08-24-04 -- Gannon & Scott, Inc. -- Guilty Plea -- News Release

Rhode Island Precious Metals Reclamation Company Admits Defrauding Customers

NEWARK - A Rhode Island company in the business of extracting precious metals from scrap and manufacturing processes admitted today that it under-reported the content of reclaimed precious metals in a scheme to defraud its customers, U.S. Attorney Christopher J. Christie announced.

Gannon & Scott, Inc., with offices and refining operations in Cranston, R.I., pleaded guilty to a one-count Information charging conspiracy to commit mail fraud. The company's attorney, Lawrence S. Horn, entered the plea on the company's behalf before U.S. District Judge Joseph A. Greenaway, Jr.

As expressed in its plea agreement with the government, the company cooperated fully with the investigation by the Federal Bureau of Investigation. As part of that cooperation, Gannon & Scott also initiated a changeover to a fee structure where its processing fees and metal recovery are fully revealed to its customers. Finally, Gannon & Scott also agreed to make full restitution of $291,180 - the amount of loss to its customers, as part of its plea agreement.

At sentencing, scheduled for Dec. 6, the company faces a maximum sentence of five years of probation and a statutory maximum fine equal to the greatest of $500,000 or twice the gross pecuniary gain derived from the offense or twice the gross amount of loss sustained by any victims of the offense.

Various manufacturing businesses retained Gannon & Scott to reclaim trace precious metals, including gold, silver and platinum from their scrap electronic components, industrial and manufacturing wastes and from jewelry manufacturing, according to the Information. Typically, Gannon & Scott would receive industrial drums filled with scrap for processing, during which a sample, or assay, would be removed to determine the amount of precious metals contained in the larger lot.

After calculating the total amount of precious metals in the shipment, Gannon & Scott would determine the market value of the extracted precious metal and pay the customer for it, according to the Information.

Horn, on behalf of Gannon & Scott, admitted that the company would prepare fraudulent "settlement sheets" for customers, which stated that a lot of scrap had less precious metals in it than were in fact found, and mailed checks to the customers for amounts less than which the customers were entitled.

As part of its investigation, the FBI established a company - identified in the Information as "Company 1" - which purported to be an industrial cleaning service in Hillside, N.J. In April 2001, Company 1 delivered to Gannon & Scott a shipment of scrap materials that contained 34.84 ounces of gold. After processing, Gannon & Scott determined the lot contained 29.73 ounces of gold. Gannon & Scott employees prepared a settlement sheet and assay report falsely reporting only 23.71 ounces of gold and paid Customer 1 for that amount of gold only.

Christie credited Special Agents of the FBI, under the direction of Special Agent in Charge Joseph Billy, Jr. in Newark, with bringing the case against Gannon & Scott.

The case was prosecuted by Assistant U.S. Attorney Michele Brown, who is also Counsel to the U.S. Attorney.

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Defense Attorneys:

Lawrence S. Horn, Esq. Newark

John A. MacFadyen, Esq. Providence, Rhode Island