By Frank Parlato
A federal racketeering lawsuit brought by a cooperative of tobacco farmers against two Bureau of Alcohol Tobacco Firearms and Explosives (ATF) informants, Jason Carpenter and Christopher Small, is headed for trial in the Eastern District of North Carolina Western Division.
The complaint alleges that Carpenter and Small swindled the plaintiffs, US Tobacco Cooperative Inc, a co-op made of about 700 tobacco farmers from Virginia to Florida, out of $24 million, by creating a bogus tobacco sales scheme to fund ATF covert operations.
Details are sketchy since almost the entire court record is under seal – an unusual occurrence in a civil lawsuit. The US Department of Justice sought to seal the records, and entered over two dozen filings in the case. A judge agreed to seal the documents, but added the U.S. government as a defendant in the case.
Nearly all references to the ATF have been blacked out of public court records.
Carpenter and Small deny wrongdoing saying they acted on behalf of the ATF.
The New York Times filed intervenor applications to the court to order the documents unsealed, but the Justice Department argued successfully in court to keep them secret.
Ryan Kaye, an ATF supervisor, testified that a secret bank account was created which may have assisted in the alleged swindle of the farmers’ cooperative “as a result of verbal directives from the ATF program office and other headquarters officials.”
Despite efforts by the DOJ to keep details hidden, New York Times writer Matt Apuzzo was able to uncover certain details about the case the public was not supposed to learn.
In 2011, U.S. Tobacco Cooperative Inc. made a deal which both purchased Big South Wholesale for $5.5 million and authorized Big South to buy and sell cigarettes on behalf of US Tobacco to be stored and shipped from Big South’s warehouse in Bristol, Virginia.
Big South’s owners, Carpenter and Small, developed a network of customers which was hoped would expand distribution of US Tobacco’s cigarettes.
Instead Carpenter and Small allegedly conspired with the ATF to defraud US Tobacco by selling the company its own cigarettes back to them at inflated prices.
Because the informants had authority to buy on behalf of the tobacco cooperative, “Carpenter and Small simply sold products to themselves,” US Tobacco wrote in court documents.
It is alleged the scheme involved an export company, working within the ATF’s network of deceptive operators, placing phony orders for cigarettes with Big South, which, stored in Big South’s warehouse, were to be shipped internationally — thus not subject to U.S. taxes.
Through a secret bank account, Carpenter and Small paid for the cigarettes supposedly bought by the export company. The cigarettes however never left the warehouse. Without telling US Tobacco of the government-approved fraud, Big South shipped boxes stuffed with bottled water and potato chips, but marked these as filled with cigarettes.
The next phase was for Carpenter and Small to buy these same cigarettes again at a higher price. The cigarettes, which had been recorded as sold but never left the warehouse, were now recorded as purchased by US Tobacco and at the warehouse ready for resale.
Carpenter and Small, who acknowledged receiving more than $1 million each from the secret bank account, in court documents, contend that, despite the alleged swindle, U.S. Tobacco wasn’t harmed since it still got a good deal on the cigarettes, even at the marked up prices they paid. The profits were used to fund covert investigations, without ATF agents having to file reports normally required to obtain federal funds.
The scheme might have continued indefinitely if not for Brandon Moore, the warehouse manager at Big South. Moore understood the sham cigarette deal was part of covert ATF operations and alleges ATF agents told him what to buy on the company’s credit card including iPads, televisions and other gifts to be used to win the trust and friendship of potential criminal targets the ATF was investigating or encouraging to commit smuggling crimes.
But Moore, troubled by the swindling of US Tobacco that owned the company that paid his salary, blew the whistle by informing Stuart D. Thompson, the CFO of U.S. Tobacco. The company’s 700 farmers voted to report the matter to the Department of Justice, which includes the ATF. The DOJ investigated themselves and decided there was no wrongdoing.
However, based on the continued interest of the New York Times, the matter was referred to the DOJ’s Inspector General where the alleged scheme is again under self-investigation by the DOJ.
US Tobacco Cooperative is also under investigation by the US Treasury Department since the bogus tobacco transactions should have been taxed.
The $24 million civil swindling case against the ATF is expected to start in March and the public may learn much about the techniques of the ATF.
Perhaps they will view it as entrepreneurial since it did not place burdens on ATF’s annual budget, saving taxpayers the cost of investigations.
If true, it represents the paradigm of an Orwellian world where law enforcement agents steal the money they need to enforce the law.