Six California Companies Ordered to Pay $1.8 Billion for Evading US Tariffs Following DOJ Prosecution Supported by Brattle Testimony
In a smuggling scheme organized to help a Chinese billionaire artificially inflate his company’s value, six Southern California companies imported and stockpiled massive quantities of aluminum and dodged $1.8 billion in anti-dumping and countervailing duties between 2011 and 2014. In the US Department of Justice (DOJ) investigation into the scheme, Brattle was retained to contribute economic analyses and expert testimony.
Background
Between 2011 and 2014, a group of six Southern California businesses participated in an aluminum smuggling scheme, importing and storing an alleged 2.2 million aluminum pallets – and evading $1.8 billion in US tariffs – on behalf of Liu Zhongtain. The Chinese billionaire allegedly orchestrated the scheme to artificially inflate the revenues of his company, China Zhongwang Holdings Ltd., which is Asia’s largest manufacturer of aluminum extrusions.
The involved enterprises included two aluminum companies, Perfectus Aluminum and Perfectus Aluminum Acquisitions, and four warehouse owners: Scuderia Development LLC, 1001 Doubleday LLC, Von-Karman – Main Street LLC, and 10681 Production Avenue LLC. According to the DOJ, the companies – along with Liu and several other individuals – lied to US Customs and Border Protection to avoid paying anti-dumping and countervailing duties (AD/CVD), which were imposed in 2011 on certain types of extruded aluminum that was imported into the US from China.
After the AD/CVD duties were put into place, Liu orchestrated sham sales of aluminum to the California shell companies he controlled. In falsified annual reports, China Zhongwang – claiming a robust demand for aluminum pallets in the US – listed the pallets as being sold to independent third parties; these reported sales were used to inflate the company’s sales volume and volume of exports to the US. Meanwhile, the pallets brought into the US were, in fact, aluminum extrusions – disguised as functional pallets to avoid the tariffs – that sat stockpiled for years in the four Southern California warehouses and a New Jersey facility owned by Liu. No pallets were ever sold.
Early into the DOJ’s investigation into Liu and the companies, Brattle was engaged by prosecutors to help analyze Perfectus’s stock price reaction in response to certain company activities, including modeling the volatility of the companies’ returns and stock price to identify statistically abnormal changes. At trial, Principal Torben Voetmann testified about the conglomerate’s IPO prospectus and the related-party disclosures it was compelled to provide to shareholders.
The Brattle team was led by Voetmann, Principal Mark Sarro, and Associate Dr. Adrienna Huffman.
Outcome
In August 2021, following a nine-day trial, a federal jury found all six of the California companies guilty of conspiracy (one count), wire fraud (nine counts), and passing false and fraudulent papers through a customhouse (seven counts); Perfectus Aluminum was also found guilty of seven counts of international promotional money laundering.
On April 11, 2022, all six entities were sentenced to five years of probation, the maximum penalty under the law, and ordered to pay $1.83 billion in restitution. Judge R. Gary Klausner had previously ordered the forfeiture of the seized aluminum – estimated to currently be worth approximately $70 million – to the US.
The remaining four indicted defendants, including Liu, have yet to appear in US court to face criminal charges.
