Undervalued and Overexposed: Lessons Learned From the Echelon Fitness $2.1 Million Customs Fraud Settlement

Specifically, the US Department of Justice (DOJ) alleged that the company knowingly submitted inaccurate invoices to US Customs and Border Protection (CBP) and failed to include the cost of bundled computer tablets in its declared customs values. 

The settlement, which arose from a qui tam action filed by the company’s former Vice President of Supply Chain, Greg Dahlstrom, is the latest in a growing line of FCA enforcement actions targeting customs fraud, and it carries compliance lessons that importers should internalize given the increased use of the FCA as a means of customs enforcement. 

The Allegations Against Echelon

Echelon, a Delaware limited liability company headquartered in Chattanooga, Tennessee, imports and sells internet-enabled fitness equipment through which customers access live and on-demand workout classes. From September 2019 through January 2023 — a period during which Echelon’s connected fitness equipment was subject to a baseline 4.6% tariff plus an additional 7.5% Section 301 ad valorem duty on Chinese-origin goods — Echelon allegedly understated the value of its imports in two ways, each of which purportedly constituted an FCA violation. Notably, the same merchandise imported today would face substantially higher cumulative duty rates under the second Trump Administration’s expanded tariff regime, magnifying the financial stakes of any undervaluation by an order of magnitude.

First, Echelon supposedly participated “in a duplicate commercial invoice scheme” that underreported the cost of fitness equipment to CBP and fraudulently reduced its duty liability to the United States. Specifically, Echelon’s manufacturer allegedly prepared two commercial invoices for each shipment of exercise equipment, one reflecting the actual purchase price and a second showing a value approximately 25-30% lower. According to Dahlstrom, Echelon submitted the second false invoice with its entry summaries, misrepresenting the value of the imported merchandise. 

Second, Echelon purportedly omitted the cost of computer tablets and liquid crystal display (LCD) screens incorporated into its products when it declared the value of their equipment to CBP. As alleged, because Echelon purchased the tablets and screens from a manufacturer and then shipped them to an assembler for finished goods assembly, these tablets and screens qualified as an “assist” under applicable customs law, and their values should have been included in the declared value to CBP. 

Dahlstrom’s complaint walks through specific entries to illustrate the scope of the alleged undervaluation. For one shipment of smart bikes, the second invoice submitted to CBP allegedly understated the true purchase price by approximately $56,600 and omitted approximately $160,000 in tablet assists — meaning that, on a single entry, the declared customs value was understated by more than $216,000. Applied across hundreds of entries over a roughly three-and-a-half-year period, the cumulative duty loss to the United States was substantial, and the FCA’s treble damages and per-claim penalty regime amplified that loss exponentially.

Notably, Dahlstrom alleged that knowledge of the undervaluation and assist-omission schemes extended to the executive level at Echelon, including its chief executive — an allegation that, if proven, would have squarely satisfied the FCA’s scienter requirement and underscores the individual-accountability risk that the DOJ has increasingly emphasized in customs fraud matters.

Customs Undervaluation: A Recurring Pattern

Echelon is the latest example in the DOJ’s FCA enforcement against double-invoice allegations in recent years.

Recently, the DOJ has increased its FCA enforcement against double-invoicing and undervaluation schemes related to customs fraud. For instance, in April 2025, the DOJ filed a complaint-in-intervention against Barco Uniforms Inc. and its suppliers, alleging a double-invoicing scheme in which false entry summaries for customs transactions included undervalued imported garments, leading to reduced customs duties. The government alleged that Barco continued to underpay customs duties even after a third-party auditor advised the company of the risks and recommended that it review its duty calculations. 

Separately, the DOJ intervened in the civil fraud case against Delta Uniforms, Inc. and its owner after they were convicted for criminal fraud, and the defendants were found liable for more than $1.3 million based on a double-invoicing scheme concerning undervalued imported clothing. There, the foreign manufacturers also prepared two sets of invoices: one “for payment” invoices reflecting the true price and one “for customs declaration” invoices containing a fabricated amount. 

The Echelon case fits squarely within the pattern established by the Delta and Barco Uniform cases, with all three cases demonstrating that double-invoicing claims will continue to be a focus of DOJ enforcement.

The FCA’s Qui Tam Provision Poses Unique Risks to Importers

Under the FCA’s qui tam provision, a private individual (a whistleblower known as a “relator”) may file a lawsuit on behalf of the United States alleging fraud against a defendant. If the case is successful, the relator will receive a share of the recovery. Once the relator brings suit, the case remains under seal while the DOJ investigates the allegations and decides whether to intervene. Historically, the vast majority of FCA cases for which the United States declines to intervene are dismissed. 

In Echelon’s case, the government elected to intervene, reaching a settlement with the defendant and resolving the matter for $2.1 million, with Dahlstrom receiving $420,000 of the settlement proceeds. The publicly filed settlement agreement reflects that the United States accepted the $2.1 million figure as a compromise based on Echelon’s financial condition and identifies a contingent claim of $14.91 million should the company default or enter bankruptcy — an order-of-magnitude indicator of Echelon’s true exposure given the FCA’s treble damages and per-claim civil penalties.

For importers, the Echelon case highlights the particular risks of an insider-whistleblower case in the customs enforcement context: former employees (such as a VP of Supply Chain) often have direct, contemporaneous knowledge and access to relevant documents, such as purchasing records, invoice flows, and customs entry data, making such insider-filed actions exceptionally difficult to defend and correspondingly attractive to the DOJ and to the relators’ bar.

Why This Matters: Compliance Takeaways

Undeclared assists can turn into a big issue. Under 19 U.S.C. § 1401a, the transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States.” If not already part of the price, the value of any assists supplied directly or indirectly by a buyer (importer) to a seller (foreign producer) must also be included in the declared customs value. Assists can include materials, components, or consumables used in the production of the imported merchandise, or even tools, dies, molds, and certain research and development costs. 

In the case of Echelon, the computer tablets or LCD screens shipped together with fitness equipment as part of a packaged product were alleged to be a part of the dutiable value. Importers, especially where connected devices, consumer electronics, and bundled product sets are involved, should ensure that the declared value to CBP reflects the full cost of all components as shipped, not merely the value of the “primary” item.

Double-invoicing is a red flag that attracts qui tam actions and DOJ intervention. Significant discrepancies between the price reflected in a company’s books and records (e.g., accounts payable, purchase orders, wire transfer confirmations) and the price declared to CBP on entry summaries are a strong indicator of fraud. The pattern across the Echelon, Barco, and Delta examples is clear: when two sets of invoices exist, the government treats this not as a bookkeeping error but as evidence of intentional fraud that satisfies the FCA’s scienter requirement. Companies should implement internal audit and customs compliance procedures to ensure that trade compliance personnel have access to the commercial terms negotiated with overseas suppliers and that such terms are accurately reflected in customs entry documents.

Supply chain insiders are well-positioned qui tam relators. Employees in supply chain, logistics, procurement, and trade compliance roles often have access to the documents and transactional data that form the evidentiary foundation of an FCA claim. Companies should maintain clear internal escalation channels, enforce non-retaliation policies, and ensure that concerns raised about customs valuation or invoicing discrepancies receive documented responses. The failure to take internal complaints seriously often becomes the catalyst for a whistleblower to seek external relief, and the FCA’s financial incentives for relators (15–30% of recovery) make that external path highly attractive. 

The FCA’s treble damages and per-claim penalties dwarf traditional customs penalties. The Ninth Circuit in Island Industries, Inc. v. Sigma Corp., 151 F.4th 1003 (9th Cir. 2025), affirmed a $26 million judgment (trebled from approximately $8 million in damages, plus civil penalties) against an importer that had knowingly misclassified pipe fittings to avoid antidumping duties. Critically, the Ninth Circuit held that 19 U.S.C. § 1592 — the traditional customs enforcement statute — does not displace the FCA with respect to customs enforcement. Rather, the court found that the two statutes operate in parallel: Section 1592 is not an exclusive remedy, and the FCA can be used by relators to bring additional qui tam enforcement actions against importers. This means that an importer’s exposure to customs fraud claims extends beyond penalties under § 1592 to include treble damages and per-claim civil penalties under the FCA that significantly increase importer liability. 

Heightened Stakes: The DOJ-DHS Trade Fraud Task Force and the Tariff Escalation

On August 29, 2025, the DOJ and the US Department of Homeland Security (DHS) launched a cross-agency Trade Fraud Task Force charged with bringing “robust enforcement” against importers and other parties who evade tariffs and duties or import prohibited goods. The Task Force draws on resources from the DOJ’s Civil and Criminal Divisions and partners with CBP and Homeland Security Investigations, and it has been explicitly directed to pursue duty and penalty collection actions under the Tariff Act of 1930, FCA actions, and, where appropriate, parallel criminal prosecutions under Title 18’s trade fraud and conspiracy provisions, including 18 U.S.C. §§ 541, 542, and 545. In February of this year, the Task Force’s new head signaled a “fundamental shift” toward criminal investigations, individual accountability, and expanded interagency partnerships, and reported $140 million in trade fraud recoveries to date with substantially more in the pipeline.

This enforcement build-out coincides with a dramatic escalation in US tariff rates. The Echelon conduct was measured against a 4.6% baseline duty plus 7.5% Section 301 tariff — approximately 12% in cumulative ad valorem exposure. Since January 2025, the second Trump Administration has layered various tariffs imposed under emergency authorities, country-specific reciprocal tariffs, and additional Section 232 actions on top of the existing Section 301 framework, and depending on classification, country of origin, and tariff regime, importers today routinely face additional tariffs of 25% to 50% or more. Because FCA damages are calculated as a multiple of the duties evaded, every percentage point of tariff increase is a force multiplier on potential FCA exposure: the same undervaluation conduct that produced a $2.1 million settlement here could, on today’s tariff schedule, generate single- and double-digit-million-dollar exposures even before trebling.

Conclusion

The Echelon settlement is not an isolated event. It arrives amid a sustained increase in customs-related FCA enforcement, the standing-up of a dedicated DOJ-DHS Trade Fraud Task Force, and a tariff regime that has materially raised the financial stakes of any valuation, classification, or country-of-origin error. 

This alert is the first in a planned series in which we will examine recent developments in this space, including the Ninth Circuit’s decision in Sigma and the FCA’s coexistence with 19 U.S.C. § 1592, common threads found in customs fraud liability cases, the growing use of criminal statutes to pursue individuals, and the role of voluntary self-disclosure in mitigating FCA exposure. 

ArentFox Schiff, which includes former government lawyers at the DOJ’s Fraud Section and CBP, counsels companies regularly on these issues and can assist with customs valuation audits, compliance program assessments, and FCA risk mitigation.