Manhattan U.S. Attorney Settles Civil Fraud Lawsuit Against Clothing Companies And Their Former CEO For Misrepresenting The Value Of Goods To Avoid Paying Customs Duties

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Audrey Strauss, the United States Attorney for the Southern District of New York, Peter C. Fitzhugh, the Special Agent in Charge of the New York Office of Homeland Security Investigations (“HSI”), and Marty Raybon, Acting Director, Field Operations, New York, U.S. Customs and Border Protection (“CBP”), announced today that the United States has settled civil fraud claims brought under the False Claims Act against STARGATE APPAREL, INC. (now named EXCEL APPAREL CORP.) (“STARGATE”), RIVSTAR APPAREL, INC. (“RIVSTAR”), and JOSEPH BAILEY.  Stargate and Rivstar are apparel companies headquartered in New York, New York, and BAILEY is the companies’ former CEO and owner.   As alleged in the Government’s lawsuit, filed in 2019, BAILEY, STARGATE, and RIVSTAR employed a variety of schemes to defraud the United States by submitting invoices to CBP that falsely understated the true value of the clothing that they imported into the United States in order to avoid paying millions of dollars in customs duties.  RIVSTAR is no longer operating.

Under the civil settlement approved today by U.S. District Judge J. Paul Oetken, BAILEY will pay $3.2 million to the United States, and STARGATE, RIVSTAR, and the employee stock ownership plan that currently owns the companies will together pay a total of $2.8 million to the United States.  BAILEY, STARGATE, and RIVSTAR admitted and accepted responsibility for their conduct as further described below.  As part of the settlement, STARGATE and RIVSTAR (to the extent that it resumes operations) will also implement a written compliance policy that will include measures designed to ensure that they pay duties on the full, actual value of all future imports and otherwise comply with applicable customs laws and regulations.  Last year, BAILEY pled guilty and was sentenced to six months in prison for engaging in certain of the conduct related to STARGATE imports that is at issue in the Government’s civil complaint.  This civil settlement is in addition to the $1,661,617 forfeiture amount that BAILEY was ordered to pay in the criminal proceedings. 

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U.S. Attorney Audrey Strauss said: “Stargate, Rivstar, and their former president engaged in a variety of fraudulent schemes to short-change the Government of customs duties owed for imported clothing by falsely under-reporting its value.  This settlement, along with the separate criminal action against Bailey, demonstrate that our Office will hold companies, as well as their executives, accountable when they try to evade paying the legally required custom duties on imported goods.”

HSI Special Agent in Charge Peter C. Fitzhugh said: “For over a decade these clothing companies used ‘double-invoice’ schemes to underpay customs duties that were owed to the U.S. for garments being imported into the country, resulting in millions of dollars in customs duties lost.  HSI worked closely with U.S. Customs and Border Protection and the U.S. Attorney’s Office for the Southern District of New York to achieve this settlement, requiring the defendants not just to accept responsibility, but also to pay the Government $6 million and enhance their compliance policies.”

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CBP Acting Director of New York Field Operations Marty Raybon said: “The settlement reached today is a testament to the dedication of our partners in the United States Attorney’s Office, Homeland Security Investigations, and the men and women of CBP in enforcing our nation’s trade laws and punishing those perpetrating this type of fraud.”

The Government’s complaint alleges that in order to avoid customs duties, from 2004 through 2015 (the “Covered Period”), STARGATE, RIVSTAR, and BAILEY engaged in two types of “double invoicing” schemes to fraudulently underpay customs duties owed to the United States in connection with the garments that they brought into the country.  Under the first scheme, the exporter would provide one invoice that reflected the amount Defendants actually paid the exporter for the goods, and a second invoice that fraudulently reflected a fabricated lower amount that was submitted to CBP.  These two invoices were virtually identical (e.g., same invoice number, description of goods, quantity of goods), except that they included different prices for the same shipments of goods.  Under the second scheme, the exporter also would provide two invoices, which together reflected the actual price paid for the shipment.  However, Defendants would only submit one of the invoices to CBP.  The other invoice, which purported to be for “samples,” “accessories,” “commissions,” or “testing costs,” reflected an additional payment made by Defendants for the same goods described in the first invoice and was not submitted to CBP.  The purpose of each of these two schemes was the same – to fraudulently under-report the value of the goods in order to pay less duties.   

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As part of the settlement, BAILEY, STARGATE, and RIVSTAR admit, acknowledge, and accept responsibility for the following conduct:

STARGATE Conduct:

RIVSTAR Conduct:

The conduct in this matter was first brought to the attention of federal law enforcement by a whistleblower who filed a lawsuit under the False Claims Act.

Ms. Strauss thanked U.S. Customs and Border Protection and Homeland Security Investigations for their assistance with the case.

The civil case is being handled by the Office’s Civil Frauds Unit, and Assistant U.S. Attorney Dominika Tarczynska is in charge of the matter.

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