturer wooed by 'Mr. Wu' in China

Safety labels secured from a mysterious Chinese contact by a wholly-owned subsidiary of Springfield-based home furnishings manufacturer GuildMaster Inc. have led to federal charges, a guilty plea and nearly $2 million in forfeited goods.

On July 15, GuildMaster pleaded guilty to importing lamps with counterfeit safety certification labels from its wholly owned Chinese manufacturer, Westway Enterprises Pvt. Ltd.

U.S. Customs and Border Protection agents discovered lamps imported by GuildMaster bore counterfeit Underwriters Laboratories product safety labels in December 2011, and began to seize the shipments of lamps with the unauthorized UL labels. Between Jan. 10, 2012, and March 21, 2012, customs agents intercepted roughly 10 shipments from Dongguan, China, according to the 17-page plea agreement. In all, GuildMaster agreed to forfeit 5,585 lamps found to have counterfeit UL tags. The estimated value of the lamps was more than $1.8 million, according to court documents.

Springfield Business Journal’s review of the records shows the company’s missteps stem from a cost-saving move in 2005 and regular purchases from a mysterious “Mr. Wu” in China.

Made in China
In 2001, when GuildMaster operated under the name Decorize Inc., the company purchased Westway Enterprises and then began to purchase lamps manufactured in China under the GuildMaster brand name.

In 2005, Decorize closed its Springfield manufacturing facility. During its last UL inspection that year, GuildMaster officials maintain they canceled its costly contract with UL, according to the factual basis for the plea in the court records. UL officials claim they did not receive a written notice of cancellation until 2007, at which time they formally terminated the GuildMaster account.

CEO Steve Crowder did not respond to requests for comment on this story, but in the plea, GuildMaster officials maintain its agents and employees had no knowledge that the UL labels continued to be applied in Dongguan and that the company was violating U.S. laws by importing the lamps. Company officials did acknowledge its wholly owned Hong Kong-based Westway employees knew the Dongguan factory wasn’t UL certified.

According to the factual basis for the plea, on March 12, 2012, federal agents interviewed Guohua “Peter” Luo, the employee responsible for quality control at the Dongguan plant. Luo stated in continuation of a practice started by a former facility production manager, he would order by phone UL labels from an individual identified in court records as “Mr. Wu.” At a cost of 16 cents for each label, a person delivering the labels would collect the payment for Wu. Agents’ attempts to locate Wu were unsuccessful, according to court records.

GuildMaster began leasing and operating its Dongguan factory in April 2009, two months after the company moved to deregulate its common stock and discontinue public reporting, citing increases in reporting costs after major scandals at such companies as Enron and WorldCom.

At midyear, the business posted $9,000 in net income, its first annual profits as a public company, and five months later began trading Pink Sheets over-the-counter under the symbol GLDU. In November 2009, it also formally changed its name to GuildMaster from Decorize. The move to OTC stock coincided with a recapitalization, which allowed GuildMaster to shed more than $3 million in debt and all of GuildMaster’s outstanding preferred stock in exchange for equity.

Also helping to finance the company during the years was Quest Capital Alliance, a venture capital firm born with the help of funds from Jack Stack-led Springfield Remanufacturing Corp. Quest Capital provided $2.75 million in debt and equity funding to Decorize between 2004 and 2006, according to SBJ archives.

GuildMaster’s Crowder was familiar with SRC having worked previously as one of its vice presidents. SRC CEO Stack declined to comment on this story,

‘Pandemic problem’
Brian Monks, UL’s vice president of anticounterfeiting operations, said the global safety testing company routinely works with customs agents on identifying counterfeit labels, which helps to secure several hundred seizures per year.

“There’s a lot of pressure on companies to maximize profits,” Monks said. “They want to produce the cheapest products they can, and they don’t care if they meet a safety standard.”

He said UL, which performs 600,000 routine safety inspections worldwide each year, sets inspection fees based on the size of the company and the amount of inspections required to ensure the products are safe. Monks said it typically costs in the thousands of dollars to enter into a contract for UL inspections and labeling, with authorized labels normally costing just pennies apiece.

He said UL has a zero-tolerance policy and refers all counterfeiting cases to authorities.

“People like to think there are no victims here, but there are. This is a huge, pandemic problem,” Monks said.

According to Don Ledford, public affairs officer for the U.S. Attorney’s Office-Western District of Missouri, a sentencing date won’t be scheduled for GuildMaster until the Office of Probation submits a presentencing report to U.S. District Judge Robert Dawson.

In the court documents, the company has agreed to five years of probation, and though customs won’t impose penalties, it will charge GuildMaster $43,786 to cover expenses related to storing the lamps. Ledford said Dawson has the authority to accept or reject the plea agreement in totality.[[In-content Ad]]