Mattress Firm claims in a lawsuit that its own former executives accepted private-jet trips, expensive watches, and luxurious hotel stays from brokers in exchange for opening so many new stores it spurred conspiracy theories

Google Maps

There's a high concentration of Mattress Firm stores in Atlanta.

• Mattress Firm is frequently accused of having too many stores in the United States. But there may be more to that story than first meets the eye. 
• In October 2017, Mattress Firm filed a lawsuit against two of its former employees, a broker, and a group of developers, claiming that they conspired to push the company to aggressively expand. 
• Mattress Firm alleges that the two former employees received kickbacks and bribes in exchange for business to "financially enrich" themselves at the company's expense. 
• All defendants have denied the allegations. The broker named in the suit, Alexander Deitch, filed a countersuit against Mattress Firm, arguing that it was the company's aggressive store expansion and desire to remove all competition from the market that led it to open these stores. 
• To hear the full story, listen to Business Insider's new podcast, "Household Name."

In January, a Reddit thread claiming that Mattress Firm is a money-laundering operation went viral, sending the internet into a frenzy as people posted screenshots from Google Maps showing the heavy concentration of stores in their area. 

With about 3,400 stores, Mattress Firm is by far the largest specialty mattress retailer in the United States. In fact, it's not uncommon to find many of its stores right across the road from each other. Redditors argued that this was far too many given that Mattress Firm sells a product that is typically bought every seven to 10 years. 

"Mattress Firm is some sort of giant money laundering scheme," a Reddit user wrote, adding, "I remember seeing 4 mattress firms all on each corner of an intersection once, and there is no way there is such a demand for mattresses."

At the time, Mattress Firm denied any wrongdoing to Business Insider. 

"The idea that the proximity of Mattress Firm store locations is related to money laundering or any illegal activity is absolutely false," former CEO Ken Murphy told Business Insider in a statement shortly after. "Our convenient locations in highly-trafficked areas keep us top of mind when it's time to buy a mattress."

While these money-laundering allegations may well be unfounded, there is an unexpected twist to the story.

Big expansion plans

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In October 2017, Mattress Firm filed a lawsuit against two of its former in-house real estate executives, an external broker, and a group of developers, accusing them of conspiring to make Mattress Firm aggressively expand, open stores in expensive locations, and sign leases above market rates.

Mattress Firm claims in the lawsuit that the two former employees were receiving kickbacks and bribes from the broker and developers in exchange for business to "financially enrich" themselves at the company's expense. It describes the arrangement as a "nationwide bribery, kickback, and fraud scheme."

The two former executives, Bruce Levy and Ryan Vinson, were hired by Mattress Firm in 2009 and 2010, respectively, to run the company's store growth strategy.

According to the company's lawsuit, Levy and Vinson encouraged Mattress Firm to hire Alexander Deitch, a broker at Colliers International Atlanta, to become its master broker and to be responsible for identifying, evaluating, and brokering new site locations.

These parties were responsible for recommending which stores to open, which leases to sign, what the terms of those leases should be, which construction budgets to approve, which store leases to renew, and which stores to close, court filings say. 1,500 stores were opened during this time, and hundreds more had their leases renewed. 

A spokesperson for Colliers declined to comment to Business Insider.

The lawsuit alleges that Deitch gave bribes such as expensive watches, cash, and trips around the world to Levy and Vinson in order to maintain his relationship as their broker. According to the lawsuit, Levy allowed Deitch to personally profit from the expansion by secretly owning stores leased to Mattress Firm, charging developers "phony fees," which drove rental prices up.

Developers were also in on the scheme, Mattress Firm said. Those who provided kickbacks and bribes, such as private-jet and chartered-yacht trips as well as stays in expensive hotels, were given long lease terms and received market rents.  

Levy and Vinson were fired by Mattress Firm in 2016, according to the company's lawsuit. 

'Mattress Firm weaponized its real estate department to crush opponents'

All of the defendants denied the allegations, and in March 2018, Alexander Deitch filed a countersuit.

Deitch's countersuit argues that Mattress Firm's management team, including former CEO Ken Murphy and current CEO Steve Stagner, not only knew about these deals but were encouraging them. According to Deitch's suit, this was all part of the company's plan to dominate the market and wipe out all competition. Mattress Firm's strategy was to have one store per 80,000 people to garner 40% of the market, the countersuit says. 

According to Deitch's countersuit, "Mattress Firm weaponized its real estate department to crush opponents," and its "aggressive roll-up was reckless, resulting in massive clustering of stores." 

Moreover, Deitch argues that bribery and gift-giving were part of the company's culture. 

"From the top down, it was ingrained in Mattress Firm's culture that its executives and employees could (and should) receive gifts and trips," court filings read. 

Deitch's suit also points to the practices of Mattress Firm's parent company, South African retail conglomerate Steinhoff, which bought Mattress Firm at a premium for $3.8 billion in 2016 and is currently the subject of a criminal investigation. 

Toward the end of 2017, Steinhoff's stock price tanked by as much as 62% in one day, wiping out $15 billion of its market value after it postponed publishing its full-year accounts, citing "accounting irregularities." Two top executives and its chairman have resigned, and it is now being investigated for fraud.

"The collapse of Steinhoff's value put tremendous pressure on Mattress Firm to seek other avenues than productivity to shore-up its revenues," the countersuit reads.  

Steinhoff would not comment on its relationship to Mattress Firm or why it bought the company at a premium. 

"As a result of the ongoing investigation, the group has taken a decision not to comment on any past transactions or relationships until we have the results of the forensic investigation," a spokesperson for the company said in a statement emailed to Business Insider.

To hear more about the conspiracy theories around Mattress Firm's stores, listen to "Household Name," a new podcast from Business Insider. Subscribe for free on Apple Podcasts, Stitcher, or your favorite app.