Kansas Cigarette Wholesaler Charged In $25M Fraud

The owner of a Kansas wholesale tobacco company and his business associates have been charged in a 43-count federal indictment for a scheme to avoid paying taxes on cigarettes that cost the state of Oklahoma and Indian tribes $25 million in tax revenue, according to the U.S. Department of Justice’s Kansas District.

The investigation was triggered by the Bureau of Alcohol, Tobacco, Firearms and Explosives in April 2006, when a defendant was stopped by the Kansas Highway Patrol in Coffeyville, Kan. The man was transporting a load of cigarettes worth more than $200,000 without required documents and appropriate tax stamps.

On Friday, acting U.S. Attorney Marietta Parker announced the indictment in which the following defendants have been charged:

  • Gary Lester Hall, 66, of Joplin, Mo., is the president and owner of Sunflower Supply Company in Galena, Kan. The DOJ said Hall also exercised control over other business entities including Discount Tobacco Warehouse Inc. in Joplin, Mo.; National Tobacco Distributors; Rebel Industries, Inc.; Halls Collection, Inc.; Shawnee Tobacco Smoke Shop in Harrah, Okla., and Sunflower Aircraft, Inc.
  • Thomas Anthony Grantham, 50, of Joplin, Mo., works for Hall managing operations at Sunflower and Rebel.
  • Keith Dion Noe, 42, of Joplin, Mo., the accountant for Sunflower, Discount Tobacco Warehouse, Rebel and Shawnee Tobacco.
  • Justin Boyes, 32, of Galena, Kan., worked for Hall at Sunflower and now works for Hall at Discount Tobacco Warehouse.
  • Danny Ray Davis, 62, of Galena, Kan., worked for Hall at Sunflower and now works for Hall at Rebel.
  • Jeremy Wayne Hooker, 33, of Salina, Okla., operates the Pipestone Smoke Shop in Vinita, Okla.
  • James William Coble, 35, of Galena, Kan., worked for Hall at Sunflower and now works for Hall at Rebel.
  • Justice Michael Berry, 36, of Joplin, Mo., worked for Hall as an accountant.
  • Three business entities also are named as defendants: Sunflower Supply Company, Inc.; Discount Tobacco Warehouse, Inc.; and Rebel Industries, Inc.

    According to the indictment, the states of Kansas and Oklahoma require every pack of cigarettes to carry a stamp showing that taxes have been paid on the cigarettes. In Oklahoma, the tax varies from a low of about 6 cents a pack to a high of $1.03 a pack depending on the location of the retail store at which the cigarettes will be sold.

    In addition, the state of Kansas requires wholesalers submit monthly reports stating the number of cigarettes sold on specific dates and the location where they will be sold.

    Beginning in January 2005 and continuing through May 2007, the DOJ said Hall and other defendants conspired to defraud the state of Oklahoma and Indian tribes that share in the proceeds of cigarette taxes.

    Companies controlled by Hall and other defendants stamped cigarettes for sale at smoke shops in lower tax rates areas when in fact the cigarettes were sold at smoke shops in higher tax rate areas. They carried out the scheme through a variety of means including communications by Internet and fax and money wire transfers, the DOJ said.

    The DOJ also alleges that the group funneled payments and orders through a third-party corporation called Gawkskey, Inc.

    The government is seeking a money judgment against Hall and the conspirators for the proceeds of the crime. Personal property listed in the forfeiture allegation includes: A Hawker Beechraft Model 4000 jet aircraft, a 2006 BMW auto, and a 2007 Chevrolet Utilimaster Van, as well as various real in Missouri, Kansas and Las Vegas.

    Charges in the 43-count indictment includes:

  • One count of conspiracy to divert cigarettes
  • Six counts of violating the Cigarette Trafficking Act by failing to keep accurate records
  • Ten counts of mail fraud involving the mailing of false monthly cigarette reports
  • Seven counts of wire fraud involving cigarette orders in furtherance of the conspiracy
  • One count of wire fraud involving the wire transfer of $967,382 from Pipestone Smoke Shop to Sunflower Supply Company
  • Six counts of interstate transportation in furtherance of money laundering involving the delivery of checks in payment for cigarettes
  • One count of transporting contraband cigarettes
  • One count of conspiracy to commit money laundering
  • Three counts of money laundering
  • Seven counts of engaging in unlawful monetary transactions.

    Upon conviction, the alleged crimes carry penalties that include hundreds of thousands of dollars in fines and 20 or more years in prison.

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