Kentuckians and Russian Nationals Convicted in Multi-Million Dollar Cigarette Tax Fraud Schemes
ASHLAND — Three Kentuckians and two Russian nationals are among those convicted of schemes to defraud federal, state and local governments, nationwide, of cigarette excise taxes totaling approximately $48 million dollars.
John Maddux, Jr. and Christina Carman, both formerly of Russell, Ky.; Julie and Anthony Coscia, of Pinetop, Ariz.; David White, formerly of Ashland, Ky.; Michael Smith, of Escondido, Calif.; and Alexander Sergeev and Mikhail Serov, both of St. Petersburg, Russia, will be sentenced for their roles in the schemes.
According to court documents and evidence at trial, the defendants operated mail order or internet businesses engaged in the delivery sales of cigarettes to customers in all fifty states. Maddux and Carman operated a cigarette mail order business known as YKTR, which sold domestically manufactured cigarettes to United States customers. YKTR also fulfilled cigarette orders for Julie and Anthony Coscia, who operated a business known as Cigarette Girl, for David White, who operated a business known as AA Discount Cigarettes, and for Michael Smith, who operated a business known as Payless Enterprises.
Maddux also operated a cigarette mail order business known as ESR II, which sold internationally manufactured cigarettes supplied by Sergeev and Serov, and other foreign nationals. The Coscias, White, and Smith also purchased cigarettes from Sergeev and Serov and comingled their money with Maddux, who wired the payments overseas.
In each scheme, the defendants illegally sold the cigarettes at discount prices, which violate the Jenkins Act and the PACT Act. The Jenkins Act, in effect prior to June 2010, required registering and reporting the sales made by each of these businesses to state tax administrators. This reporting allowed the states to collect excise taxes from their citizens. The PACT Act amended the Jenkins Act, in June 2010, by enhancing the registering and reporting requirements, and by requiring the businesses to pay the excise taxes themselves. The defendants avoided these requirements altogether. The co-conspirators also violated a provision of the PACT Act which prohibited the use of the U.S. Mail for the distribution of deliver sales of cigarettes. They did so by disguising the cigarette packages as mail order gifts and other items, in violation of the law.
Julie and Anthony Coscia and Michael Smith were convicted of multiple counts, at a trial in January 2016, relating to the sale of domestic and international cigarette product. Christina Carman was also convicted at the trial, of a charge relating to her participation in the sale of domestic product. She was acquitted of charges relating to the sale of international product.
Maddux pleaded guilty, on May 6, 2016, to multiple conspiracies to commit mail and wire fraud, money laundering and violations of the PACT Act. Maddux also pleaded guilty to charges that he made false statements to the Department of Labor, in an on-going effort to receive worker’s compensation payments to which he was not entitled as a result of the illegal business enterprises in which he was involved. Serov and Sergeev pleaded guilty, the same day, to charges including conspiracy to commit wire fraud and conspiracy to violate the PACT Act.
Domestic and International trafficking in untaxed cigarettes via mail order or the Internet is a serious crime, which defrauds state and federal governments of hundreds of millions of dollars in tobacco taxes and funds other criminal activity.
This announcement was jointly made by Kerry B. Harvey, United States Attorney for the Eastern District of Kentucky; John Cooper, Special Agent in Charge, Louisville Field Division, Alcohol Tobacco Firearms and Explosives; Tracey Montano, Special Agent in Charge, Nashville Field Office, Internal Revenue Service-Criminal Investigations; Richard Deer, Acting Special Agent in Charge, Philadelphia Regional Office of the U.S. Department of Labor, Office of Inspector General, Office of Labor Racketeering and Fraud Investigations; and Mark McCormack, Special Agent in Charge, Metro Washington Field Office, U.S. Food and Drug Administration.
The investigation was conducted by the Bureau of Alcohol Tobacco Firearms and Explosives, the Internal Revenue Service-Criminal Investigations, the United States Department of Labor, Office of Inspector General, and U.S. Food and Drug Administration. Assistant United States Attorneys Laura K. Voorhees and Wade T. Napier, and ATF Associate Chief Counsel, Jeffery A. Cohen, prosecuted this case on behalf of the federal government.
Sentencing will be scheduled in August 2016, before U.S. District Court Judge David L. Bunning. The conspiracy offense carries a maximum of 20 years in prison. Any sentence will be imposed by the Court, however, after consideration of the federal Sentencing Guidelines and the statutes governing the imposition of sentences.