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Tax evasion case leads to largest criminal fine in NC history

Posted January 6, 2011

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— Two South Carolina businessmen pleaded guilty Thursday to cheating North Carolina out of cigarette tax revenue and agreed to pay $6.5 million in fines and restitution.

Wake County District Attorney Colon WIlloughby said the $3 million in fines is the largest ever imposed in a criminal case in the state, surpassing $2.5 million in fines in a 2006 kickback case involving the transportation department of the Wake County Public School System.

John M. June, Jr., 37, of Darlington, S.C., and Larry Phillips, 62, of Kershaw, S.C., each entered an Alford plea to two counts of obtaining property by false pretense. Charges of attempting to evade state tax and criminal conspiracy were dismissed as part of a plea agreement.

In an Alford plea, a defendant pleads guilty while maintaining his innocence and admits it is in his best interest to take the plea deal because there is sufficient evidence to find him guilty.

June and Phillips operated Tobaccoville USA Inc. and J & E Distributors Inc., and authorities said they overstated their 2005 cigarette sales and understated their 2006 cigarette sales to take advantage of two changes in North Carolina law that took effect in late 2005 and early 2006.

Willoughby said the men evaded about $2.5 million in state excise taxes by altering their sales records to say they sold almost 1 million cartons of cigarettes before the tax jumped from 5 cents to 30 cents a pack in September 2005.

The altered records also allowed the men to collect $3.5 million they weren't entitled to from an escrow fund designed to pay for smoking-related injuries, Willoughby said.

June and Phillips thought their actions were legal, defense attorneys Joe Cheshire and Tommy Manning said Thursday.

Cigarette tax fraud case Wake schools to benefit from record fine

"They reached out way in front of the deadline to a person they thought was the expert in these matters, (and) then executed the plan based on this advice," Manning said.

The men were scheduled to go to trial next month, but they recently reached the plea deal after Willoughby agreed drop his insistence that they serve prison time and allow a judge decide the matter.

Superior Court Judge Donald Stephens said he wouldn't impose an active prison sentence if the men would each pay a $1.5 million fine.

The men on Wednesday paid a total of $2.5 million to the state Department of Revenue and together made a $1 million contribution to the state's medical trust fund as part of their sentence. The trust fund pays for smoking-related health claims, and any money not paid out will revert to the state after 25 years.

"This whole fight has been about money, and I'm going to resolve it with money," Stephens said. "Sometimes, when you make bad business decisions, the best way to resolve it is by paying a heck of a lot of money."

Stephens sentenced the men to six to eight months in prison, suspended to 18 months on unsupervised probation.

"Everybody benefits from this decision," he said, noting that state law calls for the fines to go to the Wake County school district. "How many teachers' positions could we save next year with a $3 million fine? Maybe 60?"

53 Comments

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  • delilahk2000 Jan 6, 2011

    I DO NOT UNDERSTAND WHY WAKE IS THE ONLY ONE GETTING THE MONEY. WHEN YOU HEAR THE NEWS YOU WOULD THINK WCPSS IN THE ONLY ONE IN NC. THEY DON'T DESERVE IT ALL....

  • Greene Giant Jan 6, 2011

    So why is Wake county getting all the money? If it was tax evasion & was supposed to go to the State funds, that means State. I guess the rest of the State is getting it's fair share of the funds as usual. & I agree, why doesn't NC pay back the people it owes money to. Everyone knows what happens if you are the one who owes the State. If you look at the elementary school in Oxford, it was built in 1925. You can drop anything on the floor, it rolls to the middle of the room. Most of the people in the state are still using schools built in early 1900's. Some are so bad, I'd like to see what the Wake county school officials would think about sending their kids to them, even if they were convenient to them.

  • independentvoter3 Jan 6, 2011

    BTW... it really says volumes about a society when criminals are allowed to buy their way out of jail!

  • demo7691 Jan 6, 2011

    Wow and Mike Easley only paid 1000

  • independentvoter3 Jan 6, 2011

    he headline should have read "Crooks Paying Crooks". Now the really bad crooks have $2.5 million.

    http://www.wral.com/news/local/politics/story/8884860/
    lestergillis

    Now... NC can pay the 2.5 million to the 7900+ tax payers they owe refunds to!!!

  • imtoofastforyou2 Jan 6, 2011

    Lonevoiceofreason, you forgot one small but very important element in your calculations..............INTEREST!! Can you redo your figures and calculate how much interest that money generated from the time they collected it, until the time they are SUPPOSED to give it back. I'm pretty sure that will up the ante' in their favor for the most part

  • imtoofastforyou2 Jan 6, 2011

    ROFL@Lestergillia,,,,you should have your own TV show, that was a good one, very imaginative and entertaining.....crooks paying crooks....LOL

  • imtoofastforyou2 Jan 6, 2011

    Well isn't that special, the buys their way out of prison yet again. Now I wonder if this little deal would have been available had they not had 6 mil to drop in the state coffers. Our justice system is a joke that just won't go away and certainly isn't funny!

  • sorry Jan 6, 2011

    why does this go to wake schools whats up here

  • lestergillis Jan 6, 2011

    "The men on Wednesday paid a total of $2.5 million to the state Department of Revenue and together made a $1 million contribution to the state's medical trust fund as part of their sentence. The trust fund pays for smoking-related health claims, and any money not paid out will revert to the state after 25 years."

    The headline should have read "Crooks Paying Crooks". Now the really bad crooks have $2.5 million.

    http://www.wral.com/news/local/politics/story/8884860/

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