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Not Made in USA: CEO sentenced in China boot scheme

Matthew Lane • Aug 8, 2018 at 2:15 PM

GREENEVILLE — A former executive of a U.S. military boot manufacturer has been sentenced to 41 months in federal prison for his role in a “Made in the USA” scheme.

Vincent Lee Ferguson of Knoxville, the former president and CEO of Wellco Enterprises and Tactical Holdings Operations, was sentenced in U.S. District Court in Greeneville on Monday. Ferguson previously pleaded guilty to conspiracy to commit wire fraud.

According to court records, the scheme involved six executives at Wellco, who for nearly four years guided the sale of more than $8 million worth of China-made boots to the U.S. military, claiming the footwear was made at the company’s Morristown facility.

All six were named in an 11-count indictment charging them with conspiracy to commit wire fraud, eight counts of wire fraud, major fraud against the United States and smuggling. The other five executives were sentenced earlier this year, with sentences ranging from probation to six months in prison.

Ferguson received the longest sentence.

In a sentencing memorandum filed by the U.S. attorney’s office, Ferguson’s management style was described as “heavy-handed” in order to implement the “Made in the USA” scheme, that it was his way or the highway.

In addition to selling Chinamade boots as “Made in the USA,” Ferguson also carried out a similar scheme with boots imported from Peru.

However, Ferguson’s attorney claims Ferguson was stretched very thin during the time of the scheme, traveling 10 days a month to Oregon to oversee the operations of another footwear brand the company owned.

The original ideas for the scheme were presented by the executive team at Wellco, and Ferguson gave the “green light” for these ideas to be placed into action, court records state. Against his better judgment, Ferguson failed to stop these ideas and schemes when he had the opportunity.

BACKGROUND INFORMATION

Founded in Waynesville, N.C., in 1941, Wellco Enterprises was a manufacturer and supplier of military and other rugged footwear, including combat boots for the U.S. armed forces. According to the indictment, from 2006 through 2012, the U.S. Department of Defense paid Wellco more than $138 million for military footwear.

In May 2007, two investment firms acquired Wellco in a $22 million deal and made it a subsidiary of Tactical Holdings Operations. Two years later, the company opened a 100,000-square-foot facility in Morristown and relocated its headquarters from Waynesville, N.C., to Knoxville.

According to prosecutors, Ferguson was president, CEO and director at Wellco from March 2006 through November 2012 and after the acquisition became the CEO of Tactical Holdings. Prior to his appointment at Wellco, Ferguson discussed with Wellco’s board of directors his turnaround plan for the company.

ABOUT THE CONSPIRACY

According to prosecutors, the plan was for Wellco to develop commercial channels for sale of the company’s footwear and to aggressively pursue sales to the U.S. government.

However, prosecutors claim Ferguson and the other defendants conspired to import military-style boots from China and other foreign countries, then market and sell them to the U.S. government, government contractors and the public as being “Made in the USA.”

According to court records, from December 2008 to August 2012, the defendants marketed and sold more than $8 million in boots falsely advertised as being “Made in the USA.”

More specifically, the boots’ uppers and insoles were manufactured in China, and the soles were affixed at Wellco’s Morristown facility. Prosecutors claim the defendants required the Chinese plant to include the American flag and/ or “USA” on the labels of certain boot uppers and to omit any reference to the actual country of origin.

The defendants did so in order to be compliant with certain domestic content preference laws, including the Trade Agreements Act and the Berry Amendment, according to a press release on the indictment.

After two shipments of these deceptively marked boots were detained and seized by the U.S. Department of Homeland Security’s Customs and Border Protection, the conspirators ordered the Chinese facility to stitch tear-away “Made in China” labels in Wellco boot uppers.

After the footwear was imported, the conspirators instructed Wellco factory workers in Morristown to tear out the “Made in China” tags prior to shipping the boots to government and commercial purchasers.

In July 2014, Wellco filed for Chapter 11 bankruptcy, and one month later, a majority of the company’s assets was purchased by Original Footwear Holdings.

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