About a month ago, Kolfage formed a business called America First
Medical, which offers on its website and in social media pitches to
broker large-volume sales of high-grade masks known as N95s. He said he
charges about $4 each – several times the pre-pandemic prices but a few
dollars less than some hospitals, nursing homes and first responders are
now paying.
Though he hasn’t yet found buyers, Kolfage says he’s found masks all
over the world, including stockpiles hidden away in warehouses in Japan
and Eastern Europe. If a deal goes through, he will collect a commission
between 1% and 3%, depending on the size of the order, he said.
He said he’s performing a public service. “We’re the ones out there
kissing the frogs and doing all the work that these hospitals and others
can’t do,” Kolfage, 38, told Reuters. “We’re the ones making these
connections. If the hospital wants to pay the money, that’s up to them.”
Kolfage aims to be one of the new mask middlemen. As the novel
coronavirus has spread around the world, an improvised, chaotic market
has sprung up. Brokers claim to have access to tens or even hundreds of
millions of masks — generally outside the normal supply channels and at
prices much higher than the former retail price of about $1 each.
High-volume deals – even with low-percentage commissions – could
bring big paydays for the middlemen. And these brokers could help ease
critical shortages if they succeed in encouraging manufacturers and
traders sitting on scarce supplies to sell them where they’re needed.
But the frenzy also has broken down standard quality controls,
opening the market to an influx of masks of uncertain origin and
effectiveness, medical suppliers and healthcare industry officials say.
As supplies run ever lower, hospitals and nursing homes are being
deluged with offers, and some say they have no choice but to pursue the
promising leads while hoping to sidestep the scams.
The hot commodity in the mask trade is the N95 device, sturdier than
surgical masks and better able to filter out much smaller particles such
as the coronavirus. Health experts say lower-quality or ill-fitting
masks are more likely to let airborne pathogens through, exposing
healthcare workers to a virus that has killed nearly 39,000 people
across the globe and infected close to 800,000.
Reuters spoke to five new mask brokers, three in the United States
and two in China, which is the world’s largest mask manufacturer and
accounts for about half of global production. These middlemen described a
wild marketplace, in which they seek to quickly connect sellers and
buyers before competitors can move in and sell stockpiles out from under
them.
Jake Mei, an owner of a pump supply firm in Houston, Texas, said in
one LinkedIn posting that he had 8 million masks, two models made by
industrial giant The 3M Company, for sale, at $4.10 to $4.20 a mask.
“Good price and quick delivery!” he promised. In an interview, however,
he said he’s having trouble finding inventory.
None of the middlemen would disclose suppliers or customers, and
Reuters could not independently confirm their access to vast stashes.
All said manufacturers were setting base prices, which they said
accounted for the bulk of recent price increases.
Kolfage told Reuters that the masks he finds – which he says are not
from China – are of good quality, certified by the U.S. Food and Drug
Administration. And he’s not price gouging, he said, but rather charging
a commission far lower than other brokers. Reuters is aware of prices
higher than his, including those that New York Governor Andrew Cuomo
recently said had risen from 85 cents to $7 apiece.
“This is just an impossible situation to manage,” Cuomo said publicly
on March 22, ‘describing a bidding war over medical equipment thats
pitting states against states, in which prices can rise within 20
minutes.
On March 23, President Donald Trump signed an executive order
prohibiting hoarding and price gouging of medical supplies, and Attorney
General William Barr said the Justice Department had launched a
national task force to investigate such schemes.
If you “have a big supply of toilet paper in your house, this is not
something you have to worry about,” Barr said at a White House briefing
that day. “But if you are sitting on a warehouse with masks, you will be
hearing a knock on your door.”
A U.S. Department of Justice spokesman declined to comment on the
mask trade. The FDA did not comment, except to describe how it has eased
some requirements during the crisis and opened the door to sales of
masks that meet other countries’ standards. Betsy Lordan, a Federal
Trade Commission spokeswoman, said there is no federal law against price
gouging, and the FTC has not pursued such cases in past disasters.
Christian Fjeld, who worked on FTC legislation as a staffer in both
the House and Senate, says a patchwork of state laws aim to stop
companies from charging prices generally defined as “excessive” or
“unconscionable.”
But “they are squishy terms,” said Fjeld, now vice president of ML
Strategies, a Washington lobbying firm. If high prices are being set by
suppliers in a scarce market, he said, it would be tough to make a case
that the sellers are gouging.
‘STEALTH’ COMPANIES, COUNTERFEITERS AND PROFITEERS
Some mask brokers appear to be counterfeiters or selling substandard
knock-offs, according to a major manufacturer, 3M of St. Paul,
Minnesota, and a major hospital supplier, Premier Inc, of Charlotte,
North Carolina.
Chaun Powell, Premier vice president of strategic supplier
engagement, said some pitches from suppliers, offering masks by the
millions of uncertain provenance, have struck the company as highly
suspicious.
“Our stealth company is currently supplying bulk quantities” of N95
masks, said one pitch forwarded to Premier. “If you know of any buyers
who would be interested, (the supplier would) love to cut you in on the
transactions.” Premier declined to disclose the sender’s name.
Powell said his company has issued warnings to its customers about
pop-up brokers. But he said some clients are considering these offers
anyway, placing orders and hoping for the best.
“It really demonstrates the level of desperation in our supply
chain,” he said. “They’re trying to evaluate which is better — to have a
faulty mask or no mask.”
The pitches from mask brokers have poured in at an increasing rate as the shortage has grown critical, Powell said.
“In the past five days we’ve had 70 different solicitations,” he said
on March 24. “It seems everybody has a friend or a cousin who knows
somebody in China who is producing these masks.”
3M recently issued a public statement warning that products being marketed under its name could be counterfeit.
“3M has strict quality standards, and therefore products that have
missing straps, strange odors, blocked valves, misspelled words, etc.
are likely not authentic 3M respirators,” a company statement said.
One mainstream distributor said that legitimate 3M products also are
being diverted out of normal channels by manufacturers or others who
want to profit from runaway prices. “The question is, how did the stuff
get diverted in the first place?” said Michael Einhorn, president of
Dealmed, a supply company in Brooklyn, New York. “There’s something
fundamentally wrong with the supply chain.”
“A million people in their garage” seem to have access to the
products when authorized distributors do not, Einhorn said. “They’re
flipping it to a guy, who’s flipping it to another guy. By the time it
ends up in a hospital, 10 people have touched it and made money.”
3M said it has not raised its prices in the pandemic but says it
can’t control what others are charging. On March 25, 3M Chief Executive
Officer Mike Roman sent a letter to Attorney General Barr and other
officials saying the company wanted to help crack down on counterfeiters
and profiteers.
Kolfage and other brokers told Reuters they are running clean
operations. Kolfage said buyers’ funds will be held in escrow by a law
firm and the products inspected by an independent verification firm
before any transaction closes.
SKIRTING SKETCHY OFFERS
The impromptu market thrives on scarcity. Two weeks ago, leaders of a
trade group for nursing homes said thousands of their members were
about to run out.
“There just isn’t enough out there,” said Dr. David Gifford, chief medical officer at the American Health Care Association.
A survey by Premier released last Wednesday showed that 25% of
hospitals that responded said they were down to less than a day’s supply
of masks.
The chaotic market compounds the challenges faced by besieged
hospitals such as Holy Name Medical Center in Teaneck, New Jersey.
Twenty-two Covid-19 patients have died at the facility, which now has
139 patients presumed to have the virus, according to hospital figures
as of Sunday.
Staff members have been forced to go outside their normal supply
chains to keep medical gear in stock, according to Adam Jarrett, chief
medical officer.
One recent shipment of 1,000 masks turned out to be substandard and
lacked FDA certification. The vendor agreed to replace them with good
ones, he said.
Jarrett said his staff has been able to find enough to keep up a four-day supply while avoiding sketchy offers.
“Anyone who we think may have a product, we are chasing it down,” he
said. “We’ve seen offers of a million masks, but you’ve got to buy all
million, at $9 each”? or about nine times the pre-crisis level. “There
are absolutely unscrupulous people out there doing bad (stuff), but
we’ve been smart enough to steer clear of those.”
In non-emergency situations, manufacturers are required to submit
lengthy applications to receive FDA certification, including test
results and engineering drawings.
Given the shortage, the FDA recently said it would not object to the
sale of masks for medical purposes that come from a variety of other
countries even though they are not certified to meet U.S. standards.
‘LIKE THE STOCK MARKET’
The new mask brokerage business has roots abroad, where manufacturers
are setting the base price and traders are snapping up scarce supplies.
An executive at a Shanghai trading firm said some traders there are
sitting on stockpiles of tens of millions of masks. Those that are
N95-standard and FDA-approved are “the unicorn” that everybody is
looking for.
“These are traders that are basically just hoarding to see if the
price goes up. It’s like the stock market,” said Justin Huang, chief
operating officer of JH Consulting Group. “If they have an inventory
that they got at two dollars, they can sell it now for four, or they can
maybe sell it at five tomorrow.”
Businessman Paul Bhang, from the Chinese city of Hangzhou, said he recently plunged into the mask sales business with a friend.
“A lot of people are not qualified to do this – I’m not qualified,”
he said. But Bhang said he needed the money and believes he can connect
factories directly with buyers.”Whatever they produce daily, it’s sold
out,” Bhang said. “The factories don’t care who customers are now.”
“In an ordinary situation,” he said, “we would go and check the
factories and their documents, but now we can only see the photos.”
‘A SELLERS MARKET’
Another newcomer to the mask market is Kolfage.
A U.S. Air Force veteran who lives with his family in Florida,
Kolfage lost his legs and right arm in a rocket attack during the Iraq
war. After owning and selling right-wing news websites, he set up a
fundraiser that capitalized on Trump’s quest to build a barrier on the
U.S.-Mexican border, We Build the Wall
https://www.reuters.com/investigates/special-report/usa-borderwall-business. The effort pulled in $25 million from donors starting in December 2018.
So far, Kolfage has built two wall sections on private land, in New
Mexico and Texas. He said he didn’t take any compensation for a year but
now is now being paid $10,000 a month as president of the nonprofit
running the wall project.
In his new venture, he said, it’s all about speed. On March 3, the
day his website was registered, Kolfage posted a picture on Instagram of
piles of boxes labeled 3M sitting in a warehouse, saying he had 300
million N95s available to ship to the United States.
“…Trying to reach the U.S. government and arm up our docs with the
proper equipment. Message me please,” he wrote, tagging Trump and the
U.S. Department of Homeland Security.
The supplies, Kolfage said, were owned by a wealthy businessman who
wanted to sell the whole lot for $3 each and triple his investment.
“These were in Japan at the airport in Osaka ready to be loaded onto a
plane,” said Kolfage, who according to 3M is not one of the company’s
authorized dealers.
He couldn’t find a buyer fast enough. The opportunity is “long gone,” he told Reuters on Monday.
“It’s their sandbox,” he said of suppliers. “It’s a seller’s market right now on these things.”
https://www.marketscreener.com/PREMIER-INC-14383011/news/Special-Report-The-Mask-Middlemen-How-pop-up-brokers-seek-big-paydays-in-a-frenzied-market-30284473/?countview=0
