Operation Proof of Purchase: The Story Behind a $50 Million ORC Case

More than $8 million in razor blades, white strips, over-the-counter medications, and other health and beauty merchandise was recovered.

A cooperative operation between the organized retail crime team at CVS Health and law enforcement led to a massive recovery of stolen merchandise in northern California culminating on September 30th in one of the largest organized retail crime (ORC) cases ever recorded in the US. Multiple arrests have been made and a mountain of health and beauty products were seized from a several locations throughout the San Francisco Bay area following a well-planned and diligently executed campaign that ultimately resulted in a $50 million case against a sophisticated organized retail crime operation that had been targeting retailers in the Bay area for several years.

More than $8 million in stolen product was recovered on-site as authorities continue to sort through the inventory of razor blades, white strips, over-the-counter medications, mouthwash, shampoo products, and other health and beauty merchandise while gathering additional details. More than $1.6 million in razor blades alone were recovered. All of the product recovered has been confirmed as stolen from stores across the Bay area and northern California.

Constructing a Plan

Even as the COVID-19 pandemic ravaged the country, many retailers that were considered “essential” businesses remained open, with dedicated employees ensuring our communities had the products they need while millions were forced into lockdown due to the threats of the virus. Retailers had to adjust to the way they approached the business, the way they interacted with customers, and the way they dealt with every facet of the business as all of us adjusted to life with the pandemic. Being prepared and having a plan was the best way to approach the challenges posed by the ongoing threat in all aspects of the business, including asset protection.

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As part of a May-June feature with LP Magazine, Preparing for an ORC Epidemic Post COVID-19, Ben Dugan, senior manager of organized retail crime for CVS Health shared an overview of their plan:

Ben Dugan
Ben Dugan

“We’ve heard a lot of bad news about how the coronavirus is impacting our lives and businesses, and ORC investigations are no exception. Police response has been further slowed as a result of the pandemic. Courts are closed, and the criminal justice system has basically shut down. To make matters worse, at least 8,000 nonviolent offenders have been released from jails, many of whom are ORC offenders. But for those who have a plan, there is some good news. The partnership with law enforcement has never been better. The increased cooperation with property crimes detectives and prosecutors has been unprecedented. The detectives are still working, and we’re making a lot of great connections. We’re getting amazing cooperation, and we’re identifying more suspects now than we ever have before. What we really need to make sure we do is take advantage of that and all it offers.”

The asset protection team at CVS Health evolved its ORC strategy to work with key stakeholders across the company to ensure appropriate focus and investments continue to be made in this critical area. This included intelligence starting with store employees, reviewing video and previously gathered evidence, verifying intelligence, thoroughly researching all available information, completing necessary documentation, and finalizing case presentations to identify these perpetrators and ensure the stores continued to operate smoothly, productively, and safely while mitigating retail crime.

John Liesching
John Liesching

“The ORC landscape has changed over the last several years, and one can argue exponentially since COVID-19,” explained John Liesching, vice president of asset protection at CVS Health. “ORC operations are getting more sophisticated, especially given the volumes of stolen merchandise being sold through online marketplaces. Thus, it requires retailers to ‘up their game’ by making strategic and timely investments in their tools, processes and people to appropriately bring to justice these illicit enterprises. That is exactly what we have and will continue to do at CVS in supporting a zero-tolerance approach to this type of criminal activity.”

The CVS strategy would act as a roadmap to guide investigators through the three phases of large-scale ORC investigations, “Define, Disrupt, and Dismantle,” which is part of a new “Urban ORC” strategy deployed to target rising and changing ORC trends in cities like San Francisco, Los Angeles, Boston, New York, Washington DC and Miami.

“Dismantling these criminal enterprises represents the greatest opportunity for ORC teams to positively impact shrink and remove the most significant threats to profitability.” said Dugan. “True professional thieves are hard to detect. They often use distraction and concealment techniques to avoid attention. They are not deterred by product protection or physical security countermeasures. ORC teams are built to be the mechanism retailers use to defend themselves and mitigate the risk of perpetrators that cannot be stopped by traditional methods.”

That strategy has clearly paid dividends as CVS put their plan into action over the next several months. As more and more perpetrators were identified, CVS worked in close partnership with prosecutors and law enforcement teams across the country. In norther California, those efforts soon came to fruition.

Operation Proof of Purchase

Anna Isabel Marquez
Anna Isabel Marquez

Operation Proof of Purchase was a collaborative effort between the CVS Health organized retail crime team as part of a joint investigation with the Division of Law Enforcement’s White-Collar Investigation Team, the San Mateo County Sheriff’s Office’s Crime Suppression Unit, the California Highway Patrol, and the San Francisco County District Attorney’s Office. Approximately 100 law enforcement officers were involved in the investigation as part of the public-private task force. The retail side of the investigation found its roots with the organized retail crime team at CVS Health led in northern California by investigators Anna Isabel Marquez and Ryan Puryear.

Ryan Puryear
Ryan Puryear

All successful criminal investigations are based off real intelligence. During COVID-19, store reporting on external events at CVS skyrocketed as employees monitored customer behaviors. Working from home, Marquez and Puryear vetted all the increased intelligence and identified which subjects were linked to criminal organizations. These subjects were eventually identified with unprecedented cooperation from property and economic crimes detectives that were also working from home.

Significant time was also invested in identifying and monitoring the movements of bad actors involved in the resale of stolen merchandise through online marketplaces, which included identifying the origin of products being offered by top sellers of every major online marketplace.

As state and corporate restrictions lessened, the investigators were back in the field in the safety of their vehicles and with company issued personal protective equipment. They used this time to gather additional information on the whereabouts and movements of the professional thieves that had just been identified. Most importantly, they were also able to determine where the stolen products were being sold.

As courts opened back up and police response improved, investigators started to disrupt the organizations by apprehending and arresting the professional shoplifters, or “boosters”. These boosters were debriefed at the time of apprehension, and many agreed to cooperate when faced with charges by multiple agencies and enhanced charges through aggregated theft amounts.

Once several professional boosters were identified and agreed to cooperate, surveillances and additional intelligence led to the identification of a team of “street fences” who allegedly purchased the stolen goods from the shoplifters. The alleged “street fences” involved in the operation included 28-year-old San Francisco resident Edgar Geovany Robles-Morales, 26-year-old San Francisco resident Isis Vasquez-Villanueva, and 45-year-old Daly City resident Jose Villatoro. This expansive theft operation stretched throughout the San Francisco Bay area, with millions of dollars of retail products being stolen and resold well below retail value.

As the investigation continued to unfold, it was learned that the stolen goods were being sold to an illicit wholesale operation allegedly operated by Danny Drago, otherwise known as “The Medicine Man.” Drago would allegedly direct the shoplifting teams to steal small items with extended expiration dates and high resale value to maximize the “return on investment.”

The investigation continued to expand as additional intelligence was gathered, branching to involve other criminal activity to include commercial burglaries, auto burglaries, and residential burglaries that were occurring throughout San Mateo County. In addition to the retail merchandise, other stolen property included electronics, laptops, and cameras.

“Based on our reconnaissance, they were going across the Bay, they were going into San Francisco, and it just kept getting larger and larger,” claimed Captain Mark Duri with the San Mateo County Sheriff’s Department. “More and more people were getting involved.”

That’s when the California Highway Patrol-Golden Gate Division’s multi-agency Organized Retail Crime Task Force was brought in. The task force includes investigators from CHP, SFDA, SFPD and the United States Postal Inspection Service along with CHP Cargo Theft Interdiction Program investigators. This team was extremely valuable to the ongoing investigation due to their broad reach, specialized expertise, and understanding of the broader scope of organized retail crime.

“Any one of these police departments is not going to be able to connect the dots on these less-than $1000 thefts,” said CHP Lt. Kevin Domby. “But the retailers will know that they’ve had 10 stores hit and might have 10 different law enforcement agencies working on those smaller cases. The retailer knows they’re connected to something larger. We can then work with everyone involved to put it all together.”

Working with the task force, investigators were led to an organization in the Tenderloin neighborhood of San Francisco that was purchasing and then selling the stolen property to suspects operating a distribution warehouse in Concord, CA. They then tracked the stolen goods to three residences, two distribution warehouses, and eleven storage units across the Bay area. Search warrants were served, and several additional arrests were made to include 50-year-old Danny Drago and his wife, 48-year-old Michelle Fowler, both from Concord, California.

When Drago’s home was searched, investigators recovered $85,000 in cash, a high-speed bill counting machine, and several vehicles. At the home of Edgar Morales, the crew boss, investigators found stacks of hundred-dollar bills hidden behind picture frames on the walls of the home.

Drago has allegedly been selling goods online through a shell company, D-LUXE OTC, using online market places such as eBay, Craigslist, Facebook Marketplace, and Amazon, according to authorities. The money Drago received from these illicit sales was then allegedly laundered through real estate investments and other businesses. While $8 million in merchandise was recovered, tens of millions more in stolen product is believed to be involved. To date, the total value of the case based on investigative findings is approximately $50 million in stolen merchandise, according to investigators with CVS, Walgreens, Rite Aid, Target and several grocery chains.

Over the course of the investigation investigators also uncovered evidence exposing the international scope of the theft ring. The suspects also allegedly transported, stored, and sold stolen goods in other countries and laundered the money back to the United States.

Criminal charges for the 5 suspects include Criminal Profiteering, Money Laundering, Conspiracy to Commit, Possession of Stolen Property, and Organized Retail Theft, all felony charges in the state of California.

Executing a Strategy During the Pandemic

“Like every retail operation in the country, COVID-19 caused us to rethink many of our core strategies. This included our loss prevention strategies—specifically the way we were approaching organized retail crime,” said Dugan. Dugan is also the sitting president of the National Coalition of Law Enforcement and Retail (CLEAR) and is strongly supporting the ORCAs in Action initiatives currently being implemented by the nation’s organized retail crime associations in concert with LP Magazine.

He continued, “We were put in a position where we had to evaluate how we would effectively deal with ORC issues during the pandemic, putting together the right plan to focus research efforts, collect information, increase awareness, and continue to build key partnerships with our law enforcement partners. Many of the nation’s property crime detectives were forced to work from home, and this provided an opportunity to work closely with law enforcement to gather and develop critical intelligence information. This case is just one (significant) example of how that strategy has paid dividends.

“Heightened employee awareness, support, and communication was essential to the success of the operation. By providing critical information and working with our investigators, we were able to identify several of the professional shoplifters that were hitting our stores.

“With information gathered during the height of the COVID pandemic the CVS team in partnership with law enforcement were then able to identify additional ORC team members, make initial arrests, build intelligence, gather evidence, and construct a case that culminated in the last few days,” he said. “We really need to give credit to the hard work of our team and our exceptional law enforcement partners. This really came down to executing the plan, and they did a terrific job,” explained Dugan.

The Reality of Organized Retail Crime

Organized retail crime is not simply a shoplifting problem. Retailers are being victimized by large-scale product diversion operations that involve stolen products pilfered from the stores, cleaned, repackaged, and sold in huge quantities through various outlets. Following an explosion of online fencing operations, many of the products are being sold by the truckload and offered for sale through various online market places. Others may even be sold in bulk back to unknowing retailers through different outlets.

“Online demand is really pushing the market for these products,” said Dugan. “People are looking to get the products they need at the lowest possible price—which is understandable. But if you take the time to think about it, you might learn that you’re contributing to a much bigger problem that many simply don’t fully understand.” Dugan further revealed that dedicating resources to identifying the origin of the products being offered by the top sellers of every major online marketplace including Amazon, eBay and Facebook is a key component to CVS’s overall ORC strategy.

Retail shrink remains a significant problem, costing retail companies across the country tens of billions of dollars each and every year. This is a complicated issue, with many different factors contributing to a company’s losses. However, there is zero doubt that theft, fraud, and other illicit activity is a primary driver of retail losses.

This case may provide a strong example of how organized retail crime groups can impact retail operations on a large scale, but it is not in any way an isolated incident. In fact, the D-Luxe OTC Case closure is just one of three major case closures in the Bay area by Marquez and Puryear in the last three months. Multimillion-dollar ORC cases are being uncovered on a regular and consistent basis by retailers across the country, impacting businesses of every size, shape, and form.

These types of efforts are being echoed in public-private partnerships across the country through special task forces, organized retail crime associations (ORCAs), and other relationships.

The Importance of Building Public-Private Partnerships

What has only become clearer is the absolute need to work together to resolve this illicit activity. Organized retail crime is more than a retail problem—it is a community dilemma that can touch each and every one of us in many different ways. We’ve seen time and time again that it is truly a gateway crime that can often be tied to more violent crimes, drug abuse, and other troubling problems. It robs communities of tax revenue, and costs consumers everywhere in the form of higher prices. It makes all of us less safe. It’s past time for that message to sink in and take hold. Working together is critical, as Operation Proof of Purchase clearly illustrates.

“This case was the result of the strong partnership we hold with law enforcement as well as the direction and guidance from the leadership at CVS.” said Puryear, who also praised the support he received from his peers at Walgreens and Rite Aid.

“Consistent case closures can only be achieved by maintaining close relationships with law enforcement and having the right investigative strategy,” said Marquez. “Ryan and I are going to continue to lean on the strategy we have in place and are committed to continued success.”

“We worked together and didn’t lose focus,” said Dugan. “We put together the right strategy, and executed it as a team. In retail asset protection, the relationship with law enforcement is the most important tool in your toolbox. These agencies worked with us diligently every day and did a fantastic job.”

Dugan was part of a team of experts that shared thoughts on this strategy, “Preparing for an ORC Epidemic Post COVID-19” as part of LP Magazine’s webinar series.

Watch the Recorded Webinar Here

Listen to the Podcast Version Here

This article was originally published in October 2020 and updated in December 2020.

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