Guilty Verdict for Defendant Accused of Defrauding Municipality of Anchorage out of Cigarette Tax

Anchorage, Alaska - U.S. Attorney Karen L. Loeffler announced today that Michael Butler, was convicted by a jury on charges of mail fraud, conspiracy to commit money laundering, and conspiracy to make false statements regarding the distribution of cigarettes.  Michael Butler was indicted on the charges on July 18, 2013, along with Kyong Hee Kim, Sun Sims, Kimberly Sims, Jae Ho Lee, Jae Gak Lee, and Jerry Lee in a conspiracy to defraud the Municipality of Anchorage (MOA) by evading the payment of cigarette excise tax.  Insook Baik, was also charged in the indictment, but was acquitted at trial.  Kyong Hee Kim, Sun Sims, Kimberly Sims, Jae Ho Lee, Jae Gak Lee, and Jerry Lee previously pleaded guilty in U.S/ District Court for their roles in the conspiracy.

According to court documents, Michael Butler and Sun Sims operated and managed Up in Smoke, located in the MOA, and Golden Eagle Tobacco and Longmere Lake Grocery and Liquor, both located outside the MOA.  Because they owned Golden Eagle Tobacco and Longmere Lake Grocery and Liquor, Butler and Sims could legitimately purchase MOA excise tax exempt cigarettes from tobacco wholesale distributors located in the MOA, but only if those cigarettes were actually transported outside of the MOA and offered for sale at those two stores.  However, cigarettes that they purchased within the MOA and intended to sell at Up in Smoke or distribute to others within the MOA were not excise tax exempt.

Between 2009 and October 10, 2012, Michael Butler and Sun Sims used their Golden Eagle Tobacco and Longmere Lake Grocery and Liquor store accounts with tobacco wholesale distributors within the MOA to purchase excise tax exempt cigarettes that they intended to sell and distribute within the MOA.  Thus, they avoided paying the MOA excise tax and increased their own profits.

The other co-conspirators paid a fee to Michael Butler and Sun Sims for the purchase of excise tax exempt cigarettes.  They paid this fee for the tax exempt cigarettes in an effort to avoid paying the tax owed to the MOA.  Butler and Sims would collect payment from Kyong Hee Kim and other retailers.  They would then convert the money collected into cashier’s checks that appeared to be purchased by either Golden Eagle Tobacco or Longmere Lake Grocery and Liquor.  Then, they used these cashier’s checks to purchase more tax exempt cigarettes, which they then delivered to the following retail stores within the MOA:

• Up in Smoke, owned and operated by Michael Butler and Sun Sims and managed by Kimberly Sims
• Mini Stop, owned and operated by Kyong Hee Kim
• Arctic/Tudor Shell and Mountain View Shell, owned and operated by Insook Baik
• Party Time Liquor, owned and operated by Jae Gak Lee
• Cheap Smokes,  owned and operated by Jae Ho Lee
• Lucky Seven Foodmart, owned and operated by Jerry Lee

“Like the American tax system, taxes levied by the Municipality of Anchorage are designed to provide vital government services to our people. Tax fraud victimizes honest citizens who are paying their fair share,” said Special Agent in Charge Teri Alexander of IRS Criminal Investigation. “This verdict represents the commitment of the Department of Justice and the IRS to protect the integrity of not only our national tax system, but also that of our local communities.”

Mail fraud carries a sentence of up to 20 years imprisonment and fines up to $250,000.  Conspiracy to money launder carries a sentence of up to 20 years imprisonment and fines up to $500,000.  As part of their pleas and the guilty verdict of Michael Butler, the defendants also face criminal forfeitures of the proceeds of the crime.

The case was jointly prosecuted by Assistant U.S. Attorney Stephan A. Collins and Special Assistant U.S. Attorney Erin W. Bradley.  The case was investigated by the Internal Revenue Service Criminal Investigation (IRS-CI), the Bureau of Alcohol Tobacco, Firearms and Explosives (ATF), and the Anchorage Police Department.