Tax evasion case leads to largest criminal fine in NC history
Posted January 6, 2011
Raleigh, N.C. — 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.
"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?"