Jerry Azarkman likes to say he built Curacao, a Pico-Union retailer that largely caters to the Latino market, into a $350 million-a-year business based on trust. After all, Curacao has grown to an 11-store chain by extending credit to customers who might not qualify for credit cards.

Now, the company claims, its trust has been betrayed – not by a customer, but by one of its own.

ADIR International, the company that does business as Curacao, has alleged that an audit conducted last month found that its former purchasing manager bilked the company out of $1.5 million.

The company claims Miguel Vega, who approved Curacao’s bills from vendors, set up a false-front business that acted as a middle man between the retailer and its suppliers. Vega’s business, it alleges, bought goods at discounted prices and resold them to Curacao at steep markups – with Vega approving those invoices at Curacao and pocketing the profits.

The principals in the dispute aren’t talking – ADIR’s lawyers declined to comment and Vega could not be reached – but the hit allegedly taken by the retailer, which has stores throughout Southern California and Arizona, is not uncommon among businesses of its size.

One reason small and midsize companies are most vulnerable to fraud, said David Wall, president of the Association of Certified Fraud Examiners’ L.A. chapter, is a reliance on trust that does not exist at big corporations that have more formal systems for financial controls.

“A control procedure can be something as simple as having the boss balance the checkbook every month rather than allowing the bookkeeper to do so,” Wall said of small businesses. “So those small companies operate in an environment of trust, where they are reliant on the trustworthiness of key personnel. In large corporations, trust is not liberally dispensed; it’s carefully measured.”

Major markups

Curacao’s L.A. roots date to the 1970s when Azarkman said that he moved to California from Israel with only $20 in his pocket.

He managed to scrape together enough money to buy merchandise from electronics and appliance wholesalers downtown, selling them door to door, primarily to Latino immigrants.

Azarkman was soon joined by his brother, Ron, and eventually they opened what was then called La Curacao in the heavily Hispanic neighborhood of Pico-Union in 1983.

Jerry Azarkman, named Ernst & Young’s Los Angeles Entrepreneur of the Year last year for building Curacao, is still a board member but handed the reins of the business to his brother, who serves as chief executive of the 2,000-employee company.

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