KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced today that an Independence, Mo., business owner and a Wichita, Kan., attorney are among 18 defendants who have been indicted by a federal grand jury in a more than $17 million, multi-state conspiracy to transport hundreds of thousands of cartons of contraband cigarettes from the Kansas City, Mo., area to the state of New York, where they were sold primarily on Indian reservations.
In addition to the federal indictment, the undercover operation by the Bureau of Alcohol, Tobacco, Firearms and Explosives resulted in a $3.5 million civil forfeiture and a non-prosecution agreement that requires a Winnebago, Neb. company to pay a $300,000 penalty.
“When unscrupulous companies traffic in contraband cigarettes, they are stealing from the public through millions of dollars in lost tax revenue,” Dickinson said. “They also create an illegal and unfair advantage over legitimate businesses that follow the law. When they don’t pay the excise tax on their cigarettes, they are able to unfairly undercut the prices charged by off-reservation retailers.”
Craig Sheffler, 43, and his wife, Nicole Sheffler, 35, both of Independence, Harry Najim, 65, of Wichita, Teddy Frenchman, 39, of Winnebago, Neb., AJ’s Candy & Tobacco, LLC, and William F. Parry, 52, both of Irving, N.Y., Tara Sundown, 48, of Basom, N.Y., Philip Christ, 54, and Salvatore Tornabene, 44, both of Hamburg, N.Y., Gerald E. Barber, 67, of Virginia, Mousa Juma, 62, of Chesapeake, Va., T. Cameron Jones, 57, of Quilcene, Wash., Gholamreza “Reza” Tadaiyon, 50, of Weston, Fla., Payam Kheimehdooz, 42, of Miami, Fla., Mohsen Rostami, 47, of North Lauderdale, Fla., and David Bishop, 43, Mark Bishop, 39, and Piotr Hoffmann, 39, all of Montreal, Canada, were charged in a 44-count indictment returned under seal by a federal grand jury in Kansas City, Mo., on Tuesday, Aug. 12, 2013. That indictment was unsealed and made public today upon the arrests and initial court appearances of several defendants.
The federal indictment alleges that each of the defendants participated in a conspiracy to commit wire fraud and traffic in contraband cigarettes from July 2010 to Jan. 26, 2012.
According to the indictment, Craig Sheffler and Tadaiyon purchased $17,345,610 worth of contraband cigarettes from undercover ATF agents during the undercover operation. Approximately 620,600 cartons of cigarettes – containing 10 packs per carton – were transported to New York without paying the required $4.35 per pack excise tax. The untaxed cigarettes were sold by New York retailers and smoke shops on the reservations in the state of New York. The total state excise tax lost to the state of New York was approximately $8,148,420.
Craig Sheffler is the owner of Cheap Tobacco Wholesale, a cigarette wholesale business in Independence. Najim is a partner in the Adams Jones Law Firm, P.A., in Wichita. Najim was the attorney for Craig Sheffler and Cheap Tobacco Wholesale.
Tadaiyon owns Brand Name Connoisseurs, Corp., a business located in Florida. Neither Tadaiyon nor Brand Name Connoisseurs was a licensed New York tobacco wholesaler authorized to bring cigarettes into the state of New York. Payamkheimehdooz and Rostami worked as drivers for Tadaiyon. According to the indictment, Tadaiyon received approximately $1,280,000 in gross profit from the conspiracy.
Barber was president of the Seneca Cayuga Tobacco Company, an Oklahoma tobacco company that manufactures and distributes its own brands of cigarettes.
Parry owns and operates Wolf’s Run, a business that, among other things, operated a gas station, convenience store, and trucking transport business. Tornabene was a driver for Parry. Sundown operated Jan’s Smoke Shop, a reservation business that, among other things, operated a gas station and convenience store. AJ’s is a tobacco wholesaler located on a reservation. AJ’s owner is identified as an unindicted co-conspirator. None of these defendants or their businesses were licensed to bring cigarettes into the state of New York.
David Bishop is the owner of DKB Trade Concepts, a Canadian corporation located in Montréal, Québec. Mark Bishop and Hoffmann worked as drivers for David Bishop. According to the indictment, David Bishop received approximately $303,000 in wire transfers and approximately $133,000 in cash for his “brokerage fees” during the conspiracy. According to the indictment, Hoffmann received approximately $24,250 in wire transfers.
Jones owns and operates Manufacturer’s Production Exchange in Quilcene, Washington. According to the indictment, Jones received approximately $154,000 for his “brokerage fees” during the conspiracy.
Frenchman is the manager of warehouse operations for HCI Distribution, a tobacco distribution company. HCI Distribution Company is a subsidiary of Ho-Chunk, Inc., headquartered in Winnebago, Neb. (on the Winnebago Tribe reservation).
Juma owned and operated Juma Brothers, Inc., located in Portsmouth, Va., a business that distributed tobacco products and other items to retail businesses.
New York Excise Tax
New York, through the Department of Taxation and Finance, pre-collects an excise tax of $4.35 per pack of cigarettes from wholesalers for sales to Indian nations and tribes. Federal and New York state law requires that tax stamps be affixed to cigarette packages – prior to their sale to consumers – reflecting that the required state taxes have been paid.
Only licensed wholesalers may purchase unstamped cigarettes. This is done either directly through the cigarette manufacturer or through other wholesalers. Under New York State law, it is the obligation of state-licensed stamping agents, i.e. wholesalers, to prepay the excise tax and affix stamps on all cigarette packs.
Under state and federal law, tobacco wholesalers must accurately report the sales of cigarettes to the state(s) where the sale occurs. The state of Missouri requires tobacco wholesalers to accurately report the source of all cigarettes purchased and the disposition of those cigarettes. During the course of the conspiracy, the indictment says, in the reports filed by Cheap Tobacco Wholesale, Craig Sheffler falsely reported that the source of the cigarettes purchased from the ATF undercover operation was Cross Bridge LLC, a defunct Florida corporation.
Craig Sheffler made regular purchases of contraband cigarettes from undercover ATF agents in Kansas City. He in turn sold many of the cigarettes to Tadaiyon, whose drivers picked them up directly from the ATF warehouse in Kansas City, Mo. The rest of the cigarettes were shipped to New York, either from the undercover ATF warehouse or from the Cheap Tobacco Wholesale warehouse in Independence.
The indictment cites a series of purchases of cigarettes during the conspiracy, each transaction typically involving thousands of cartons and hundreds of thousands of dollars.
For example, the indictment alleges that on Sept. 29, 2011, Craig Sheffler purchased 15,576 cartons of cigarettes from ATF undercover agents for $580,131 in cash and a check for $33,000. During this transaction, Nicole Sheffler carried an orange bucket into the ATF undercover warehouse which contained two paper bags with approximately $400,000 in cash.
On another occasion, the indictment alleges that Craig Sheffler purchased 352 cases of contraband cigarettes from the ATF undercover agents on Nov. 22, 2011. Rather than paying for the cigarettes, the indictment says, Craig Sheffler outlined a breakdown of payments for the purchases of semi-trucks to be coordinated by his attorney, Najim. Craig Sheffler allegedly agreed to give Najim approximately $625,000 to purchase Peterbilt semi-trucks for the undercover agents. Craig Sheffler allegedly stated he would pay Najim’s law firm $9,000 and $60,000 in cash to Najim.
Parry ordered cigarettes directly, while Sundown and AJ’s placed orders for unstamped cigarettes through Christ and Barber. Barber (through Seneca Cayuga Tobacco Company) then placed orders for those unstamped cigarettes from Tadaiyon and Brand Name Connoisseurs. Tadaiyon would forward the order to David Bishop, who would e-mail the order for the unstamped cigarettes to Jones and to Craig Sheffler.
According to the indictment, through the end of Sept. 22, 2011, after the orders had been placed, Tadaiyon, Mark Bishop and Hoffmann picked up the unstamped cigarettes in Kansas City and transported them to Seneca Cayuga Tobacco Company in Oklahoma. From Seneca Cayuga Tobacco Company, the unstamped cigarettes were allegedly transported to Wolf’s Run, Jan’s Smoke Shop, AJ’s and the Totem Pole Smoke Shop in New York by Wolf’s Run or a common carrier.
After Sept. 22, 2011, according to the indictment, Tadaiyon, Mark Bishop, Hoffmann, Kheimehdooz and Rostami picked up the orders of unstamped cigarettes from the undercover ATF warehouse in Kansas City or at the Cheap Tobacco Wholesale warehouse in Independence, then transported them directly to HCI Distribution in Nebraska. Frenchman, at HCI Distribution, allegedly coordinated with HCI Logistics (another subsidiary of Ho-Chunk, Inc.) to have the unstamped cigarettes transported to Jan’s Smoke Shop, AJ’s and the Totem Pole Smoke Shop in New York.
Parry allegedly sold the unstamped, untaxed cigarettes at Wolf’s Run store. AJ’s and Parry allegedly sold the unstamped, untaxed cigarettes to other smoke shops on the reservations in New York. Sundown allegedly sold the unstamped, untaxed cigarettes at Jan’s Smoke shop.
In addition to the federal indictment, Dickinson also announced today that the U.S. Attorney’s Office in the Western District of Missouri has entered into a non-prosecution agreement with HCI Distribution, in which HCI Distribution acknowledges responsibility for its role in the conspiracy and agrees to take several actions; the U.S. Attorney’s Office will defer criminal prosecution and civil action.
Ho-Chunk, Inc., located in Winnebago, Neb., is a corporation operated by the Winnebago Tribe of Nebraska, a federally recognized Indian tribe. Ho-Chunk, Inc., is the parent company of HCI Distribution, also located in Winnebago, which claims to be one of the largest tribal cigarette and tobacco distributors in the United States, and HCI Logistics, a commercial transportation company in Omaha, Neb.
Under the terms of this agreement, HCI Distribution must pay a monetary penalty of $300,000 and take corrective actions. HCI Distribution must also withdraw its claim in the civil forfeiture case. HCI Distribution had claimed $221,850 plus the proceeds from the sale of the 102 cases of seized cigarettes.
Following the seizures that occurred as a result of the investigation, the U.S. Attorney’s Office started a civil forfeiture case naming the assets taken up to that point. On Oct. 23, 2012, the court entered a default order of forfeiture as to the following assets:
The seized cigarettes have been sold at auction for $532,500. The 2009 Cessna Aircraft has been sold for $450,000. The four trucks have been sold for the following amounts: $115,000; $115,000; $113,000; and $113,000.
The civil case has been stayed pending the resolution of the criminal case.
Dickinson cautioned that the charges contained in this indictment are simply accusations, and not evidence of guilt. Evidence supporting the charges must be presented to a federal trial jury, whose duty is to determine guilt or innocence.This case is being prosecuted by Assistant U.S. Attorneys Paul S. Becker and Justin G. Davids. It was investigated by the Bureau of Alcohol, Tobacco, Firearms and Explosives, IRS – Criminal Investigation, the Federal Deposit Insurance Corporation – Office of Inspector General and the Kansas City, Mo., Police Department.