A grey market whodunnit

In the end, last month’s 14-day civil trial featuring allegations of deceit thrown by and against 3Com Canada may hinge on an e-mail attachment that no one admits to writing.

The document the networking equipment manufacturer says it received four years ago from Zorin International Corp., a now

defunct Toronto reseller, is the heart of its claim that Zorin and its principals — Sam Marotta and Domenic Sicilia — deceived it into giving special discount pricing on millions of dollars of switches and hubs which were supposed to go to China and Australia in 2000.

Instead, the trial heard, some of the equipment was traced to England, while some went to the U.S. where it ended up on the grey market.

3Com says the disputed document was intended to suggest there was a firm deal to sell some of the equipment to the Chinese ministry of education, thereby justifying the special pricing. There was, in fact, no such deal.

But in his final summation last month, Nicolas Tibollo, representing the defendants, charged that if there was any deceit it was by 3Com Canada, which forged the controversial attachment onto a genuine e-mail. That message outlined plans — not firm deals — for equipment sales, he said.

3Com Canada knew that all along, he argued, as it knew that Zorin was a broker of high-volume equipment sales. The forged attachment, he said, was part of a 3Com Canada conspiracy to deceive its U.S. parent, make a big sale and frame his clients.

“”It’s not difficult to create an e-mail,”” Tibollo told Justice Russell Juriansz of the Ontario Superior Court of Justice.

Juriansz’s decision is expected to be released later this year.

To understand the mysterious attachment it’s necessary to go back to the beginning of the evidence: In December 1999, then-3Com Canada president Nick Tidd was told by staff members Tim Scattolon, a channel account manager, and Patrick Kewin, then-director of channel sales, of an opportunity to make big sales outside Canada through Zorin.

Headed by Domenic Sicilia and his partner, Sam Marotta, Zorin was also the worldwide hardware buyer for Learningstation.com, an American-based education application service provider with agents in several countries. Sicilia also headed Learningstation in Canada.

At a Dec. 9, 1999 meeting, arranged by Zorin sales manager Lee Redwood, the then-head of Learningstation.com Jim Pennington told 3Com Canada representatives that he was working to make subscription deals in China and Australia to that could require customers buying thousands of switches and hubs.

Tidd testified he was interested, but cautious: Dan Servos, his predecessor, had been dismissed because of grey market sales of 3Com Canada gear, he testified, and he didn’t want the same happening again. He told his staff the company required all deals be verified with end-user information if special discount pricing was needed.

In this case, he said, it was verified. On Dec. 15, 1999, Redwood sent Scattolon an e-mail saying: “”Here are the nine core products we are requesting pricing for. We have spoken to and handed a purchase order for $50 million to Tech Data this morning.”” The message list tens of thousands of hubs, switches and modems needed, hundreds of thousands of Learningstation subscriptions, with addresses and contacts of the end users including China’s ministry of education and universities in England and Australia.

At the end of the message is an attachment: “”Immediate requirement for China”” and a list for over 5,000 pieces of 3Com equipment. The message goes on to note that Zorin’s office will be closed for the Christmas holiday. “”That is why it is of the utmost importance that we get this released as soon as possible. Respectfully, Sam Marotta, Domenic Sicilia and Lee Redwood.””

The problem is that at trial, Redwood said he authored the main message but not the attachment. Marotta and Sicilia said they didn’t write it either.

The request sent 3Com Canada and its U.S. parent, which had to approve the special pricing, into overdrive. The judge was shown e-mails buzzing back and forth as company executives examined the request, asked for more information from Zorin and sought confirmation from Beijing.

Special pricing was approved and sent to Tech Data Canada, which sold the gear to Zorin on Jan.7, 2000 based on purchase orders from Learningstation Canada. Then things got cloudy for 3Com, the court was told. It couldn’t get confirmation that Learningstation had a contract in China and demanded more documentation from Marotta. Eventually it put a hold on more special pricing requests for China. Ultimately, the court was told, that shipment was tracked to England. What happened to it after that, no one at 3Com knows.

In the meantime, 3Com was processing a request for a second special pricing order for equipment for Australia. E-mails presented in court show the pressures going on at the vendor.

On Feb. 4, for example, one official wrote to a senior vice-president that 3Com was still working hard to validate the China deal. “”I have no evidence at this time which suggests that this (Australia) is not a good deal,”” he wrote, but adds he has “”information from a confidential source in China which questions the deal.””

He recommended approval of the special pricing quote (SPQ) subject to a 3Com representative being shown the installed gear. Tidd and Kewin are confident in the deal, it adds. The vice-president replies that “”there are risks both ways . . . if we do it and it turns bad, or if we don’t do it and lose great business.””

Ultimately, the second SPQ was approved. But the trial was told, that 3Com was soon contacted by distributor Ingram Micro that its gear was appearing on the grey market in the U.S. By checking serial numbers 3Com concluded that some 600 pieces were the Australia-bound gear bought by Zorin in late January.

Eventually 3Com had to credit almost US$6.4 million back to Tech Data because its equipment wasn’t installed in a Learningstation operation, for which the company is suing Zorin, Marotta and Sicilia in addition to general and punitive damages.

But let’s go back to the Dec. 15 e-mail and the testimony of Zorin’s Lee Redwood. He said he put the first part together after consulting with Marotta and Learningstation’s Pennington because Scattolon needed details of the plan. The figures were “”loosely based,”” he said, and the entire outline a “”forecast.”” However, pushed by 3Com lawyer James Orr, he acknowledged that’s not a word used in the message.

Orr argued in his summation that the e-mail, combined with the attachment stating that there was an immediate requirement for China, was intended to make 3Com think Learningstation had a contract with Beijing.

Not so, testified Marotta. He said he made it clear to Kewin there was no contract and that the figures were targets.

Sicilia agreed, testifying “”it appeared to me it was a forecast of where Learningstation was headed in the world market.”” He admitted that in December, 1999 there was no immediate need by Learningstation for 3Com equipment in China.

And the shipments? On Jan. 7, after Tech Data Canada was notified the special pricing was approved, Marotta says a sales manager at the distributor told him there was 3Com equipment in its warehouse. He testified he asked Learningstation’s U.K. agent, a company called Gamma Global, if it wanted it. They told him it would be sold to the Chinese ministry of education, he said, so Zorin ordered and shipped 2,550 hubs and switches the same day. This was the shipment which 3Com traced to England.

Orr made much of a shipping document in 3Com’s hands, which says the destination was Learningstation, Hong Kong, not Beijing.

Then in late January the same Tech Data Canada manager asked Marotta if he could

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Howard Solomon
Howard Solomon
Currently a freelance writer, I'm the former editor of ITWorldCanada.com and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including ITBusiness.ca and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times. I can be reached at hsolomon [@] soloreporter.com

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