exv10w1






Exhibit 10.1




UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION




			
	 	 	 
	UNITED STATES OF AMERICA	 	No.
	v.	 	 
	LAWSON PRODUCTS, INC.
	 	Judge






DEFERRED PROSECUTION AGREEMENT




     Defendant LAWSON PRODUCTS, INC. (“LAWSON PRODUCTS”), a company
headquartered in Des Plaines, Illinois, by its undersigned attorneys, pursuant to authority granted
by its Board of Directors, and the UNITED STATES OF AMERICA, through
PATRICK J. FITZGERALD, United States Attorney for the Northern District of Illinois,
enter into this Deferred Prosecution Agreement (“the Agreement”), which shall apply to
LAWSON PRODUCTS and all its affiliates and subsidiaries, including Drummond
American Corporation and Cronatron Welding Systems, Inc. The terms and conditions of
this agreement are as follows:



          LAWSON PRODUCTS accepts and acknowledges that, in connection with the
execution of this Agreement, the United States will file a one-count criminal Information
(attached hereto as Appendix A) in the United States District Court for the Northern District
of Illinois. The Information will charge LAWSON PRODUCTS with mail fraud, in violation
of 18 U.S.C. § 1341. LAWSON PRODUCTS knowingly and voluntarily waives its right to
indictment on this charge, as well as all rights to a speedy trial pursuant to the Sixth
Amendment to the United States Constitution, 18 U.S.C. § 3164, and Federal Rule of




 









 




Criminal Procedure 48(b). Prosecution of LAWSON PRODUCTS on the charge set forth in the Information
shall be deferred for a three-year period. As further provided below, if LAWSON PRODUCTS fully
complies with its obligations under this Agreement during the Agreement’s three-year term, the
United States will dismiss the Information with prejudice.




     2. LAWSON PRODUCTS admits, accepts, and acknowledges that it is responsible for the acts of
its officers, employees, and sales agents, as set forth in the Information and the Statement of
Facts attached as Appendix B to this Agreement (the “Statement of Facts”), and that the facts
described therein are true and accurate. Should the United States initiate the prosecution that is
deferred by this Agreement, LAWSON PRODUCTS agrees that it will neither contest the admissibility
of, nor contradict, in any criminal proceeding or civil forfeiture proceeding, the Statement of
Facts.



     3. LAWSON PRODUCTS agrees to place a total of $30,000,000 in an escrow account to fund the
payment of restitution and a civil forfeiture judgment as further set forth below. LAWSON PRODUCTS
will fund this escrow account in three equal payments of $10,000,000. LAWSON PRODUCTS shall make
the first $10,000,000 payment on or before the date that LAWSON PRODUCTS executes this Agreement.
LAWSON PRODUCTS shall make its subsequent two $10,000,000 payments within twelve months and
twenty-four months of its execution of this Agreement. At any point, should a controlling interest
in LAWSON PRODUCTS be sold, the remaining payments shall be accelerated and due at the closing of
that sale.



 









 





     4. LAWSON PRODUCTS acknowledges that the United States will file a complaint for in rem civil
forfeiture, which is attached as Appendix C to this Agreement (the “Forfeiture Petition”), for
forfeiture of the funds in the escrow account described in paragraph 3. LAWSON PRODUCTS agrees not
to contest the forfeiture of this property in the civil forfeiture proceeding. LAWSON PRODUCTS
further agrees to the entry of a judgment with respect to the civil forfeiture proceeding. LAWSON
PRODUCTS agrees that the funds in the escrow account shall be forfeited and disposed of according
to law. LAWSON PRODUCTS and the United States agree that the forfeiture of the funds in the escrow
account, once fully funded by LAW SON PRODUCTS pursuant to paragraph 3, shall satisfy all monetary
claims by the United States with respect to the civil forfeiture action. Nothing, including a
dismissal of the Information or a breach by LAWSON PRODUCTS of this Agreement, shall cause any
portion of the funds in the escrow account forfeited pursuant to the civil forfeiture judgment to
be refunded. The United States agrees, however, that in the event of a subsequent breach and
prosecution, it will recommend to the Court that the amount forfeited pursuant to this Agreement be
offset against any monetary penalty the Court may impose as part of its judgment. LAWSON PRODUCTS
understands that such a recommendation will not be binding on the Court.



     5. LAWSON PRODUCTS acknowledges that if it were convicted of mail fraud, as charged in the
information, that it would be obligated to provide restitution to the victims of the scheme,
pursuant to 18 U.S.C. § 3663A. The United States and LAWSON




3









 







PRODUCTS have agreed that LAWSON PRODUCTS will make restitution payments to customers of LAWSON
PRODUCTS that (a) employed individuals who received over $10,000 in Winners Choice checks; (b)
employed individuals who have been or later are convicted of mail fraud as a result of their
receipt of Winners Choice checks; or (c) purchased LAWSON PRODUCTS merchandise from sales agents
who have been or later are convicted of mail fraud for providing Winners Choice checks to the
customers’ employees (collectively, “the Victims”). Accordingly, LAWSON PRODUCTS agrees to pay
restitution in a total amount of $806,431, as set out in Appendix D. In making these payments,
LAWSON PRODUCTS further agrees to advise the Victims in writing as to the circumstances leading to
the payments.




     6. LAWSON PRODUCTS hereby represents and warrants that it will not re-employ as an officer or
elect as a director any individual who formerly served in either of those positions, and who left
such a position with the company on or before the date of this Agreement.



     7. This Agreement shall be in effect for three years from the date of its execution (except as
provided below in Paragraph 15 of this Agreement, which provides for earlier termination under
certain circumstances involving a sale of LAWSON PRODUCTS). During the term of this Agreement,
LAWSON PRODUCTS agrees to cooperate fully with the United States Attorney’s Office for the Northern
District of Illinois and any other authority or agency investigating LAWSON PRODUCTS or any of its
present or former




4









 







directors, officers, employees, or sales agents, in any and all matters relating to corrupt
payments or benefits in connection with its sales or operations. LAWSON PRODUCTS agrees that its
cooperation shall include, but not be limited to, the following:




          a. LAWSON PRODUCTS shall provide the United States with all documents and records that the
United States requests and are not subject to valid claims of attorney-client or work product
privileges. The United States shall not assert that any act by LAWSON PRODUCTS known to the United
States as of the date of this Agreement constitutes a waiver of its attorney-client or work product
privileges in any respect as to matters relating to the scheme described in the Information and
Statement of Facts.




          b. LAWSON PRODUCTS shall designate knowledgeable present or Former directors, executives,
officers, or employees to provide the United States with information regarding matters under
investigation that the United States requests. LAWSON PRODUCTS shall use its best efforts to make
available for interviews or testimony, as requested by the United States, present or former
directors, executives, officers, and employees of LAWSON PRODUCTS or any of its present or former
affiliates and subsidiaries. This includes, but is not limited to, sworn testimony before a federal
grand jury or in federal trials, as well as interviews with law enforcement authorities. LAWSON
PRODUCTS will use its best efforts to ensure that the information that it provides in this manner
is complete, truthful, and accurate.




5









 








          c. With respect to any information, testimony, document, record, or other tangible evidence
provided to the United States pursuant to this Agreement, LAWSON PRODUCTS consents to any and all
disclosures to other government agencies, including federal and state agencies, of such materials
as the United States, in its sole discretion, shall deem appropriate.




     8. LAWSON PRODUCTS has implemented and will continue to implement a compliance and ethics
program designed to prevent and detect violations of federal and state anti-corruption laws
throughout its sales and operations, including those by its affiliates and subsidiaries. LAWSON
PRODUCTS has disclosed the components of its compliance and ethics program to the United States.
LAWSON PRODUCTS agrees during the term of this Agreement to immediately notify the United States
Attorney’s Office for the Northern District of Illinois of any violation or suspected violation of
federal and state anti-corruption laws that it receives notice of or detects.



     9. LAWSON PRODUCTS expressly agrees that it shall not, through its present or future
attorneys, directors, executives, officers, or any other person authorized to speak for the
company, make any public statement, in litigation or otherwise, contradicting LAWSON PRODUCTS’s
acceptance of responsibility set forth above or the factual statements set forth in the Statement
of Facts. Any such contradictory statement shall constitute a breach of this Agreement as governed
by Paragraph 13, and LAWSON PRODUCTS thereafter would be subject to prosecution as set forth in
Paragraphs 13 and 14




6









 







of this Agreement. The decision of whether any public statement contradicts the Statement of Facts
shall be solely that of the United States. Should the United States determine that a public
statement by any such person contradicts the Statement of Facts, the United States shall notify
LAWSON PRODUCTS. LAWSON PRODUCTS may avoid a breach of this Agreement by publicly repudiating such
statement within 48 hours after such notification.




     10. If LAWSON PRODUCTS is in full compliance with all of its obligations under this Agreement,
the United States, within thirty days of the expiration of the period set forth in paragraph 7
above, will seek dismissal with prejudice of the Information filed against LAWSON PRODUCTS pursuant
to Paragraph 1 and this Agreement shall expire.



     11. If the United States determines, in its sole discretion, that LAWSON PRODUCTS, at any time
between the execution of this Agreement and completion of defendant’s cooperation, provided
deliberately false, incomplete, or misleading information under this Agreement, has committed any
federal or state crime subsequent to the date of this Agreement, or has otherwise violated any
provision of this Agreement, LAWSON PRODUCTS shall thereafter be subject to prosecution for any
federal criminal violation of which the United States has knowledge. Any such prosecutions may be
premised on information provided by LAWSON PRODUCTS, including the Statement of Facts, which shall
be admissible at any trial of LAWSON PRODUCTS. Moreover, LAWSON PRODUCTS agrees that any
prosecutions that are not time-barred by the applicable statute




7









 







of limitations on the date of this Agreement may be commenced against LAWSON
PRODUCTS in accordance with this Agreement.




     12. Should the United States determine, in its sole discretion, that LAWSON
PRODUCTS has, at any time between the execution and termination of this Agreement as
set forth in paragraph 7, committed any federal or state crime, provided deliberately false,
incomplete, or misleading information under this Agreement, or has otherwise knowingly and
willfully breached any other material provision of this Agreement, the United States shall provide
written notice to LAWSON PRODUCTS of the alleged breach and provide LAWSON PRODUCTS with a two-week
period from receipt of such notice in which to make a presentation to the United States to
demonstrate that no federal or state crime was committed, no breach occurred, or, to the extent
applicable, that the breach was not material or knowingly and willfully committed or has been
cured.



     13. In the event that the United States still determines, in its sole discretion and after
providing LAWSON PRODUCTS with notice of the alleged breach and an opportunity to make a
presentation, that LAWSON PRODUCTS has committed any federal or state crime, provided deliberately
false, incomplete, or misleading information under this Agreement, or has otherwise knowingly and
willfully breached any other material provision of this Agreement: (a) all statements made by or on
behalf of LAWSON PRODUCTS to the United States, the Statement of Facts executed in connection with
this Agreement, and any testimony given by LAWSON PRODUCTS before a grand jury, shall be admissible
in evidence in any criminal proceeding brought by the United States against LAWSON PRODUCTS, and
(b) LAWSON PRODUCTS shall not assert any claim




8









 







that any statements made by or on behalf of LAWSON PRODUCTS are inadmissible or should be
suppressed.




     14. LAWSON PRODUCTS acknowledges that the United States has made no representations,
assurances, or promises concerning what sentence may be imposed by the Court should LAWSON PRODUCTS
breach this Agreement and this matter proceed to judgment. LAWSON PRODUCTS further acknowledges
that any such sentence would be solely within the discretion of the Court and that nothing in this
Agreement binds or restricts the Court in the exercise of such discretion.



     15. LAWSON PRODUCTS agrees that in the event it sells or merges all or substantially all of
its business operations as they exist as of the date of this Agreement, whether such sale is
structured as a stock or asset sale, it shall include in any contract for sale or merger a
provision binding the purchaser or successor to the obligations described in the Agreement;
provided, however, that if there should occur a corporate transaction whereby LAWSON PRODUCTS sells
substantially all of its assets or engages in a merger or similar transaction whereby LAWSON
PRODUCTS is not a surviving corporate entity; and provided the $30,000,000 obligation and
restitution provided for herein in paragraphs 3 and 5 has been paid and satisfied; and further
provided that the new entity controlling the former assets or business of LAWSON PRODUCTS is not
controlled by a person or entity that has a significant previous affiliation with LAWSON PRODUCTS,
then the United States agrees to terminate this Agreement and dismiss the Information within 30
days after the transaction or by August 11, 2009, whichever comes later. In the event that LAWSON
PRODUCTS continues in existence following such sale and is not transferring title to any
substantial portion of its assets




9









 







pursuant to such sale, LAWSON PRODUCTS rather than the purchaser of those assets remains obligated
under the Agreement.




     16. This Agreement is binding on LAWSON PRODUCTS and the United States Attorney’s Office for
the Northern District of Illinois, but specifically does not bind any other federal agencies, or
any state or local law enforcement or regulatory agencies, although the United States Attorney’s
Office for the Northern District of Illinois will bring the cooperation of LAWSON PRODUCTS and its
compliance with its other obligations under this Agreement to the attention of such agencies and
authorities if requested to do so by LAWSON PRODUCTS and its attorneys.



     17. This Agreement is entirely voluntary and represents all the terms of the Deferred
Prosecution Agreement between LAWSON PRODUCTS and the United States Attorney. No modifications or
additions to this Agreement shall be valid unless they are in writing and signed by the United
States Attorney, LAWSON PRODUCTS’s attorneys, and a duly authorized representative of LAWSON
PRODUCTS.



     18. Any notice to LAWSON PRODUCTS under this Agreement shall be given by
personal delivery, overnight delivery by a recognized delivery service, or registered or
certified mail,








10









 










addressed to William Heinz, Jenner & Block, 330 North Wabash Avenue, Chicago, IL 60611.

Notice
shall be effective upon actual receipt by LAWSON PRODUCTS.




AGREED:


     For LAWSON PRODUCTS:



	 	 	 	 	 
	/s/ Thomas J. Neri
 

THOMAS J. NERI

	 	/s/ Williarn D. Heinz
 

WILLIAM D. HEINZ
	 	 
	President and Chief Executive Officer

	 	JENNER & BLOCK	 	 
	Lawson Products, Inc.

	 	Counsel for Lawson Products, Inc.	 	 
	 
	 	 	 	 
	For the UNITED STATES OF AMERICA:
	 	 	 	 
	 
	 	 	 	 
	/s/ Patrick J. Fitzgerald
 

PATRICK J. FITZGERALD

	 	/s/ Brandon D. Fox
 

BRANDON D. FOX
	 	 
	United States Attorney

	 	NANCY MILLER	 	 
	 

	 	KRUTI TRIVEDI	 	 
	 

	 	Assistant United States Attorneys	 	 







11











 





OFFICER’S CERTIFICATE




     I have read this Agreement and carefully reviewed every part of it with counsel for Lawson
Products, Inc. (“Lawson Products”). I understand the terms of this Agreement and voluntarily agree,
on behalf of Lawson Products, to each of its terms. Before signing this Agreement, I consulted with
the attorney for Lawson Products. The attorney fully advised me of Lawson Product’s rights, of
possible defenses, of the Sentencing Guidelines’ provisions, and of the consequences of entering
into this Agreement.



     I have carefully reviewed this Agreement with the Board of Directors of Lawson
Products. I have advised and caused investigative and outside counsel for Lawson Products
to advise that Board fully of Lawson Product’s rights, of possible defenses, of the
Sentencing Guidelines’ provisions, and of the consequences of entering into the Agreement.
No promises or inducements have been made other than those contained in this
Agreement. Furthermore, no one has threatened or forced me or, to my knowledge, any
person authorizing this Agreement on behalf of Lawson Products, in any way to enter into
this Agreement. I am also satisfied with Lawson Product’s representation in this matter.



 









 




I certify that I am an officer of Lawson Products and that I have been duly authorized by Lawson
Products to execute this Agreement on behalf of Lawson Products and all the subsidiaries named
herein.




	 	 	 	 	 
	 	               Lawson Products, Inc.

 	 
	Date: August 11 , 2008 	By:  	/s/ Thomas J. Neri 	 
	 	 	THOMAS J. NERI 	 
	 	 	President and Chief Executive Officer
Lawson Products, Inc. 	 
	 




2









 





Appendix A




UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION




	 	 	 	 	 	 	 
	UNITED STATES OF AMERICA

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	v.

	 	 	)	 	 	Violation: Title 18, United States Code,
	 

	 	 	)	 	 	Sections 1341 and 1346
	LAWSON PRODUCTS, INC.

	 	 	)	 	 	 






     The UNITED STATES ATTORNEY charges:



     1. At times material to this count:



          a. Defendant LAWSON PRODUCTS, INC. (“LAWSON PRODUCTS”) was a publicly traded company organized
under the laws of the State of Delaware, with its principal offices in Des Plaines, Illinois.
Defendant LAWSON PRODUCTS was a distributor and marketer of systems, services and products sold to
various entities in the public and private sectors. Defendant LAWSON PRODUCTS was the parent
company of several subsidiaries, including Drummond American Corporation and Cronatron
Welding- Systems, Inc. Defendant LAWSON PRODUCTS generated approximately $400 million in sales
annually.




          b. Defendant LAWSON PRODUCTS had two divisions: maintenance and repair operation (the “MRO
business”) and original equipment manufacturing (the “OEM business”). Defendant LAWSON PRODUCTS
sold its MRO products through sales agents. These sales agents generally were permitted by
defendant LAWSON PRODUCTS to negotiate with its customers over the prices their customers would pay
for defendant LAWSON PRODUCTS merchandise. As a general rule, defendant LAWSON PRODUCTS’s profits
and the sales agents’ commissions were greater if they sold products at higher prices.














 





          c. Defendant LAWSON PRODUCTS maintained programs for its MRO business through which sales
agents could provide items of value to individuals for purchasing defendant LAWSON PRODUCTS
merchandise on behalf of those individuals’ employers (the “Illicit Programs”). Among the Illicit
Programs were Winners Choice, Cavalcade of Awards, LPI, and Spike Special. Defendant LAWSON
PRODUCTS administered these Illicit Programs through its Merchandising Department.




          d. Defendant LAWSON PRODUCTS and its sales agents often provided a greater amount of rewards
through these Illicit Programs if the individuals ordered a greater amount of defendant LAWSON
PRODUCTS merchandise on behalf of their employers. Some defendant LAWSON PRODUCTS sales agents
received training suggesting that they provide the customers’ employees with rewards through the
Illicit Programs totaling approximately four to five percent of the amount of the sale.




          e. Defendant LAWSON PRODUCTS set up “promotional funds” for each sales agent that allowed
defendant LAWSON PRODUCTS and the sales agents to split the cost of the Illicit Programs. When a
sales agent’s customer ordered merchandise, defendant LAWSON PRODUCTS placed a percentage of the
order, based on the amount of commission earned by the sales agent, into the promotional fund, up
to a certain maximum dollar amount. A sales agent could then use the promotional fund to pay for at
least a portion of the costs of items from the Illicit Programs. The sales agent would pay the
remainder of the costs of items from the Illicit Programs out of the commissions the sales agents
earned.





15









 








Winners Choice




          f. Winners Choice was a program in which defendant LAWSON PRODUCTS directed a third-party
named Keogh, Inc. (“Keogh”) to issue checks payable to employees of defendant LAWSON PRODUCTS’s
customers and to retail stores selected by the recipients of the checks. Keogh would mail these
checks to the employees of defendant LAWSON PRODUCTS’s customers, who could then use these checks
to purchase items in the designated retail stores. There were several steps that occurred before
Keogh would issue these checks:




i. Cold Certificates. The first step was for sales agents to place orders for “cold
certificates” with defendant LAWSON PRODUCTS, which would then inform Keogh of the orders. The
sales agents would designate the recipient, the mailing address, the number of cold
certificates, and the denomination of the cold certificates. Although the cold certificates
were limited to $10 or $25 increments, sales agents could order multiple cold certificates
totaling far in excess of $25 to be sent to a recipient.



ii. Redemption of Cold Certificates. Next, Keogh would ship, via mail or courier, the
cold certificates to the recipient at the designated address. Along with the cold
certificates, Keogh sent a list of retail stores participating in the Winners Choice program.
To redeem the cold certificates, the recipient would fill out an order form by selecting a
retail store and the address where Keogh should send the check. The recipient then sent the
order form back to Keogh through the mail.



iii. Checks. Once the recipient had redeemed the cold certificates, Keogh mailed one or
more checks, also known as “hot certificates,” to the recipient. While each check was written
for $50 or less, Keogh could mail multiple checks totaling far in excess of $50 to a
recipient. The checks issued by Keogh would list two payees: (1) the individual recipient and
(2) the retail store designated by the individual recipient. The individual recipient could
then use the checks at the designated retail store.




16











 





Cavalcade of Awards and LPI




     g. Cavalcade of Awards and LPI were programs in which defendant LAWSON PRODUCTS and its sales
agents allowed employees of their customers to select items for themselves from catalogs that were
produced by defendant LAWSON PRODUCTS. While the Cavalcade of Awards and LPI programs included
items, such as tools, that could be used by customers, the catalogs also contained personal items,
such as golf equipment, electronics, and toys. Employees of defendant LAWSON PRODUCTS’s customers
could select items based upon the amount of “points” or “banque notes” they earned through the
amount of purchases the employees caused their employers to make.



Spike Special




     h. Spike Special was a program offered at certain times of the year in which Drummond American
and its sales agents provided items of value to employees of Drummond American’s customers if the
employees purchased a certain amount of a specific item on behalf of their employers during the
time period that the Spike Special was offered. As with the Cavalcade of Awards and LPI programs,
the Spike Special program allowed employees to select items that could be used for their employers,
such as tools, or personal items, such as golf equipment, electronics, and toys.



Policies




     i. Defendant LAWSON PRODUCTS had a policy that purported to bar sales agents from providing
items of value to employees of federal, state, and local government. While this policy existed,
defendant LAWSON PRODUCTS did not have any meaningful safeguards in place to detect whether its
sales agents were providing items of value to employees of federal, state,




17









 







and local government. Additionally, prior to December 15, 2005, defendant LAWSON PRODUCTS generally
took no disciplinary action against sales agents it discovered were providing items of value to
employees of federal, state, and local government.




     j. The employees of defendant LAWSON PRODUCTS customers owed a duty of honest services to the
their employers, which included the duty to provide their employers with undivided loyalty that was
free from conflict of interest between their personal interests and the interests of their
employers. Further, many laws and policies existed that prohibited defendant LAWSON PRODUCTS
customers from accepting anything of value from vendors in exchange for the customers’ business.




	 	2.	 	Beginning no later than 1992 and continuing until approximately December 15,
2005, at Des Plaines and Vernon Hills, in the Northern District of Illinois, and
elsewhere, LAWSON PRODUCTS, INC.,




defendant herein, along with others known and unknown, devised and intended to devise, and
participated in, a scheme and artifice to defraud defendant LAWSON PRODUCTS’s customers of money,
property, and the intangible right to the honest services of their employees, and to obtain money
and property, by means of materially false and fraudulent pretenses, representations, and promises,
as further alleged herein.




     3. It was part of the scheme to defraud that from on or about March 11, 1992 through on or
about December 15, 2005, defendant LAWSON PRODUCTS provided substantial rewards, including
approximately $9.7 million in Winners Choice checks, to employees of its customers in order to
induce them to purchase, and to reward the employees for purchasing, merchandise from LAWSON
PRODUCTS on behalf of their employers.



18









 





     4. It was further part of the scheme to defraud that defendant LAWSON PRODUCTS trained its
sales agents how to discuss its Illicit Programs with its customers’ employees in order to induce
and increase sales.



     5. It was further part of the scheme to defraud that defendant LAWSON PRODUCTS taught its
sales agents to use the Illicit Programs to minimize customer complaints about pricing and price
increases.



     6. It was further part of the scheme to defraud that defendant LAWSON PRODUCTS’s sales agents
occasionally told customers’ employees that the Winners Choice certificates were “cash,”
“non-traceable,” “non-taxable,” and could not be linked to LAWSON PRODUCTS.



     7. It was further part of the scheme to defraud that defendant LAWSON PRODUCTS directed its
sales agents and Keogh to send Winners Choice cold certificates and checks to the home addresses of
the employees of the customers, rather than the customers’ business addresses, to conceal the fact
that defendant LAWSON PRODUCTS and its sales agents were providing items of value to its customers’
employees.



     8. It was further part of the scheme to defraud that defendant LAWSON PRODUCTS sales agents
occasionally ordered Winners Choice cold certificates and checks in the names of the spouses of the
employees of the customers to conceal the fact that defendant LAWSON PRODUCTS and its sales agents
were providing items of value to its customers’ employees.



     9. It was further part of the scheme to defraud that on occasion employees of defendant LAWSON
PRODUCTS’s customers misrepresented to their employers that they had not received anything of value
from LAWSON PRODUCTS.



19









 





     10. It was further part of the scheme to defraud that after its sales agents placed an order
for Winners Choice cold certificates, defendant LAWSON PRODUCTS redacted the name of the customer
from the Winners Choice order forms defendant LAWSON PRODUCTS submitted to Keogh in order to
conceal the fact that defendant LAWSON PRODUCTS and its sales agents were providing items of value
to the customers’ employees.



     11. It was further part of the scheme to defraud that defendant LAWSON PRODUCTS, in order to
conceal the fact that employees of defendant LAWSON PRODUCTS’s customers were receiving benefits
through the Illicit Programs, intentionally did not place defendant LAWSON PRODUCTS’s name or logo
on the Cavalcade of Awards and LPI catalogs.



     12. It was further part or the scheme to defraud that defendant LAWSON PRODUCTS knowingly did
not issue or file Internal Revenue Form 1099s, as it was required to do, for employees of its
customers receiving in excess of $600 a year from the Illicit Programs.



     13. It was further part of the scheme to defraud that defendant LAWSON PRODUCTS improperly
deducted the cost of the Illicit Programs as business expenses on its federal tax returns.



     14. It was further part of the scheme to defraud that defendant LAWSON PRODUCTS
misrepresented, concealed and hid, and caused to be misrepresented, concealed and hidden, the
purposes of and acts done in furtherance of the aforementioned scheme.



     15. As a result of the scheme, defendant LAWSON PRODUCTS obtained in excess of

$30,000,000 to which it was not entitled.




20









 








     16. On or about March 2, 2004, at Woodstock, in the Northern District of Illinois,



LAWSON PRODUCTS,



defendant herein, for the purpose of executing the above-described scheme and attempting to do so,
knowingly caused to be placed in an authorized depository for mail matter, to be sent and delivered
by the United States Postal Service, according to the directions thereon, an envelope from Keogh in
Woodstock, Illinois, containing approximately $1,200 worth of Winners Choice cold certificates,
addressed to the spouse of Ronald Gholdson, an employee for defendant LAWSON PRODUCTS’s customer
Reilly Industries, Inc., at the Gholdsons’ home address in Indianapolis, Indiana.




     In violation of Title 18, United States Code, Sections 1341 and 1346.



	 	 	 	 	 
	 	 	 
	 

	 	UNITED STATES ATTORNEY	 	 







21











 





Appendix B




UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION


UNITED STATES OF AMERICA,


NO


           V.




Judge


LAWSON PRODUCTS, INC.



STATEMENT OF FACTS




     1. LAWSON PRODUCTS, INC. (“LAWSON PRODUCTS”) was a publicly traded company organized under the
laws of the State of Delaware, with its principal offices in Des Plaines, Illinois. LAWSON PRODUCTS
was a distributor and marketer of systems, services and products sold to various entities in the
public and private sectors. LAWSON PRODUCTS was the parent company of several subsidiaries,
including Drummond American Corporation and Cronatron Welding Systems, Inc. LAWSON PRODUCTS
generated approximately $400 million in sales annually.



     2. LAWSON PRODUCTS had two divisions: maintenance and repair operation (the “MRO business”)
and original equipment manufacturing (the “OEM business”). From at least 1992 through on or about
December 15, 2005, LAWSON PRODUCTS’s MRO business engaged in corrupt sales practices carried out
through its MRO sales agents. These sales agents generally were permitted by LAWSON PRODUCTS to
negotiate with its customers over the prices their customers would pay for LAWSON PRODUCTS
merchandise. As a general rule, LAWSON PRODUCTS profits and the sales agents’ commissions were
greater if they sold products at higher prices.



     3. LAWSON PRODUCTS maintained programs for its MRO business through which
sales agents could provide items of value to individuals for purchasing LAWSON PRODUCTS




 









 







merchandise on behalf of those individuals’ employers (the “Illicit Programs”). Among the Illicit
Programs were Winners Choice, Cavalcade of Awards, LPI, and Spike Special. LAWSON PRODUCTS
administered these Illicit Programs through its Merchandising Department until approximately
December 15, 2005, when LAWSON PRODUCTS suspended the Illicit Programs.




     4. LAWSON PRODUCTS and its sales agents often provided a greater amount of rewards through
these Illicit Programs if the individuals ordered a greater amount of LAWSON PRODUCTS merchandise
on behalf of their employers. Some LAWSON PRODUCTS sales agents received training suggesting that
they provide the customers’ employees with rewards through the Illicit Programs totaling
approximately four to five percent of the amount of the sale.



     5. LAWSON PRODUCTS set up “promotional funds” for each sales agent that allowed LAWSON
PRODUCTS and the sales agents to split the cost of the Illicit Programs. When a sales agent’s
customer ordered merchandise, LAWSON PRODUCTS placed a percentage of the order, based on the amount
of commission earned by the sales agent, into the promotional fund, up to a certain maximum dollar
amount. A sales agent could then use the promotional fund to pay for at least a portion of the
costs of items from the Illicit Programs. The sales agent would pay the remainder of the costs of
items from the Illicit Programs out of the commissions the sales agents earned.



     6. LAWSON PRODUCTS trained its sales agents how to discuss its Illicit Programs with its
customers’ employees in order to induce and increase sales. LAWSON PRODUCTS also taught its sales
agents to use the Illicit Programs to minimize customer complaints about pricing and price
increases.



23









 





     7. From the inception of the Illicit Programs until December 15, 2005, LAWSON PRODUCTS’s sales
agents provided items of value of more than a nominal value to purchasing agents for governmental
entities in violation of governmental statutes, rules, and regulations concerning procurement.
During this same period, LAWSON PRODUCTS’s sales agents also provided items of value of more than a
nominal value to private entity purchasing agents who accepted the items without the knowledge and
consent of their employers and in violation of their employers’ procurement policies.



     8. In order to conceal the fact that employees of LAWSON PRODUCTS’s customers were receiving
benefits through the Illicit Programs, LAWSON PRODUCTS intentionally did not place LAWSON
PRODUCTS’s name or logo on the Cavalcade of Awards and LPI catalogs.



     9. LAWSON PRODUCTS had a policy that purported to bar sales agents from providing items of
value to employees of federal, state, and local government. While this policy existed, LAWSON
PRODUCTS did not have any meaningful safeguards in place to detect whether its sales agents were
providing items of value to employees of federal, state, and local government. Additionally, prior
to December 15, 2005, LAWSON PRODUCTS generally took no disciplinary action against its sales
agents who it discovered were providing items of value to employees of federal, state, and local
government. LAWSON PRODUCTS also generally took no disciplinary action against sales agents it
discovered were providing items of value to employees of private companies in violation of those
private companies’ policies.




24









 








Winners Choice




     10. In approximately late 1991 and early 1992, LAWSON PRODUCTS representatives met with
Lawrence Keogh, the President of Keogh, Inc. (“Keogh”), which was in the business of offering an
incentive program called Winners Choice (“WC”). LAWSON PRODUCTS decided to use Keogh’s WC program
as a way to reward the employees of its customers for purchasing LAWSON PRODUCTS merchandise on
behalf of their employers.



     11. LAWSON PRODUCTS directed Keogh to issue checks payable to employees of LAWSON PRODUCTS’s
customers and to retail stores selected by the recipients of the checks. Keogh would mail these
checks to the employees of LAWSON PRODUCTS ‘s customers, who could then use these checks to
purchase items in the designated retail stores. LAWSON PRODUCTS’s sales agents occasionally told
customers’ employees that the Winners Choice certificates were “cash,” “non-traceable,”
“non-taxable,” and could not be linked to LAWSON PRODUCTS.



     12. There were several steps that occurred before Keogh would issue these checks:



          a. Cold Certificates. The first step was for sales agents to place orders for
“cold certificates” with LAWSON PRODUCTS, which would then inform Keogh of the orders. The sales
agents would designate the recipient, the mailing address, the number of cold
certificates, and the denomination of the cold certificates. Although the cold certificates were
limited to $10 or $25 increments, sales agents could order multiple cold certificates totaling far
in excess of $25 to be sent to a recipient.




          b. Redemption of Cold Certificates. Next, Keogh would ship, via mail or
courier, the cold certificates to the recipient at the designated address. Along with the cold
certificates, Keogh sent a list of retail stores participating in the Winners Choice program. To





25









 







redeem the cold certificates, the recipient would fill out an order form by selecting a retail
store and the address where Keogh should send the check. The recipient then sent the order form
back to Keogh through the mail.




          c.
Checks. Once the recipient had redeemed the cold certificates, Keogh mailed one or
more checks, also known as “hot certificates,” to the recipient. While each check was written for
$50 or less, Keogh could mail multiple checks totaling far in excess of $50 to a recipient. The
checks issued by Keogh would list two payees: (1) the individual recipient and (2) the retail store
designated by the individual recipient. The individual recipient could then use the checks at the
designated retail store.




     13. LAWSON PRODUCTS directed its sales agents and Keogh to send Winners Choice cold
certificates and checks to the home addresses of the employees of the customers, rather than the
customers’ business addresses, to conceal the fact that LAWSON PRODUCTS and its sales agents were
providing items of value to its customers’ employees. LAWSON PRODUCTS sales agents occasionally
ordered Winners Choice cold certificates and checks in the names of the spouses of the employees of
the customers to conceal the fact that LAWSON PRODUCTS and its sales agents were providing items of
value to its customers’ employees.



     14. After its sales agents placed an order for Winners Choice cold certificates, LAWSON
PRODUCTS redacted the name of the customer from the Winners Choice order forms that LAWSON PRODUCTS
submitted to Keogh in order to conceal the fact that LAWSON PRODUCTS and its sales agents were
providing items of value to the customers’ employees.



     15. From on or about March 11, 1992 through on or about December 15, 2005,
LAWSON PRODUCTS provided approximately $9.7 million in Winners Choice checks to




 









 







employees of its customers in order to induce them to purchase, and to reward the employees for
purchasing, merchandise from LAWSON PRODUCTS on behalf of their employers.




Cavalcade of Awards and LPI




     16. Cavalcade of Awards and LPI were programs in which LAWSON PRODUCTS and its sales agents
allowed employees of their customers to select items for themselves from catalogs that were
produced by LAWSON PRODUCTS. While the Cavalcade of Awards and LPI programs included items, such as
tools, that could be used by customers, the catalogs also contained personal items, such as golf
equipment, electronics, and toys. Employees of LAWSON PRODUCTS’s customers could select items based
upon the amount of “points” or “banque notes” they earned through the amount of purchases the
employees caused their employers to make.



Spike Special




     17. Spike Special was a program offered at certain times of the year in which Drummond
American and its sales agents provided items of value to employees of Drummond American’s customers
if the employees purchased a certain amount of a specific item on behalf of their employers during
the time period that the Spike Special was offered. As with the Cavalcade of Awards and LPI
programs, the Spike Special program allowed employees to select items that could be used for their
employers, such as tools, or personal items, such as golf equipment, electronics, and toys.



     18. In many instances, LAWSON PRODUCTS provided its customers’ employees with income greater
than $600 a year through these Illicit Programs. As a result, LAWSON PRODUCTS was obligated to
issue and file Internal Revenue Form 1099s for these individuals. On occasion, Lawrence Keogh
suggested to LAWSON PRODUCTS’s merchandising department that Keogh




27









 







could issue and file CRS Form 1099s for these individuals on behalf of LAWSON PRODUCTS. LAWSON
PRODUCTS, however, neither issued nor asked Keogh to issue or file IRS Form 1099s for these
individuals.




     19. LAWSON PRODUCTS improperly deducted the cost of the Illicit Programs as business
expenses on its federal tax returns.



     20. On or about March 2, 2004, at Woodstock, in the Northern District of Illinois, LAWSON
PRODUCTS, knowingly caused to be placed in an authorized depository for mail matter, to be sent and
delivered by the United States Postal Service, according to the directions thereon, an envelope
from Keogh in Woodstock, Illinois, containing approximately $1,200 worth of Winners Choice cold
certificates, addressed to the spouse of Ronald Gholdson, an employee for LAWSON PRODUCTS’s
customer Reilly Industries, Inc., at the Gholdsons’ home address in Indianapolis, Indiana.



	 	 	 	 	 	 	 	 	 
	 

	 	AGREED:	 	 	 	 	 	 
	 

	 	For LAWSON PRODUCTS:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 

THOMAS J. NERI
	 	 	 	 

WILLIAM D. HEINZ
	 	 
	 

	 	President and Chief Executive Officer
Lawson Products, Inc.
	 	 	 	JENNER & BLOCK

Counsel for Lawson Products, Inc.	 	 







28












 





Appendix C




UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION




UNITED STATES OF AMERICA,



Plaintiff,



v.



FUNDS CONTAINED IN

LASALLE BANK N.A. TRUST NO.

XXXXXX IN THE NAME OF

LAWSON PRODUCTS, INC.




VERIFIED COMPLAINT FOR FORFEITURE 




     The UNITED STATES OF AMERICA, by PATRICK J. FITZGERALD, United States Attorney for the
Northern District of Illinois, for its verified complaint against the above-named defendant
property, alleges in accordance with Supplemental Rule (G)(2) of the Federal Rules of Civil
Procedure as follows:



     1. This complaint for forfeiture is verified by the attached affidavit of
Special Agent Brian Murphy of the Federal Bureau of investigation, which is fully
incorporated herein.


Jurisdiction and Venue


     2. This is an in rem forfeiture action brought pursuant to Title 18, United States Code,
Section 981(a)( 1)(C) for forfeiture of the funds contained in LaSalle Bank N.A. Trust No. XXXXXX
in the name of Lawson Products, Inc. (the “Funds”). This Court has jurisdiction over this civil
asset forfeiture action pursuant to 28 U.S.C. § 1345 and 1355.



     3. This Court has in rein jurisdiction over the defendant property pursuant to Title 28,
United States Code, Section 13 55(b)(1)(A), as certain of the acts giving rise to this forfeiture
action occurred within the Northern District of Illinois.




 









 








     4. Venue is proper under Title 28, United States Code, Section 1395(b) because the Funds
are found in this district.



     5. This forfeiture action in rem is brought pursuant to Title 18, United States Code,
Section 981(a)(1)(C).



Specific Allegations




     6. There is probable cause to believe that Lawson Products, Inc. committed an offense against
the United States, namely, mail fraud, from in or about 1992 to on or about December 15, 2005, in
violation of Title 18, United States Code, Section 1341. Specifically, Lawson Products, Inc.
provided kickbacks and other illegal rewards to its customers’ employees for purchasing
Lawson Products, Inc. merchandise on behalf of their employers. As a result of this scheme, Lawson
Products, Inc. obtained approximately $30,000,000 to which it was not entitled.



     7. On August 11, 2008, the United States filed an information against Lawson Products, Inc.,
charging one count of mail fraud. On August 11, 2008, Lawson Products, Inc. and the United States
entered into a Deferred Prosecution Agreement. Pursuant to the Agreement, Lawson Products has
admitted the factual allegations of the information and the United States has agreed to defer
prosecution for the period of three years from the date of the Agreement, provided that Lawson
Products, Inc. abide by the conditions and requirements of the Agreement.



     8. Further, pursuant to the Agreement, Lawson Products, Inc. agreed to pay to the United
States of America a monetary penalty of $30,000,000, reduced by any restitution payments Lawson
Products, Inc. made to victims of its scheme. Lawson Products agreed to place these funds in
LaSalle Bank N.A. Trust No. XXXXXX in three annual payments, which are to be accelerated if Lawson
Products, Inc. is sold or merged with another company. The parties agreed that the Funds




 









 







would be subject to forfeiture in a separately tiled civil complaint. Lawson Products agreed to
the entry of a judgment and agreed that the Funds shall be forfeited and disposed of according to
law.




     9. By reason of the foregoing, there is probable cause to believe that the defendant property
constitutes or is derived from proceeds traceable to violations of Title 18, United States Code,
Section 1341 (mail fraud), and is subject to forfeiture pursuant to Title 18, United States Code,
Section 981(a)(1)(C).



     WHEREFORE, the UNITED STATES OF AMERICA prays:



     A. That the defendant property be proceeded against for forfeiture and condemnation, that a
warrant of seizure and monition issue and that due notice be given to all interested parties to
appear and show cause why the forfeiture should not be decreed; and



     B. That the court adjudge and decree that the defendant property be forfeited to the United
States and disposed of according to law.



	 	 	 	 	 
	 	Respectfully submitted,





PATRICK J. FITZGERALD

United States Attorney

 	 
	 	By:  	s/Brandon D. Fox
 	 
	 	 	BRANDON D. FOX 	 
	 	 	Assistant United States Attorney 219
South Dearborn, Room 500 Chicago,
Illinois 60604
(312) 353-5277 	 
	 




3









 





NORTHERN DISTRICT OF ILLINOIS




ss
COUNTY OF COOK


AFFIDAVIT OF BRIAN MURPHY 




     BRIAN MURPHY, being duly sworn under oath, deposes and states as follows:



     1. I am a Special Agent with the Federal Bureau of Investigation in Rolling Meadows,

Illinois. I have been employed in this capacity for approximately 17 years.



          As part of my duties, I have participated in investigations of individuals involved in alleged
criminal violations, including mail fraud, wire fraud, and bribery offenses. Through my training
and experience and discussion with other law enforcement officers, I am familiar with the methods
and practices used by individuals involved in violations of these and other federal and state law
as it relates to their financial affairs.




     3. I have read the complaint in this matter. The facts alleged are true and correct to the
best of my knowledge and belief based upon my own personal knowledge as well as information I have
received from other agents, persons, and documents.



     4. I declare under penalty of perjury under the laws of the United States of America that
the foregoing is true and correct.




	 	 	 	 	 
	 
	 

	 	 

BRIAN MURPHY, Special Agent 
Federal
Bureau of Investigation
	 	 






SUBSCRIBED and SWORN to before me


this
                    
day of
                                        



                                                                           




                                                            




               NOTARY PUBLIC




 









 





APPENDIX D




	 	 	 	 	 	 	 	 	 
	Moog, Inc.
	 	$	110,530	 	 	 	 	 
	Vertellus
	 	$	97,760	 	 	07  CR 235
	Silberline Manufacturing
	 	$	41,195	 	 	 	 	 
	Ada S. McKinley Community Services
	 	$	28,625	 	 	07  CR 234
	US Steel
	 	$	29,475	 	 	 	 	 
	International Paper
	 	$	27,625	 	 	 	 	 
	Wesley Commons
	 	$	23,700	 	 	 	 	 
	Cumming, Inc., Nelson Filter Division
	 	$	23,325	 	 	 	 	 
	Caesar’s Palace
	 	$	22,925	 	 	 	 	 
	ATC/Vancom
	 	$	22,000	 	 	 	 	 
	Veteran Affairs Medical Center, Buffalo, NY
	 	$	21,875	 	 	 	 	 
	IGI Labs
	 	$	21,550	 	 	 	 	 
	Mittal Steel
	 	$	21,400	 	 	 	 	 
	Victaulic
	 	$	21.375	 	 	 	 	 
	Wheatland Tube
	 	$	20,400	 	 	 	 	 
	Humboldt Utilities/Wastewater
	 	$	19,625	 	 	 	 	 
	United Technologies
	 	$	19,475	 	 	 	 	 
	ACW Management
	 	$	18,325	 	 	 	 	 
	Maine Medical Center
	 	$	16,850	 	 	 	 	 
	Hamilton college
	 	$	15,675	 	 	 	 	 
	Town of Clay
	 	$	15,575	 	 	 	 	 
	Michael Stores
	 	$	15,195	 	 	 	 	 
	Bowdoin College
	 	$	14,775	 	 	 	 	 
	Lenape Regional High School District
	 	$	13,525	 	 	 	 	 
	General Motors – Electromotive Division
	 	$	12,075	 	 	 	 	 
	Foremost Farms, USA Coop
	 	$	12,000	 	 	 	 	 
	Unit Corp
	 	$	11,160	 	 	 	 	 
	City of Long Beach
	 	$	4,575	 	 	07  CR 214
	Spaulding County Corrections
	 	$	10,550	 	 	 	 	 
	Mount Vernon Mills
	 	$	10,100	 	 	 	 	 
	Illinois School District U-46
	 	$	9,875	 	 	 	 	 
	Marymount University
	 	$	7,555	 	 	 	 	 
	Logan County (IL) Housing Authority
	 	$	7,475	 	 	 	 	 
	Macon County (IL) Highway Department
	 	$	4,525	 	 	 	 	 
	Mattoon (IL) School District
	 	$	4,300	 	 	 	 	 
	Chicago Heights (IL) Fire Department
	 	$	3,496	 	 	07  CR 232
	Village of Hazel Crest, IL
	 	$	3,600	 	 	07  CT 232
	Orland Park (IL) Park District
	 	$	1,495	 	 	07  CR 232
	Lincoln (IL) High School
	 	$	3,400	 	 	 	 	 
	Village of Ramsey, IL
	 	$	3,225	 	 	 	 	 
	St. Mary’s Hospital (Decatur, IL)
	 	$	3,225	 	 	 	 	 
	City of Blue Island, IL
	 	$	3,125	 	 	07  CR 234
	Dayton Metropolitan Housing Authority
	 	$	3,030	 	 	 	 	 
	Village of New Lenox, IL
	 	$	2,615	 	 	07  CR 232
	Village of Rosemont, IL
	 	$	1,200	 	 	 	 	 
	City of Elgin, IL
	 	$	1,050	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total
	 	$	806,431