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FOR IMMEDIATE RELEASE |
Oct. 17 , 2008
KANSAS CIGARETTE WHOLESALER CHARGED WITH $25 MILLION FRAUD SCHEME
WICHITA, KAN. – The owner of a Kansas wholesale tobacco company and his business associates are charged in a 43-count federal indictment with a scheme to avoid paying taxes on cigarettes that cost the state of Oklahoma and Indian tribes $25 million in tax revenue.
The investigation was begun by the Bureau of Alcohol, Tobacco, Firearms and Explosives in April 2006, when a defendant was stopped by the Kansas Highway Patrol in Coffeyville, Kan. He was transporting a load of cigarettes worth more than $200,000 without required documents and appropriate tax stamps.
On Friday, Acting U.S. Attorney Marietta Parker announced the indictment in which the following defendants are charged:
Gary Lester Hall, 66, Joplin, Mo., the president and owner of Sunflower Supply Company, 1001 W. 7th, Galena, Kan. Hall also exercised control over other business entities including Discount Tobacco Warehouse, Inc., 402 Grand, Joplin, Mo.; National Tobacco Distributors; Rebel Industries, Inc.; Halls Collection, Inc.; Shawnee Tobacco Smoke Shop, 19801 NE 23rd Street, Harrah, Okla., and Sunflower Aircraft, Inc.
Thomas Anthony Grantham, 50, Joplin, Mo., who works for Hall managing operations at Sunflower and Rebel.
Keith Dion Noe, 42, Joplin, Mo., who is the accountant for Sunflower, Discount Tobacco Warehouse, Rebel and Shawnee Tobacco.
Justin Boyes, 32, Galena, Kan., who worked for Hall at Sunflower and now works for Hall at Discount Tobacco Warehouse.
Danny Ray Davis, 62, Galena, Kan., who worked for Hall at Sunflower and now works for Hall at Rebel.
Jeremy Wayne Hooker, 33, Salina, Okla., who operates the Pipestone Smoke Shop in Vinita, Okla.
James William Coble, 35, Galena, Kan., who worked for Hall at Sunflower and now works for Hall at Rebel.
Justice Michael Berry, 36, Joplin, Mo., who worked for Hall as an accountant.
Three business entities also are named as defendants: Sunflower Supply Company, Inc.; Discount Tobacco Warehouse, Inc.; and Rebel Industries, Inc.
According to the indictment, the states of Kansas and Oklahoma require every pack of cigarettes to carry a stamp showing that taxes have been paid on the cigarettes. In Oklahoma, the tax varies from a low of about 6 cents a pack to a high of $1.03 a pack depending on the location of the retail store at which the cigarettes will be sold. In addition, the state of Kansas requires that wholesalers submit monthly reports stating the number of cigarettes sold on specific dates and the location where they will be sold.
Beginning in January 2005 and continuing through May 7, 2007, Hall and other defendants conspired to defraud the state of Oklahoma and Indian tribes that share in the proceeds of cigarette taxes. Companies controlled by Hall and other defendants stamped cigarettes for sale at smoke shops in lower tax rates areas when in fact the cigarettes were sold at smoke shops in higher tax rate areas. They carried out the scheme through a variety of means including communications by Internet and fax and money wire transfers. They also funneled payments and orders through a third party corporation called Gawkskey, Inc.
The government is seeking a money judgment against Hall and the conspirators for the proceeds of the crime. Personal property listed in the forfeiture allegation includes: A Hawker Beechraft Model 4000 jet aircraft, a 2006 BMW auto, and a 2007 Chevrolet Utilimaster Van, as well as real estate including 5964 W. 7th in Joplin, Mo.; 5593 W. Junge in Joplin, Mo.; 1001 W. 7th in Galena, Kan.; and 2877 Paradise Road, Unit 3303, Las Vegas, Nev.
The 43-count indictment includes:
– One count of conspiracy to divert cigarettes
– Six counts of violating the Cigarette Trafficking Act by failing to keep accurate records.
– Ten counts of mail fraud involving the mailing of false monthly cigarette reports
– Seven counts of wire fraud involving cigarette orders in furtherance of the conspiracy
– One count of wire fraud involving the wire transfer of $967,382 from Pipestone Smoke Shop to Sunflower Supply Company.
– Six counts of interstate transportation in furtherance of money laundering involving the delivery of checks in payment for cigarettes.
– One count of transporting contraband cigarettes
– One count of conspiracy to commit money laundering
– Three counts of money laundering
– Seven counts of engaging in unlawful monetary transactions.
Michael Boxler, ATF Special Agent in Charge in Kansas City, said: “Cigarette trafficking cases are complex financial investigations that involve money laundering, fraud and tax evasion. The fraudulent financial diversion that Mr. Hall and his associates are charged with executing has been exposed and millions of dollars in lost tax revenue identified. The outstanding collaborative efforts of all the investigative agencies involved should be commended.”
“Cigarette diversion circumvents the payment of taxes, which ultimately results in decreased funds for the community,” said James Vickery, Special Agent in Charge, IRS Criminal Investigation. “We will continue to work with our law enforcement partners to financially disrupt criminal organizations that commit crimes against our society and our economy.”
Upon conviction, the alleged crimes carry the following penalties:
– Conspiracy to divert cigarettes: A maximum penalty of 5 years in federal prison and a fine up to $250,000.
– Violating the Cigarette Trafficking Act: A maximum penalty of 3 years and a fine up to $250,000 on each count.
– Mail fraud, wire fraud: A maximum penalty of 20 years and a fine up to $250,000 on each count.
— Interstate transportation: A maximum penalty of 5 years and a fine up to $250,000 on each count.
– Conspiracy to commit money laundering: A maximum penalty of 20 years and a fine up to $500,000.
– Money laundering: A maximum penalty of 20 years and a fine up to $500,000 on each count.
– Unlawful monetary transactions: A maximum penalty of 10 years and a fine up to $250,000 on each count.
– Transporting contraband cigarettes: A maximum of three years and a fine up to $250,000.
The following agencies worked on the case: the Bureau of Alcohol, Tobacco, Firearms and Explosives, the Internal Revenue Service - Criminal Investigation, Kansas Alcoholic Beverage Control, the Kansas Highway Patrol, and the U.S. Marshals Service. Assistant U.S. Attorney Mona Furst, Assistant U.S. Attorney Annette Gurney and ATF Division Counsel Andrew Lange are prosecuting the case.
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