PORTLAND, Ore. (KOIN) — One of the top online sellers of music CDs turned out to be laundering money from proceeds he made from a counterfeit operation, according to federal investigators.
The investigation into Michael Hargreaves began in August 2014 when the U.S. Department of Homeland Security Investigations learned that Hargreaves was running an online business that was selling and distributing counterfeit music CDs.
The 60-year-old suspect was living in the United Kingdom when HSI learned about the investigation, according Brian Widener, the Assistant Special Agent in Charge of HSI in Oregon.
“For us, this is a priority area,” Widener said about counterfeit investigation. “Following the money is one of the reasons why we got involved.”
Initially, agents didn’t know Hargreaves’ true identity. Widener said Hargreaves was using the name “Martin Donald” as an alias to run the online store “Media Mine U.S.”
It was the Recording Industry Association of America that first discovered anomalies with Hargreaves’ online business. Using Amazon.com as a host site, agents determined “Media Mine U.S.” was advertising authentic CDs, but “high quality” counterfeit CDs were being sent to unsuspecting customers.
Widener said special agents determined Hargreaves made an estimated $2 million selling counterfeit CDs.
“For us, that’s a substantial amount of money that is lost revenue to businesses in the U.S.,” Widener said.
When RIAA looked into the sales, they determined that Hargreaves was one of the top sellers of CDs on Amazon; however, he was not an authorized distributor. Investigators learned that “Media Mine U.S.” had nearly 200 titles for sale on its website.
Investigators purchased several CDs from “Media Mine U.S.” and determined that every single one they purchased was counterfeit, despite being advertised as real. Officials were able to determine that Hargreaves sold an estimated 186,500 counterfeit CDs on Amazon.com. Agents determined the scheme had a global effect because customers in Germany, France, Canada and the U.S. all bought fake CDs.
“From all outward appearances, [Media Mine U.S ] was completely legitimate, but the problem was [the CDs] were all counterfeit and the money was not being filtered back into a legitimate business,” Widener said.
Piracy and the music industry
The sale of counterfeit CDs is having a damaging effect on the music industry, according to Marcus Cohen, the Vice President of Anti-Piracy Field Investigations for the Recording Industry of America.
“What you have to keep in mind is that every purchase that’s made from this particular defendant is an act of consumer fraud,” Cohen said. “Every dime from the sale from this defendant’s [website] would go to the defendant. Nothing went back into the industry.”
In 1999, about the time when NAPSTER was launched, the U.S. music industry saw sales of $14.7 billion, according to Cohen. Last year, in 2016, the U.S. music industry saw sales of $7.7 billion.
“When we look at piracy as a whole, the impact has basically been to cut the music industry in half,” Cohen said. “The damage is enormous.”
Agents learned that most, if not all of the CDs, Hargreaves was selling had been purchased from suppliers in China. The music industry is concerned with the level of professional counterfeit operations that are being conducted overseas.
“Not one dime of [counterfeit sales] goes back into the legitimate industry, so all of the people who work behind the scenes, as well as the artist that’s there creating the work, do not get any compensation whatsoever for the sale of any counterfeit good,” Cohen said.
Many of the CD manufacturing plants have the ability to create replica CDs, CD cases and art work that is nearly identical to authentic CDs.
“[Media Mine U.S.] went to a lot of effort to make sure that it was designed to confuse the consumer into believing they were purchasing a legitimate item,” Cohen said.
According to Cohen, one of the misnomers is that physical product, whether it be vinyl or CDs, is disappearing. However, in 2016, physical product represented 22% of the music industry.
Agents close in
HSI agents learned that in March 2016 Hargreaves was traveling to Los Angeles. He was arrested when his airplane touched down at LAX.
On March 29, 2016 a grand jury indicted Hargreaves with a charge of international money laundering. Hargreaves pled guilty on June 22, 2016.
Hargreaves was sentenced to 2 years in federal prison on Nov. 12, 2016 and was ordered to serve 3 years of supervised release.
Widener and Cohen both pointed out counterfeit products, especially CDs, are very difficult to spot.
To avoid falling victim of a counterfeit product they offered the following tips:
- Purchase products from authorized dealers
- Be careful of making purchases from unknown, overseas retailers
- Watch out for “too good to be true” pricing on products
- Be on the lookout for misspelling or other typos online.
For reporting unsafe products: File a Report with the Consumer Product Safety Commission
For criminal activity related to drugs, medicines, food and other Food and Drug Administration regulated products: Report Suspected Illegal Activity to the FDA
Report suspected intellectual property rights violations to Homeland Security Investigations using the: HSI Tip Form
Report illegal trade activity related to intellectual property rights infringement to U.S. Customs and Border Protection using the: CBP e-Allegations Form
KOIN 6 News reached out to Amazon, but a spokesperson said they do not comment on pending litigation. When informed that the case against Hargreaves is fully adjudicated, a spokesperson never responded to our request for a statement.
Ed Robinson, the criminal defense attorney who represented Hargreaves, spoke to KOIN 6 News on the phone May 25 and said that Hargreaves has accepted responsibility for his actions. Robinson declined to offer any additional information about the case and said that once Hargreaves completes his prison sentence, he would return to the United Kingdom.