Federal judges tosses indictment against tobacco seller, associates
A federal judge on Friday threw out an indictment against a Kansas tobacco wholesaler and business associates who were charged with trying to avoid paying $25 million in cigarette taxes to the state of Oklahoma and Indian tribes.
U.S. District Judge Monti Belot in Wichita ruled that the defendants had met their burden in showing indictment against them was unconstitutionally vague and should be dismissed.
Belot also derided the government’s case — saying it was based on the government’s opinion and not on any federal, Kansas or Oklahoma statute.
The decision clears all charges against Gary Hall, the president and owner of Sunflower Supply Co. in Galena, along with seven other people. Also cleared were Discount Tobacco Warehouse Inc. of Joplin, Mo., and Rebel Industries Inc. of Galena.
Charges were dismissed without prejudice, meaning prosecutors could seek another indictment. They also could appeal Belot’s decision, but the judge “strongly discouraged” prosecutors from seeking reconsideration.
“We will have to review his action and evaluate it,” said Jim Cross, spokesman for the U.S. attorney’s office in Kansas.
Jim Pratt, one of the defense attorneys representing Hall, said they still were reviewing the decision and had no immediate comment.
The 43-count indictment filed in October 2008 included charges of conspiracy to divert cigarettes, mail and wire fraud, record-keeping violations of the Cigarette Trafficking Act, interstate transportation in aid of racketeering, transporting contraband cigarettes, conspiracy to commit money laundering, money laundering, and engaging in unlawful monetary transactions. The government also had sought asset forfeiture.
The indictment alleged that from January 2005 through May 2007, the defendants defrauded the state of Oklahoma and Indian tribes that share revenue from cigarette taxes. Prosecutors contended Hall’s companies stamped cigarettes for sale at smoke shops in lower tax rate areas when they actually were sold at shops with higher tax rates.
Belot noted in his 43-page decision that the cigarettes had tax stamps and that records were made and maintained. Those records also were accurate, the judge said.
“The crimes charged are founded not upon facially-false entries on records but instead upon the government’s and its case agent’s opinion regarding what the records should have shown: the ‘ultimate destination’ of the cigarettes,” Belot wrote.
But such language was nowhere in any federal, Kansas or Oklahoma statute or regulation during the relevant period. Belot said “especially troubling to the court” was the government’s admission that it had decided the term “destination” really means “ultimate destination” — in other words, the place where the cigarettes were sold to the consumer — by its use of a dictionary definition.
Belot said the court had never encountered such an approach, saying it would mean that if the court allowed the jury to hear the agent’s opinion then it would have to instruct the jury on the government’s interpretation of a statute by inserting a dictionary definition.
The investigation started in 2006 after the Kansas Highway Patrol stopped a vehicle in Coffeyville that was allegedly carrying cigarettes worth more than $200,000 without appropriate tax stamps. Federal and state agents raided Sunflower and Rebel Industries in May 2007.
In October 2009, Belot also tossed much of the evidence after ruling that a Kansas Highway Patrol officer had no reason to suspect the driver of a U-Haul van that was found to be loaded with cigarettes was violating any laws, and the search was therefore illegal.
By ROXANA HEGEMAN