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Justice News

Department of Justice
U.S. Attorney’s Office
Western District of Virginia

Wednesday, March 14, 2012

Two Plead Guilty To Roles In Cardboard Diversion Scheme

Thomas Faulkner Defrauded Kroger Out Of More Than $1.5 Million

LYNCHBURG, VIRGINIA -- A contractor hired by the Kroger Company to oversee the salvage of cardboard from the company’s Salem, Va. warehouse pled guilty this morning in the United States District Court for the Western District of Virginia in Lynchburg to conspiracy charges related to a cardboard diversion scheme he oversaw.

Thomas M. Faulkner, 39, of Waynesboro, Va., waived his right to be indicted and pled guilty to a one count Information charging him with a multi-object conspiracy to commit money laundering, hiring illegal aliens and mail fraud.

Glenn Miguel Wagner, 41, of Salem, Va., also waived his right to be indicted and pled guilty this morning to a one count Information charging him with misprision of a felony pertaining to mail fraud.

“These defendants created a scheme that they used to steal millions of dollars from the Kroger Company,” United States Attorney Timothy J. Heaphy said today. “Financial fraud of this magnitude is a persistent problem and motivates substantial investigative activity in the Western District of Virginia. The United States Attorney’s Office is committed to fighting fraud in every form and bringing those who commit fraud to justice.”

According to evidence presented by Assistant United States Attorney Charlene Day, Kroger owns a distribution warehouse in Salem Va. The company outsourced warehouse operations to multiple contractors. Starting in 2006, Kroger contracted with Valley Logistic Services (VLS) to conduct salvage operations at the Salem Warehouse. Faulkner owned and operated VLS and Wagner was the operations manager for VLS at the Salem warehouse.

It was the duty of VLS to collect and transport used packing and shipping materials, including wooden pallets and cardboard, to Kroger authorized recycling companies. Kroger would receive payments and/or credit offsets based on the amount of salvage the warehouse delivered.

Faulkner has admitted to setting up a scheme in which some of the cardboard from the Salem warehouse would be diverted from the pre-approved recycling companies and sent instead to other facilities, without Kroger’s knowledge. Instead of the Kroger receiving a credit for the salvage, Faulkner set up a shell company, Valley Warehouse Services (VWS), which was paid for the diverted cardboard.

Wagner assisted in the scheme by instructing employees at the Salem warehouse to divert cardboard from the trucks going to the Kroger-approved recycling companies to trucks that transported the diverted cardboard to other facilities.

In all, Faulkner’s diversion scheme caused losses of approximately $1.6 million to Kroger Company. In addition, Faulkner is charged with hiring unauthorized aliens to work at the Salem warehouse and paying them less than the prevailing union wage of other warehouse employees.

At sentencing, Faulkner faces a maximum possible penalty of five years in federal prison and/or a fine of up to $250,000. He has also agreed to pay restitution in the amount of $1,600,000. Wagner faces a maximum possible penalty of three years in federal prison and/or a fine of up to $250,000.

The investigation of the case was conducted by the United States Postal Inspection Service, the Internal Revenue Service, the Roanoke County Police Department and U.S. Immigrations and Customs Enforcement. Assistant United States Attorneys Charlene Day and C. Patrick Hogeboom are prosecuting the case for the United States.

Updated April 15, 2015