Breaking: Rolex AD sued for racketeering and fraudulently selling hot models to the grey market

"The heart of the scheme was a conspiracy to illegally sell Rolex watches to foreign grey market resellers to enrich themselves." A summary of the juiciest complaint ever filed against an AD.

Two newsletters in a day?! Only when it’s wild news like this…

In a case filed on Feb. 11 in the federal district court for the Northern District of Illinois, a former employee of authorized Rolex and Patek dealer C.D. Peacock is accusing CDP of engaging in illegal and fraudulent activity, perpetuating a conspiracy to illegally sell Rolex and Patek watches to foreign grey market dealers.

The allegations

The former employee’s complaint alleges: (1) CDP terminated her employment for whistleblowing and refusing to engage in flagrant illegal activity in violation of Illinois’ Whistleblower Act, (2) firing her in retaliation, and (3) engaging in racketeering in violation of the Racketeering Influenced and Corrupt Organization Act (i.e. RICO, the law often used to take down organized crime).

According to the complaint, "[t]he heart of the scheme was a conspiracy to illegally sell Rolex watches to foreign grey market resellers in order to enrich themselves." The complaint also alleges the scheme involved other brands, including Patek Philippe. The now-former employee says that she repeatedly notified management of the scheme, eventually raising it to CDP’s CEO and CDP’s owner/chairman. Perpetuating the scheme involved “racketeering, money laundering, mail, wire, immigration, and credit card fraud, and Illinois tax evasion,” as well as immigration law violations and other illegal activities. In December 2019, after reporting her full knowledge of the scheme to upper levels of management, the plaintiff was terminated.

The complaint offers a wild look at the inner workings of a Rolex AD, and provides some of the juiciest allegations that can be made against an AD. Let’s take a look.

👉 Rescapement is a weekly newsletter about watches, mostly vintage. Subscribe now to get it delivered to your inbox every Sunday:


The alleged facts

CDP is a large authorized dealer with three locations in the Chicago suburbs. It’s an AD for Rolex, Patek, and a number of other luxury watch brands.

Interestingly, the complaint draws on a publicly available version of Rolex’s distribution agreement (link here) to provide a look into Rolex’s selling practices. This includes Rolex sending “secret shoppers” to audit the practices of its dealer network.

CDP ostensibly implemented its own policies to further ensure compliance with Rolex requirements, including: (1) sales professionals must wear a Rolex timepiece and scarf or tie while making Rolex sales; and (2) protective stickers must be removed from any watches sold in-store. The policy also makes clear that Rolex does not allow sales of in-demand models to unknown clients, that they can be sold only in-store, and only to clients the sales professional already knows, and that client cannot have a history of purchasing only limited-availability models. These last rules are designed to ensure that hot models don’t end up on the internet or grey market.

Rolex also has strict warranty requirements, requiring that the Rolex/Store Manager monitor sales and that both sides of the warranty card are completed and copied (along with the sales receipt) so that Rolex can ensure the watch was not later sold onto the grey market. Additionally, CDP was not to offer shipping of watches so as not to violate state sales and use tax regulations.

CDP also had policies to maintain strict control over the allocation of in-demand Rolex watches to its sales professionals, with the Store Director and Manager overseeing the process. CDP also instituted a general rule that, if a customer entered through the Rolex entrance of its boutiques, the Rolex Manager would make first contact; customers who entered on the general CDP side would be assigned to whichever sales professional was free.

The scheme

Those are the facts, as of December 2018. Then, two things set the stage for the elaborate, allegedly illegal scheme: (1) CDP hired a sales associate named Yingxue Duan; and (2) a $10m sales goal was set, which, if met, would mean big bonuses for upper management and Rolex paying to help remodel a CDP store.

The plaintiff, Suzanna Krajisnik, was also hired around this time, in October 2018. According to the complaint, she initially performed well, staffed 40 hours per week; however, when she refused to take part in the illegal scheme, she was no longer allocated in-demand Rolex watches to sell and her hours started to get cut. In the complaint, Krajisnik is joined by two other whistleblowers: Joe Di Lorenzo, the Rolex Manager of one of CDP’s locations, and Olga Nelson, who was the assistant store manager.

Starting in 2019, the plaintiff and whistleblowers began to observe Duan openly engaging in activities that not only violated Rolex and CDP policies but were also illegal and criminal. In early 2019 (post-holiday season, when sales are slow, especially for a new sales associate like Duan), Di Lorenzo, the Rolex Manager, saw Duan’s Rolex sales skyrocketing. He soon discovered Duan forging credit card signatures, using her own credit card to make sales and making remote sales of in-demand Rolex watches via phone and internet to unknown customers. This also involved Duan shipping multiple watches out of state at a time, avoiding sales taxes. Di Lorenzo noticed that, while the watches were being sent to “customers” with different names, they were all being sent to only a handful of addresses.

Meanwhile, Krajisnik observed Duan openly posting Rolex watches for sale on Duan’s Facebook page, against CDP policy. The complaint details messages Duan swapped with interested parties offering to avoid sales tax, fraudulently completing warranty cards, even offering some of her repeat buyers to come to the store to check out inventory. The whistleblowers alerted the Store Director, Dyol Hill, who took no action.

To maintain high demand for certain watches, Rolex requires they be specially ordered by existing customers. Accordingly, Hill began instructing the plaintiff and whistleblowers to place fraudulent “special” orders to increase CDP’s inventory of these watches. Duan would then sell this unauthorized, fraudulently-obtained inventory to her overseas network. Further, while Hill and Di Lorenzo (the Rolex Manager) previously had a policy of meeting to record and catalog all new Rolex watches, Hill stopped doing this, instead keeping the watches locked in his office and assigning them directly to Duan. Soon after, the Store Director offered Di Lorenzo a commission on Duan’s sales, in an attempt to bribe him, which Di Lorenzo refused. Soon after that refusal, Hill said to Di Lorenzo that he and CDP’s CEO, Bob Baumgardner, “aren’t going to let no one derail our retirement plans.”

Independently, the third whistleblower, assistant store manager Nelson, began to observe suspicious sales in CDP’s sales software. She noticed multiple transactions to different buyers, but all utilizing Duan’s credit card. Soon after, these same individuals came to CDP’s boutique and Duan took them into a private room, out of view from all other employees, proceeding to sell them three in-demand Rolexes. But, instead of these individuals leaving with the watches, Duan shipped them to Las Vegas, to an address that turned out to be a Walgreens. These customers proceeded to purchase 3-4 more Rolexes — Nelson reported all of this activity to Hill, who did nothing. Eventually, Nelson raised her concerns to CDP’s head accountant, who proceeded to inform Nelson that she had been blocked by Hill from performing her most basic accounting duties of checking and rechecking sales receipts and related paperwork.

In May 2019, Nelson had a meeting with Baumgardner (CDP’s CEO), and Hill, laying out all of her concerns regarding Duan’s behavior and the evidence she’d compiled.

Soon after this meeting, Duan’s boyfriend came to the CDP store. Duan, the boyfriend, and Baumgardner then entered Baumgardner’s office (after Baumgardner “expectantly” greeted the man), where the boyfriend opened a lunchbox with a large amount of cash and the group proceeded to count it all. The complaint alleges these cash transactions were not reported, in furtherance of money laundering activities.

The complaint also tells the story of a time when 3 green Rolex Submariners came to the store. Krajisnik quickly requested one, saying she had a buyer for it. Instead, Hill yelled at her, telling her the entire shipment was for Duan, and that Krajisnik would have to make the illegal “special” orders if she wanted access to any Rolexes.

A month after Hill and Baumgardner’s meeting with Nelson, Nelson was fired under the false pretext of her sexually harassing Duan, as well as insubordination towards Hill. After her firing, Nelson notified CDP’s chairman/owner, Seymour Holtzman, of the illegal scheme, who never responded to her.

After this close call, Hill tried to re-iterate certain policies to cover-up his previous behavior. However, he also began to share partial commission with new sales professionals who had begun complaining about the lack of Rolex access. Soon after this, Hill mysteriously left CDP and moved to Texas.

In one of my favorite allegations, Duan would fill out warranty cards with obviously fake names like Lebron James and Richard Mille. After Hill’s firing, a new store manager was hired, to whom Krajisnik also reported all of Duan’s illegal activity. Three weeks after this meeting, like Nelson, Krajisnik was fired. Also like Nelson, Krajisik emailed Holtzman after her firing to inform him of the illegal activity.

Holtzman’s only response was to reply all, writing “Bob [ Baumgardner,] Tom [Keevan, Senior Vice President of Merchandising] I don’t know who this person is and find out who gave her my email address ?” Weeks after Krajisnik’s firing, Rolex Manager Di Lorenzo was also fired, having reported the illegal activity to the newly-hired store manager.

Hells Angels, the mafia, and authorized dealers

These factual allegations make up the bulk of the complaint against CDP and the various actors. The complaint then alleges that CDP engaged in racketeering activity, in violation of federal RICO law. To be convicted, the defendant must be engaged in a pattern of racketeering involving two or more instances of illegal activity, and participate in interstate commerce (i.e. across state lines). The “pattern” must be continuous and pose a threat of future illegal activity.1

Congress passed RICO laws to root out organized crime. It’s been used to convict the mafia, Hells Angels, and other high-profile gangs. And now, apparently, it’s being used to bring a lawsuit against an authorized Rolex dealer.

In addition to two counts of RICO violations, the complaint also alleges that the defendants violated Illinois’ Whistleblower Act, which protects various activities of the plaintiff and whistleblowers for reporting the illegal activity observed. Finally, the complaint alleges that they were fired for refusing to participate in the alleged illegal scheme. As for damages, Krajisnik is seeking lost wages (including penalties for wrongful termination), damages for emotional distress, and attorneys’ fees, including the costs of the lawsuit.

What’s next?

Notably, the complaint also claims that the scheme defrauded Rolex (and presumably, other brands), so it will be interesting to see if Rolex seeks to get involved in the lawsuit.

Note that this is a complaint brought by the plaintiff, so presents one side of the story and facts. CDP and the defendants will have a chance to respond, so this is a breaking story that has only begun to develop. Stay tuned.

Share

Note: a special thanks to Brendan Cunningham for alerting me of this case, and Atelier de Griff for spotting it. The case is Krajisnik v. C.D. Peacock et. al. (1:21-cv-00775), N.D. Ill.

Leave a comment


Rescapement is a weekly newsletter about watches, mostly vintage. Subscribe now to get it delivered to your inbox every Sunday. Follow us on IG too.

1

The DOJ’s primer on federal RICO law provides a helpful intro. I’m not a RICO attorney, though I did take a class once, so it will be fun to do a future article analyzing an authorized dealer as a potential perpetrator of organized crime.