Smoke Shop Owners Convicted of Structuring Financial Transactions
|Aug. 5, 2013|
CORPUS CHRISTI, Texas – The husband and wife owners of Mr. Nice Guys Smoke Shop have entered pleas of guilty as a result of the efforts of a multi-agency investigation, United States Attorney Kenneth Magidson announced today. Leroy Mitchan Jr., 33, and Kimberly Davis, 27, both of Corpus Christi, pleaded guilty just a short time ago to structuring financial transactions as charged in a superseding indictment filed June 12, 2013.
Mitchan and Davis were arrested in May 2013 on charges relating to their participation in a conspiracy to structure more than $100,000 in cash deposit transactions over a 12-month period with a domestic financial institution in order to avoid the legal reporting requirements of the bank.
Their arrests came as a result of an investigation in reference to the sale of synthetic marijuana. Mitchan and Davis also own another smoke shop located at 5433 S. Staples St. in Corpus Christi as well as a used car dealership located at 5757 Everhart Rd. The factual summary as presented in court indicated that from February 2012 through January 2013, officers with the Corpus Christi Police Department (CCPD) seized more than 40.93 grams of synthetic marijuana during numerous undercover purchases from both of the smoke shops. On Feb. 1, 2013, CCPD executed state search warrants at the shops and seized a total of 1.5 kilograms of synthetic marijuana as well as various smoking paraphernalia such as pipes, bongs, glassware, grinders and scales. Also seized were detailed drug ledgers and price lists relating to the sale of synthetic marijuana along with documents guiding employees on the proper coded vocabulary to use when describing the illegal items being sold to customers.
The Drug Enforcement Administration (DEA) learned Mitchan and Davis had recently purchased three real estate properties in Corpus Christi and were making payments on these properties with large cash transactions. A preliminary review of bank accounts revealed several cash deposits under $10,000. Internal Revenue Service – Criminal Investigation (IRS-CI) then initiated the financial investigation.
The Bank Secrecy Act of 1970 (BSA) requires financial institutions to file reports with the Treasury Department of cash transactions exceeding $10,000.
As part of the plea, Davis admitted she conducted three separate deposits in one morning at Members First Credit Union. She first deposited $9,000 in the drive-thru at 7:39 a.m., then drove away and immediately re-entered the drive-thru lane and conducted a second cash deposit of $9,000 at 8:17 a.m. She drove away again but returned and conducted a third cash deposit of $8,801 at 9:16 a.m. In another instance, she conducted two separate deposits right after the other – the first in the lobby of the bank and the another in the drive-thru lane approximately 30 minutes later. The total amount for all five deposits was $44,101. All of these deposits did not exceed the $10,000 currency transaction filing requirement for financial institutions and were made in an attempt to avoid the reporting requirements.
Mitchan admitted he worked with a local real estate agent and provided him with large amounts of cash. Mitchan told him to deposit it into his personal bank account and later withdraw the money in the form of cashier’s checks or via Moneygram to pay for property he was purchasing. The total amount structured at the direction of Mitchan was approximately $461,000. Mitchan directed him and others to structure currency transactions to avoid the threshold reporting requirement and had even asked about the success of structuring the money without having any of the bank tellers ask any questions.
Mitchan faces up to 10 years imprisonment and a fine up to $500,000, while Davis faces up to five years and a possible 250,000 fine. Sentencing is set for Nov. 18, 2013. Both were permitted to remain on bond pending that hearing.
Both defendants have also agreed to the criminal forfeiture of three pieces of real property located in Nueces County, valued at approximately $1,200,000, approximately $396,000 in cash as well as 42 vehicles valued at approximately $409,000.
The investigation leading to the criminal charges was conducted in Corpus Christi lead by IRS-CI, DEA and CCPD. The case is being prosecuted by Assistant Unites States Attorneys Hugo R. Martinez and Lance A. Watt.