The Knockoff SquadBy ADAM FIFIELD
June 23, 2002. New York Times
TOTING a shopping bag heavy with knockoff purses, the undercover investigator wove through the throng of tourists on Canal Street on a sunny spring afternoon.
The street's small stores, in compact rows, enticed shoppers with dizzying displays of watches, sunglasses, T-shirts, hats, purses, ties, even fish and baby turtles. Browsing with the effervescence of a teenager at the mall, the investigator, in jeans and a tie-dyed tank top, plucked purses off a wall rack and tested their feel in her hand. ''Oh, this is really nice,'' she'd exclaim. Or perhaps, ''Isn't it ugly?''
Posted along the sidewalk were the stores' lookouts, young men with walkie-talkies ready at any hint of trouble to shut down the whole street. They were sentries for a large, loose network of vendors, importers and manufacturers of counterfeit merchandise, and for the last five years the tall, sharp-featured former actress had given them good reason to be on guard. Her sleuthing for Holmes Hi-Tech, a New York detective agency hired by companies to investigate trademark infringements, had resulted in the seizing of millions of dollars of fake designer goods.
But on this afternoon, the lookouts -- whose faces she had memorized, whose names she knew -- did not recognize her. And no wonder. On her more than 100 incognito trips to Chinatown, she has posed as a pregnant woman, a homeless person, a French tourist, a bewildered Midwesterner and a sanguine Southern belle. She can assume 10 accents. To deflect suspicion, she has flirted, cajoled, bargained, even improvised one-way arguments on her cellphone.
Today she was playing the part of an out-of-state wholesale buyer. In the back of a dim, narrow store, the investigator told the clerk she wanted to buy some fake purses. No problem, the man replied, brandishing a laminated chart listing various counterfeit items; he could get her as many as she wanted and ship them almost anywhere in the country. With one fairly small shipment, he predicted, she could make over $20,000 in profit before the end of the summer. Grinning broadly, she said that sounded fabulous and promised to come back tomorrow to seal the deal.
''Chinatown is just the icing,'' the investigator explained later. ''All these teeny stores look like Mom-and-Pop places. But we'll get a call from a law enforcement agent or investigator in another part of the country that someone is shipping a million dollars of a counterfeit product to a huge place in Chicago or wherever, and when we find the source, it's one of the addresses in Chinatown.''
Counterfeiting, in fact, is a booming international business, accounting for an estimated 5 to 7 percent of global trade, according to the International Chamber of Commerce. Although current statistics are scant, anecdotal evidence suggests this hugely profitable activity may be expanding, nurtured by a toppling of trade barriers and a siphoning of law enforcement resources to fight terrorism. Some officials say that it has ties to organized crime, the drug trade and terrorism, and is a prime user of sweatshop labor.
At the very least, New York is a major hub of global counterfeiting. It may even be the capital. A vast range of fake products, from designer items to computer software to prescription drugs, are made in the city or imported here and then sent elsewhere in the United States or abroad.
''It's almost like a drug deal,'' said William Bowe, a Customs Service official at Kennedy Airport, about one aspect of this industry. ''They fly in with a large amount of cash, stay for two or three days, buy the stuff and fly back out again.''
The cost to the city in lost jobs and taxes probably runs into several hundred million dollars annually. A 1994 study by Mark Green, then the commissioner of consumer affairs, pegged the cost in unpaid taxes alone at $350 million.
Just as global counterfeiting seems to be growing, so seems to be the city's share, expanding from Chinatown to many other neighborhoods.
''Counterfeiting is definitely more prevalent now than it's ever been,'' said Sgt. Tom McFadden, who directs the trademark infringement unit of the police department's Organized Crime Investigations Division. ''The manufacture and sale of counterfeit merchandise occurs in neighborhoods throughout the city. All you have to do is look at downtown Brooklyn, uptown and Midtown Manhattan, Fordham Road in the Bronx.''
The P.I. at Center Stage
Often, the private investigator is the one at the center of the fight against fakes.
The world of New York's counterfeit investigators is small and insular, peopled largely by former police officers, former government investigators -- and actors. Some possess a keen sense of righteousness. A few tend to boast. All can tell war stories, some truly worthy of the description. They compete, but also share a camaraderie that comes from time together in the trenches.
One prominent member of this world is Robert Holmes, who is the founder and president of Holmes Hi-Tech and, along Canal Street, widely known as ''the chief.'' His very appearance there is enough to send all the metal gates clanging shut within seconds. Obviously, he can no longer do undercover work.
Holmes Hi-Tech, which has offices in Midtown and near Atlantic City, employs six full-time investigators and 20 part-time ''spotters,'' who scout out stores and make undercover buys. These scouts, like the buyer of fake purses on Canal Street, are usually actors, and their most important tool is the ''spotters' closet'' in the Hi-Tech office. The closet looks like a theatrical costume room, packed with scarves, yarmulkes, wigs, fanny packs, temporary tattoos and other accouterments.
Like other such enterprises, Mr. Holmes's company is hired by law firms whose corporate clients are wrestling with counterfeiting problems. Hi-Tech tracks down the source of the knockoffs and makes undercover purchases to get enough evidence to obtain an order to seize the goods. Then, accompanied by private security guards or city or federal officers, Mr. Holmes leads a raid on the property to seize the contraband.
In April, the police asked Mr. Holmes for help in a case involving several Chinatown merchants whom he had been hired to investigate earlier this year by Gibney, Anthony & Flaherty, a New York law firm. The collaboration paid off on May 8, when Holmes Hi-Tech and police officers raided five locations on Broadway just north of Canal Street that netted a cache of fake sunglasses, DVD's, handbags and watches whose retail value was estimated as more than $100 million.
Big Money Equals Big Danger
If this hidden world means big money, it also means danger. On a routine raid in February 2001, Mr. Holmes, a husky former New Jersey state trooper, walked into a room in the back of a Canal Street store and discovered, stashed on a shelf, a wad of cash and bags of fake Ecstasy pills. Then he noticed, hanging from a nail in the wall, a 9-millimeter Glock handgun. Its owner ran a small sidewalk stand selling counterfeit watches, many of which were at that moment being collected by Mr. Holmes's men.
''I had been a little lax about watching my back,'' he admitted with a shrug.
Mr. Holmes, who is not alone in facing such perils, has also parried punches, outdriven pursuers on the New Jersey Turnpike and discovered pictures of himself on backroom bulletin boards, tacked up like dart targets. During a raid in the early 90's, as he was searching a store's inventory, he heard someone say his name. Swiveling, he saw a Secret Service agent, there to assist with the raid, restraining a man clutching an ice pick. ''He was going for you,'' the agent said.
Secret Rooms, Fake Walls
To conceal their goods, some Chinatown counterfeiters have engaged in a second deception: constructing elaborate networks of secret rooms, fake walls and trapdoors. Some of the entry points have electromagnetic locks, operated by garage door openers. Some of the networks extend down to labyrinths of basements, subbasements, living quarters and factories, all beneath the streets of Chinatown.
''You can go for a couple of blocks underground,'' said Dempster Leech, a retired private investigator who has wandered into those catacombs in the search for counterfeits. ''I got lost down there a couple of times.''
While exploring a basement room in the mid-90's, Mr. Holmes found a tall cabinet against the wall. He opened the cabinet and pushed the back, which sprang open into another room. There was a man chopping chickens with a meat cleaver.
''When we came through, he raised the meat cleaver,'' Mr. Holmes said. ''But once he saw who we were and that we weren't bad guys, he put it down.''
Another time, while combing a series of connected rooms underneath Mott Street, Mr. Holmes lifted a fake panel and stepped into an underground casino. ''There were little tables, people gambling, drinking and smoking,'' he said. ''Everything went quiet. A few guys reached under their jackets. And I just put my hands up and said, 'I'm just looking for counterfeit goods,' and stepped back through the panel.''
But the most disquieting subterranean discoveries are of workers. On a hot August day two or three years ago, Mr. Holmes glimpsed some boxes in the back of a Canal Street store. Moving them, he found a three-foot-high door. Opening it, he discovered an elderly man sitting on a stool in a cramped, sweltering room, labeling counterfeit purses. The man, who was probably working off a debt to a smuggler, had been locked in the room since around 8 a.m. They found him seven hours later.
''He was sitting in his underwear and T-shirt,'' Mr. Holmes said. ''It was 110 degrees in that room. I was amazed he was alive. He had two bottles of water and a big jug to go to the bathroom in. He was terrified when we went in there.''
Merchants Can Be Victims, Too
John Yong is a lawyer who has represented several merchants accused of violating trademark rules. He claims the vendors are not deceiving anyone.
''The knockoffs are like novelty goods,'' he said. ''When people buy them, they know they're not real.''
Sergeant McFadden, however, pointed out that customers in places where New York fakes are regularly shipped will probably assume they are getting the genuine article.
But, in addition, some merchants say officials steal their goods during raids. Mr. Yong once represented one of several vendors who accused Victor Araujo, a police sergeant, of pocketing and reselling counterfeit goods. Sergeant Araujo and another officer, Vincent Contini, were indicted in 1999 on various charges related to those assertions. In July 2000, both men pleaded guilty; Sergeant Araujo was sentenced to five years' probation, and Mr. Contini to one year in prison.
Merchants also say they are caught between law enforcement and organized criminals who pressure them to sell the fakes.
''We're talking about people selling these cheap watches, making very little money, and at the same time they have to deal with these very unpleasant realities,'' said Peter Kwong, a professor of Asian-American studies at Hunter College and the author of ''The New Chinatown'' (Hill & Wang, 1996). ''A lot of these vendors are very, very new immigrants. Some of them are illegal. They are really desperate, and so they take a lot of risks.''
Mr. Holmes said, ''Some of them are probably victims caught in the middle. But some of the vendors graduate and become importers and wholesalers and manufacturers. Some of them rise to the top.''
The Sweetener Mystery
Today, counterfeiting in New York goes far beyond Prada bags and Rolex watches. It can involve prescription drugs, computer software, food, cigarettes, liquor, baby formula, auto and airplane parts, perfume and steroid creams. It can even involve sweeteners, as it did a few years ago when packets of Equal, the sugar substitute made by the Monsanto Company, began mysteriously appearing in stores around the country.
To tackle the problem, Monsanto hired Michael Kessler, founder of an investigative firm, Kessler International, at Park Avenue and 45th Street. Mr. Kessler, a forensic accountant who has been the city's chief of tax investigations, traced the counterfeits to a trading company in Sunset Park, Brooklyn. One day, as he cased the company's building, he found his first tangible clue: scraps of fake Equal boxes in a Dumpster.
After more evidence had been gathered, Monsanto lawyers got a court order to seize the trading company's books. Using his accounting expertise, Mr. Kessler discovered that the company had been buying real Equal in the big boxes designed for restaurants and then illegally repackaging them in smaller, counterfeit containers for sale in grocery stores.
''When people think of counterfeiting, they think of the guy on the street selling a Mickey Mouse watch,'' Mr. Kessler said. ''It's a lot more than that.''
Others are also impressed by the sophistication of the fakes trade. Kevin Dougherty, the founder of Counter-Tech Investigations, a firm on 34th Street, realized the extent of counterfeiters' coordination when he found an electronic organizer while searching a Queens factory in 1997.
''They had descriptions of several of the undercover vehicles that we had used and that the N.Y.P.D. had used,'' he said. ''But those particular vehicles had never been used at that location. That information came from Broadway in Manhattan.''
The 'Born to Kill' Enforcers
Dempster Leech still has tooth marks on his thumb, where a woman bit him while he was trying to serve her with a seizure order in the early 90's.
''She was crunching my thumb, chewing my thumb, doing all she could to hurt me, '' he said with a laugh in the murky recesses of a Midtown pub one afternoon.
Mr. Leech, 60, a diminutive, classically trained actor with a master's degree in clinical psychology, looms large in the annals of the battles against counterfeiting. Retired since 1998, he is known for Canal Street raids in the 80's and 90's so aggressive that a contract was supposedly taken out on his life. In a field full of stories, those years yield some of the most gripping. The fake-goods industry still thrives, but back then, the heyday of the Born to Kill gang, Canal Street often saw chaos and violence.
One afternoon, Mr. Leech and Mr. Holmes, who then often worked together, figured out how to broadcast on the walkie-talkie frequency used by the Canal Street store lookouts. Their aim was to prevent the lookouts from alerting store owners about an imminent raid. Their chosen broadcast: Wagner's ''Flight of the Valkyries.''
''We could hear music all over Canal Street,'' Mr. Leech said with a wide grin. ''Like a helicopter rising off a hill.''
But most of their memories of that time are not as amusing.
''It was like walking into Dodge City,'' Mr. Leech said. ''It kept getting more and more dangerous. After a while, I said, 'What am I doing here?' ''
The forces of the Chinatown counterfeiting industry led a campaign of intimidation against investigators. During raids, members of the Born to Kill gang gathered on nearby roofs and hurled bombs fashioned out of nails, tin cans and M-80 firecrackers.
One afternoon, a mob waving bats and pipes surrounded Mr. Leech, Mr. Holmes and their raid teams.
''It looked like the scene from 'Frankenstein' when the whole town comes out wielding sticks,'' Mr. Holmes said. ''I backed my people to a storefront and kept a perimeter until the police got there.''
The hostility they encountered stemmed in part from misinformation that ricocheted through Chinatown. ''They were told things that simply weren't true,'' Mr. Leech said. ''They were told that we didn't have a right to seize, that we were taking a form of government vigorish.''
Mr. Holmes remembered an encounter with the well-groomed David Thai, the leader of the Born to Kill gang, who is now serving life in prison for murder and other crimes and who admitted to making $13 million in just one year selling fake watches.
''I was right in the middle of a seizure,'' Mr. Holmes said. ''David came out of this place on Canal Street and came over to me, all dressed up in a suit. He looked very nice. He said, 'Mr. Holmes?' I said, 'What?' He said, 'I'm getting very tired of you.' He was smiling. I said: 'Get in line, David. A lot of people are getting tired of me.' ''
''We love the knockoffs!'' said a flight attendant from Houston as she stood at Canal and Mercer Streets one recent afternoon. Frequently in New York on layovers, she often peruses local shops for fake designer items. Today, shopping with another flight attendant, she bought a Gucci watch and a Louis Vuitton purse.
She carried a list of New York tourist attractions, presumably prepared by a travel agent, that included the bold heading: ''Going to Canal Street.'' It was below a heading for ground zero. When informed of the possible link between counterfeiting and unsavory elements like organized crime, she grimaced.
''I don't want to support those things,'' she said. ''But I don't think that would prevent me from shopping.''
Copyright 2002 The New York Times Company
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