INDUSTRY NEWS: V13N9

2010 S.H.O.T. SHOW REVIEW

By Robert M. Hausman

While the weather outside was mostly rainy and cool, indoors at the industry’s annual trade show, the atmosphere was hot with activity during the 2010 S.H.O.T. Show.

Attendance was quite strong this year, standing at 58,444, only several hundred shy of the show’s all-time record set at the 2008 Las Vegas show and more than 11,000 above last year’s edition in Orlando. Despite President Obama’s repeated denunciations of the city, the opulence of Vegas is what Americans (and those coming from other lands and continents) want, and proves to be the ultimate attendee draw.

The show’s 1,633 exhibitors completely filled the Sands Expo & Convention Center, reaffirming its stature as the world’s premier exhibition of its type. Attendance was so strong that at times it was hard to walk through the aisles. The event encompassed 700,000-net-square-feet, spanning the convention center’s halls and spilling over into the Venetian Hotel’s meeting rooms.

Some exhibitors employed a variety of methods to entice attendees to visit their space, such as appearances by famous athletes, western quick draw artists, firearm jugglers, pro-models, etc.

From the opening to its closing, the show’s mood was upbeat. After all, much of the industry had just come off one of their best years ever – with the Obama stimulus working its magic. However, not all the news is good. Marketers of sporting-type firearms, particularly over & under and double-barrel shotguns, continue to face a bleak future due to the decline in hunting participation and the bad economy.

News came during the show, that K.B.I., Inc./Charles Daly would be closing and filing for bankruptcy. Owner Michael Kassnar said his inventory, building and the Daly name were all up for sale and invites interested parties to contact him.

There was a profusion of AR- style rifles and related accessories on display in seemingly every aisle. Hoping to capitalize on the gun-buying panic of 2009, many of these firms first entered the market last year. Undoubtedly, some of them won’t be seen at next year’s show as the rush for black rifles is over. Both .223/5.56 and 7.62x39mm ammo is now readily available and prices have come down significantly from the high prices of early last year.

Significant new firearm products were few and far between. One exception was Kahr Arms’ announcement of the only new California-approved .380 Auto caliber pistol. There were new ammunition offerings designed for optimum results with the highly-popular Taurus Judge revolver. Blackhawk! Warrior Wear had no fewer than 60-new products on display at their booth.

On the regulatory side, during a briefing to licensed importers sponsored by the FA.I.R. Trade Group, ATF Deputy Director Kenneth E. Melson made a surprising statement seemingly against the imposition of greater gun control.

Addressing the gun trafficking problem in Mexico, Melson noted that while Mexican gun laws only allow ownership of basic firearms (such as a 12 gauge shotgun, .22 cal. rifle & .38 caliber revolver), all manner of sophisticated weaponry have been seized from drug trafficking criminals. Considering the quantity of arms seized in that country, Melson commented that such arms seizures “show what strict gun control results in.”

However, ATF is not turning soft. The Bureau is still holding firm on such issues as generally requiring firms who perform ancillary operations on firearms during their manufacture, such as bluing, Parkerizing, etc., to hold a firearms manufacturer’s license. Nor is ATF changing its stance that barrels for otherwise non-importable firearms can no longer come into the country. Some discussion was held by the F.A.I.R. Trade Group of initiating litigation against ATF over this latter issue, after ATF representatives left the meeting room.

DeYoung Assumes ATK’s Top Post

Mark DeYoung, 51, is appointed President and Chief Executive Officer of Alliant Techsystems, the producer of Federal Ammunition. He will also serve on the company’s board of directors. He was formerly President of ATK’s Armament Systems group.

DeYoung began his career with the Hercules Aerospace Company acquired by ATK in 1995. In 1999, he was named President of ATK’s Lake City Ammunition business and later led the company’s commercial ammunition business, acquired in 2001.

Ongoing Investigation at Sabre Defence

Editors note: SAR received the following statement from Sabre Defence Industries LLC just in time for our print deadline.

NASHVILLE, Tenn., February 17, 2010 – Sabre Defence Industries LLC, an established manufacturer of firearms and weapon systems to the United States military, state and local law enforcement, and worldwide commercial markets, is fully cooperating with federal agents in an ongoing investigation into potential criminal misuse of certain non-saleable firearms produced by Sabre and purchased by some its employees. Sabre has received information that employee(s) involved in inventory control may have obtained and re-sold some items without appropriate licenses. Sabre is and has been cooperating with federal agents in this investigation. Sabre has more than 120 employees in its Nashville plant. Sabre’s biggest customer is the United States military. Sabre products used by United States armed forces in Iraq and Afghanistan include .50 caliber barrels and components of the M2 Browning machine gun, 7.62 mm mini-gun barrels, and M-16A3 and A4 rifles. Sabre is the only non-public company in the world ever to be awarded a contract for a military spec M-16 rifle. Sabre is dedicated to continuing to provide high quality firearms to the United States military, state and local law enforcement, and Sabre’s commercial customers.

The Year Ahead

Looking ahead, the industry’s fortune over the next year could probably best be summed up through remarks made by NSSF President Steve Sanetti during the opening night State of the Industry Dinner.

Using the analogy of a foreman querying the morale of laborers at a rock quarry, Sanetti recounted how the foreman asked one worker what he was doing, to which the weary worker who was trudging through his labors replied, “I’m busting up rocks.” Asking the same question to another who was smiling broadly as he energetically went about his task brought the foreman the response, “I’m building a cathedral.” The moral: Life is what you make it.

Perhaps this story best sums up what we can expect from the business year ahead. As Sanetti concluded, “Working together, staving off the challenges, we will all make that difference. We’re building that cathedral.”

Next year’s SHOT Show is slated for January 18-21, 2011 at the Sands Expo & Conference Center in Las Vegas.

Arrests Mar SHOT Show: FBI Stings Industry

The Federal Bureau of Investigation used the setting of the 2010 S.H.O.T. Show to arrest 21 industry executives who allegedly fell for an undercover operation in which they agreed to pay illegal kickbacks to the defense minister of the west central African nation of Gabon in exchange for equipment contracts worth $15 million.

Actually, the industry executives were lured into a 2-1/2 year long scam perpetrated by the F.B.I., which resulted not in the award of lucrative contracts, but rather in their arrests. Probably the most high-profile arrest made was that of Amaro Goncalves, a Vice-President of Sales for Smith & Wesson. A federal grand jury has alleged that Goncalves agreed to pay a 20% kickback to close the sale of 1,825 handguns for use by the presidential guard of Gabon (the country’s relatively small population and its oil and mineral resources have helped make it one of the wealthier nations of Africa).

Goncalves and the others stand accused of violating the Foreign Corrupt Practices Act, which prohibits bribery in seeking overseas business. Goncalves’ employer has not been charged, and neither has any other company. Smith & Wesson said in a written statement that it has “no information beyond what has been reported” and is “prepared to cooperate fully with law enforcement.”

The arrests created a stir among attendees at the SHOT Show. They occurred the day before the show opened, while exhibitors were setting up their displays. Those involved were summoned to a meeting room by an FBI operative, supposedly to discuss the African contracts. Once inside, the doors to the room were locked and an announcement was made that all those inside were under arrest.

Those charged were from companies in the U.S., Israel, U.K. and Peru. The Justice Dept. called the case the largest single investigation and prosecution of individuals in the history of the 1977 Foreign Corrupt Practices Act. It also is the first large-scale use of an undercover operation in enforcing the corrupt practices act.

In a briefing to reporters, Assistant Attorney General Lanny A. Breuer, head of the Justice Dept.’s Criminal Division, said there are more than 140 open investigations under the act. “Corrupt payments to foreign officials to obtain or retain business erodes public confidence in our free market system and threaten to undermine foreign governments,” said U.S. Attorney Channing Phillips.

However, what the government does not highlight is that the idea for the requirement of the corrupt payments was initiated by the government itself, not the industry.

None of the gun industry executives arrested entered pleas during initial appearances before a U.S. magistrate. Most were ordered to surrender their passports. The executives were dealing with two FBI agents, one who was posing as a representative of Gabon’s defense minister, and the other posed as a procurement officer for Gabon’s Ministry of Defense.

Charges filed against some of the executives include conspiracy to engage in money laundering, which carries a possible 20-year prison sentence. The maximum sentence for violating the corrupt practices act is 5-years.

Among those charged was the chief executive of Protective Products of America, Inc., R. Patrick Caldwell, who was previously with the U.S. Secret Service for 27-years and had been in charge of the division for the vice president’s protection. Protective Products filed for bankruptcy protection shortly after the incident.

It is reported that an unidentified former firearms industry executive arranged the meeting between the arms sales representatives and the undercover FBI agents. The agents told the industry representatives that in order to win a contract with Gabon, they had to add a 20% “commission” to price quotes, 10% of which would go to the purported minister of defense.

In the case of Smith & Wesson, as requested by the FBI, Goncalves allegedly gave price quotes for two transactions (one was a small “test” deal to show the defense minister that he would personally receive the 10% bribe), including one that had its price inflated by 20%, the Justice Dept. said. The defendants sought to obtain contracts for the sale of products ranging from grenade and tear gas launchers to handguns, ammunition, body armor and explosive detection kits. Some 14 search warrants were executed in the U.S. and 7 in the U.K. in connection with the case.

Those indicted were: Daniel Alvirez and Lee Allen Tolleson of ALS Technologies, Inc. of Bull Shoals, AR; Helmie Ashiblie of Woodbridge, VA; Andrew Bigelow of Sarasota, FL; R. Patrick Caldwell and Stephen Gerard Giordanella of Sunrise, FL; Yochanan Cohen of San Francisco; Haim Geri of North Miami Beach, FL; Amaro Goncalves of Springfield, MA; John Gregory Godsey and Mark Frederick Morales of Decatur, GA; Saul Mishkin of Aventura, FL; John and Jeana Mushriqui of Upper Darby, PA; David Painter and Lee Wares of the U.K.; Pankesh Patel of the U.K.; Ofer Paz of Israel; Israel Weisler and Michael Sachs of Stearns, KY; and John Benson Wier III of St. Petersburg, FL.

Oakland, CA Passes Ammunition Record-Keeping Law

Oakland is the latest California city to pass an ammunition sale record-keeping law. Passed by unanimous vote of the city council, the measure dictates that those who buy ammunition have to provide identification and thumbprints. Retailers have to keep records of who they sold ammo to and have to conduct criminal background checks on employees dispensing ammunition. The law also mandates how ammunition is to be stored and displayed by retailers.

“Fill in the Blank” Gun Laws

State legislators are increasingly turning to “fill in the blank” pre-prepared laws when introducing legislation, according to a report in The Washington Times.

Groups from both ends of the political spectrum offer lawmakers “model” legislation requiring a minimal amount of tailoring from state-to-state. The non-partisan Council of State Governments even issues an annual volume of “Suggested State Legislation” that this year includes templates for 54 bills.

Want to make it harder for spyware to secretly collect information from computers? See Page 50. Want to ban schools from collecting students’ facial-recognition data without a parent’s permission? Go to page 36. Politicians can pick an issue, fill in the blanks and then claim credit for devising the bill that addresses an issue.

Model legislation often intersects with the legislative goals of advocacy groups. For example, the paper reports that the Council on State Governments’ guide includes a measure based on a 2008 Florida law that says employers can’t prohibit workers from storing guns in cars parked in company lots. The measure, endorsed by the NRA, has spawned similar laws in Arizona, Louisiana and Utah.

ATF Sting Nets Arrests

By word-of-mouth, news began to spread around Rockford, IL beginning last April that the managers of a new resale shop were willing to purchase firearms, stolen property and narcotics. Soon, business was brisk.

During the next six months, the managers of “Tony Tones All Thangs Fine” purchased more than 50 firearms, including a dozen sawed-off shotguns, most of them allegedly sold illegally either by individuals who were previously convicted felons or by individuals, who believed they were selling firearms to convicted felons.

When the shop closed at the end of October 2009, local and ATF law enforcement removed the hidden video equipment that had allowed them to view and secretly record individuals who had used the back office room of All Thangs Fine (whose initials spell ATF) to make illegal sales of firearms and narcotics during the six-month undercover investigation. So far, 18 individuals have been arrested.

The shop was managed by two cooperating persons, both of whom had previously been convicted of a felony. Officers operated the hidden video equipment from a back room of the store. The store managers wore transmitters to record conversations with customers.

Sturm, Ruger Moves to Strengthen Export Sales

As part of an apparent move to increase its presence as an exporter, Sturm, Ruger & Co., Inc. has promoted Kim Pritula to the position of Director of ATF/Export Compliance and Security.

A Ruger employee for 28 years, Pritula was credited with developing Ruger’s ATF and Export Compliance programs and also serves as the Chairperson of the NSSF Export Committee, working with SAAMI on U.N. small arms issues related to global exports. In her new role, she will also assume additional responsibilities related to the physical security of Ruger’s manufacturing facilities.

In early January, Robert W. Gates II joined Ruger as Director of Law Enforcement, Military and Export Sales. This move gives Ruger additional manpower to pursue opportunities in the three aforementioned arenas. These arenas had never proved to be particularly fruitful for the company in the past, but the gunmaker seems to be making another effort.

A.R.M.S. Wins Suit

A $1.8 million judgment has been won by Atlantic Research Marketing Systems, Inc. (A.R.M.S., Inc.) against Troy Industries, Inc. in a federal lawsuit, according to a published report. The suit alleged that Stephen Troy stole trade secrets from, and breached his fiduciary responsibility to A.R.M.S., Inc.

The case revolved around the design of A.R.M.S., Inc.’s Mil-Std 1913 Picatinny modular free-float rail system/forend rail tube/handguards for the AR-15/M16/M4/M4A1 series arms. There is also reportedly a second separate patent infringement lawsuit filed by A.R.M.S., Inc. against Troy involving the A.R.M.S., Inc. Modular Sleeve Yoke rail for the same series of arms regarding the method of attachment to the barrel nut.

Stephen Troy had worked for A.R.M.S., Inc. for seven months several years ago. The suit alleged that Troy later used A.R.M.S., Inc.’s trade secrets to develop a proprietary handguard system that was marketed by Troy Industries.

After a two-week trial in the Massachusetts Federal District Court, a nine member jury returned a verdict against Troy. Witnesses for A.R.M.S. during the trial included two representatives of the U.S. military. A.R.M.S. claims to have more than 40 National Stock Numbers in service to the U.S. and foreign militaries.

The author publishes two of the small arms industry’s most widely read trade newsletters. The International Firearms Trade covers the world firearms scene, and The New Firearms Business covers the domestic market. Visit www.FirearmsGroup.com. He may be reached at: FirearmsB@aol.com.