Recently a Kentucky tobacco wholesaler has pleaded guilty in a wide-ranging federal investigation involving contraband cigarettes valued at millions of dollars. Charles H. Wells of Hopkinsville is the first Kentucky resident to plead guilty in the case, in which cigarette makers and sellers in several states are under scrutiny.
The manufacturers that have been named in that investigation include Farmers Tobacco in Cynthiana and Tantus Tobacco LLC in Russell Springs.
Mr. Wells declared that between October 2007 and July 2008, he schemed to avoid paying the excise tax on cigarettes sold in Kentucky, as well as payments required by a national settlement of state lawsuits against cigarette makers.
Wells and Jerry Burke, a Mississippi man charged with him, reported selling cigarettes in Mississippi when in fact Wells sold them in Kentucky, according to a court document.
That meant Wells didn’t pay $1.6 million in taxes to Kentucky. He also did not make payments of about $5 a carton required by the lawsuit settlement, a court document said.
Dodging the tax and settlement fee on the cigarettes allowed Wells to sell them cheaper, increasing his sales volume, according to the charges against him.
All told, Wells and Burke got more than $7 million they weren’t entitled to, the charge against Wells said.
Wells, 60, who operates H&W Wholesale in Hopkinsville, pleaded guilty in federal court in Greenville, Miss., last week.
He faces up to 20 years in prison. No sentencing date has been set.
Wells also agreed to forfeit more than $3 million worth of property to the government, according to a news release from William C. Martin, the acting U.S. Attorney for northern Mississippi.
A Kentucky-based cigarette maker played a role in the scheme, according to the charges against Wells.
The document did not name the company. However, it did say the company made and sold about 320,490 cartons of Berley and Berkley brand cigarettes to Wells.
Those brands are made by Tantus Tobacco, which has a plant in Russell County.
G. George Bertram, a Russell Springs attorney who represents Tantus, said no one with the company was authorized to comment on the pending FBI investigation.
However, Bertram noted that when federal authorities auctioned off a huge haul of cigarettes they’d seized last year, the sale didn’t include any Berley or Berkley.
Tantus, along with Farmers Tobacco in Cynthiana, has been part of the case, however.
The FBI issued a news release last June saying it had searched warehouses owned by cigarette makers or distributors in South Carolina, Mississippi and Kentucky in April, May and June.
The release identified Tantus Tobacco and Farmers Tobacco in Cynthiana as two businesses that authorities searched in an investigation of the diversion of tobacco products into and through Mississippi.
Mississippi is a focus of the investigation because it was not among the 46 states that sued cigarette makers in the 1990s to recover the costs of treating sick smokers.
The states and the cigarette companies settled the lawsuit in 1998. The deal ended state litigation against the companies, but required them to pay billions and limit advertising.
Mississippi and three other states had sued separately.
That means a cigarette maker could ship its product to Mississippi — in fact or on paper — and avoids the payment required by the national settlement, according to a document in Wells’ case.
The company mentioned in the charges against Wells created false invoices showing it shipped cigarettes to Burke in Mississippi, but they actually went to Wells, according to the charges.
Burke, 67, pleaded guilty in a related case last year.
In that case, a cigarette importer in New York sent one million cartons of cigarettes to a wholesaler in South Carolina.
However, the company reported sending only 250,000 cartons to the state, paying only the tax on that amount, according to a court document.
The company diverted the rest through a Tupelo company operated by Burke and Randy Benham, of Cordova, Tenn., avoiding taxes and other payments in New York and South Carolina, according to court documents.
The scam defrauded states and others of more than $20 million, a court document said.
Benham, who is in his late 30s, also has pleaded guilty.