Louisville Internet Tobacco Product Retailer Guilty In Contraband Cigarette Trade
– Agrees to forfeit more than $3.6 million dollars in assets including 10,824,192 assorted tobacco products
LOUISVILLE, Ky. – The former owner of Cigarettes Direct to You, pleaded guilty in U.S. District Court this week to a felony information charging him with running an illegal retail cigarette trafficking business, announced David J. Hale, United States Attorney for the Western District of Kentucky.
According to the plea agreement, Israel Chavez, 48, of Louisville, Kentucky, conspired and agreed with Peter Bello, d/b/a, GT Northeast of Indiana/Kentucky, from January 5, 2005 through December 9, 2009, to buy and sell contraband cigarettes through internet websites and telephone call centers. By doing so, defendant Chavez, aided and abetted by Peter Bello, deprived the Kentucky State Department of Revenue of $2,090,571, by not paying taxes on cigarettes bought, sold, and shipped from locations within the Western District of Kentucky.
Chavez was the owner of Chavez, Inc., d/b/a, Cigarettes Direct to You (CD2U), a Kentucky Corporation located in Louisville, Kentucky. Chavez admitted in court to purchasing unstamped cigarettes, valued at $12,500,000 from Bello, for which no Kentucky tax had been paid, in order to significantly undercut the price charged for cigarettes by competing businesses which complied with state laws and paid the required taxes on cigarettes they held for sale. Further, Chavez admitted to knowing that fraudulent invoices had been created to disguise the nature of the cigarette transactions from the Kentucky Department of Revenue. This was accomplished through the creation of fraudulent invoices, which were transmitted by fax between Louisville, Kentucky, and St. Louis, Missouri, to make it appear that the cigarettes were purchased from a wholesaler in St. Louis – when, in fact, Chavez admitted to knowing that the unstamped cigarettes were from Kentucky, and that as a licensed wholesaler, Chavez was required to pay the Kentucky state tax.
A civil forfeiture suit, filed by the United States against Chavez, his ex-wife Pam Chavez, and their two companies Pam Chavez, Inc., and Chavez, Inc., were settled today in U. S. District Court, in the Western District of Kentucky. Israel Chavez and Pam Chavez agreed to forfeit to the United States, more than $3.6 million dollars in assets including approximately $3,214,000 in cash and deposit accounts and 10,824,192 tobacco products. Tax stamps valued at $108,000 will be returned to the Kentucky Department of Revenue.
In a separate, but related case, Bello, age 43, of Miami, was charged with conspiracy to commit wire fraud and is scheduled for trial before Chief Judge Joseph H. McKinley on June 3, 2013. According to the October 3, 2011 indictment, returned by a grand jury meeting in Louisville, Bello created fraudulent cigarette invoices to circumvent paying Kentucky state excise taxes.
At sentencing, Chavez faces a maximum of 20 years in prison, a $250,000,00 fine, and up to three years of supervised release. Sentencing is scheduled for August 7, 2013, before U.S. Magistrate Judge Dave Whalin.
This case is being prosecuted by Assistant United States Attorney Randy Ream, Special Assistant United States Attorney Micah R. Reyner. The restitution collection effort is being led by Assistant United States Attorney Amy Sullivan. The case is being investigated by the US Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).