Settlement in Whistleblower Lawsuit Against KAP7

San Francisco, November 7, 2023— KAP7 International, Inc. (KAP7) and Bradley Schumacher, President and co-founder of KAP7, have agreed to pay $300,000 to settle a whistleblower lawsuit filed by Phillips & Cohen LLP.  The complaint alleges that KAP7 International, a retailer of water polo swimwear, accessories, and equipment located in Irvine, CA, evaded paying US customs duties on swimwear and water polo equipment manufactured by Crotton S.A. in Spain.

The whistleblower complaint alleges that KAP7 and its supplier, Crotton, engaged in a double-invoicing scheme. Crotton supplied one set of invoices to KAP7 for the calculation of customs duties, but sent KAP7 a second set of invoices with additional “design fees” not included in its customs invoices. As a result, the Department of Customs and Border Protection was not able to include the full value of the goods in its calculation of the import duties that KAP7 owed. The complaint alleges that this enabled KAP7 to reduce its cost of importing manufactured goods by hundreds of thousands of dollars, allowing it to unfairly compete against other companies in the marketplace.

“In order to have a fair playing field for all manufacturers, everybody must pay the same import duties on the same products,” said Stephen Hasegawa, a whistleblower attorney and partner at Phillips & Cohen. “Customs duties also protect United States jobs by ensuring that American manufacturers can compete on a fair basis with foreign manufacturers.”

The Role of the False Claims Act and Whistleblower Protections

The False Claims Act allows private citizens to file “qui tam” lawsuits against companies that are defrauding the government and recover funds on the government’s behalf. Whistleblowers are provided protection against job retaliation under the False Claims Act and given rewards that range from 15% to 25% of the recovery when the government joins the case, and 25% to 30% in cases where the government declines to intervene. In this case, the government did not intervene in the matter.

The whistleblower is a California resident who, through a separate consulting entity, served as an independent contractor for KAP7 from its inception until approximately March 2017.

“It is ironic that KAP7 avoided paying import duties to the United States while touting itself as the provider of the official ball and swimwear of the USA water polo teams,” said Emily Stabile, a whistleblower attorney and partner with Phillips & Cohen. “Our client was brave to come forward and report the alleged customs fraud scheme.”

The court approved the settlement and the parties filed the dismissal of the lawsuit today. The settlement includes KAP7 and Mr. Schumacher’s agreement to pay $300,000, and to pay the full amount of customs duties going forward.

About Phillips & Cohen LLP

Phillips & Cohen is the nation’s most successful law firm representing whistleblowers. The firm’s cases have helped recover more than $12.3 billion in civil settlements and criminal fines. Phillips & Cohen’s experienced attorneys represent whistleblowers in qui tam lawsuits as well as whistleblower claims with the reward programs of the Securities Exchange Commission, the Commodity Futures Trading Commission, and the Internal Revenue Service.

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