Appalachian Oil Co. Admits to Committing Fraud
ROANOKE, Va. -- Appalachian Oil Co. Inc. (APPCO) has entered into a pretrial diversion agreement for conspiracy to commit wire fraud, after selling discounted cigarettes to wholesalers, U.S. Attorney John L. Brownlee recently announced.
According to information filed in United States District Court in Abingdon, Va., APPCO entered into a series of marketing contracts with R.J. Reynolds Tobacco Co. to obtain discounted cigarettes, which are to be sold exclusively to customers. Instead, APPCO sold large quantities of discounted cigarettes to wholesalers in direct violation of its marketing contract, the documents state.
"In an effort to cover up their scheme, Appalachian Oil Co. created false invoices, which they submitted to R.J. Reynolds Tobacco Co.," Brownlee said.
Between June 2002 and May 2004, documents show APPCO made numerous purchases of R.J. Reynolds' specially-priced (bought-down) brand-name cigarettes on behalf of wholesalers, J&L Distributors, LLC and R.J. Marketing, Inc.
Thirty-six special orders of R.J. Reynolds' cigarettes were placed by APPCO between March 7, 2003 and December 3, 2003. For each order, a company official created a fraudulent invoice meant to create a paper trail, which made it appear that the cigarettes had been purchased for and delivered to APPCO retail stores located in Virginia. In reality, the cartons of cigarettes were distributed from the warehouse of the wholesalers in Tennessee to R.J. Marketing in Tennessee, Brownlee said.
R.J. Marketing didn't have a contract with R.J. Reynolds Tobacco Co. and thus could not purchase brand-name cigarettes from a wholesaler at the reduced bought-down price.
Under the conditions of the pretrial diversion agreement, APPCO accepts responsibility for the conduct outlined and will pay $255,000 in forfeiture and an additional $2.5 million to R.J. Reynolds Tobacco Co., the announcement said.
The company also agrees not to rehire the former president of the c-store division and to appoint someone to serve as compliance officer to assure that employees comply with all federal, state and local laws, as well as APPCO policies and procedures. Finally, APPCO will maintain a disclosure program whereby citizens can disclose issues or questions to the compliance officer involving compliance with this agreement.
In exchange, the U.S. attorney agrees to defer prosecution for three years. If APPCO complies with the conditions outlined above, the information will be dismissed.
The case was investigated by the Bristol, Va. Office of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF); the Virginia State Police; the Tazewell County Sheriff's Office; and the Washington County Sheriff's Office. Assistant United States Attorney Jennifer Bockhorst prosecuted the case.
NewGen Technologies, Inc., manufacturer and distributor of premium biofuels and hydrocarbon blends, last month signed agreements to acquire APPCO. The acquisition is expected to be completed in the first quarter of 2007.
APPCO supplies Exxon, BP, Marathon, Sunoco, CITGO and its proprietary APPCO-braded fuels to retail and wholesale customers in Tennessee, Kentucky, Virginia, West Virginia, North Carolina and South Carolina. The company also operated 58 company-owned convenience stores and supplies fuel to more than 160 other individual dealers.
According to information filed in United States District Court in Abingdon, Va., APPCO entered into a series of marketing contracts with R.J. Reynolds Tobacco Co. to obtain discounted cigarettes, which are to be sold exclusively to customers. Instead, APPCO sold large quantities of discounted cigarettes to wholesalers in direct violation of its marketing contract, the documents state.
"In an effort to cover up their scheme, Appalachian Oil Co. created false invoices, which they submitted to R.J. Reynolds Tobacco Co.," Brownlee said.
Between June 2002 and May 2004, documents show APPCO made numerous purchases of R.J. Reynolds' specially-priced (bought-down) brand-name cigarettes on behalf of wholesalers, J&L Distributors, LLC and R.J. Marketing, Inc.
Thirty-six special orders of R.J. Reynolds' cigarettes were placed by APPCO between March 7, 2003 and December 3, 2003. For each order, a company official created a fraudulent invoice meant to create a paper trail, which made it appear that the cigarettes had been purchased for and delivered to APPCO retail stores located in Virginia. In reality, the cartons of cigarettes were distributed from the warehouse of the wholesalers in Tennessee to R.J. Marketing in Tennessee, Brownlee said.
R.J. Marketing didn't have a contract with R.J. Reynolds Tobacco Co. and thus could not purchase brand-name cigarettes from a wholesaler at the reduced bought-down price.
Under the conditions of the pretrial diversion agreement, APPCO accepts responsibility for the conduct outlined and will pay $255,000 in forfeiture and an additional $2.5 million to R.J. Reynolds Tobacco Co., the announcement said.
The company also agrees not to rehire the former president of the c-store division and to appoint someone to serve as compliance officer to assure that employees comply with all federal, state and local laws, as well as APPCO policies and procedures. Finally, APPCO will maintain a disclosure program whereby citizens can disclose issues or questions to the compliance officer involving compliance with this agreement.
In exchange, the U.S. attorney agrees to defer prosecution for three years. If APPCO complies with the conditions outlined above, the information will be dismissed.
The case was investigated by the Bristol, Va. Office of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF); the Virginia State Police; the Tazewell County Sheriff's Office; and the Washington County Sheriff's Office. Assistant United States Attorney Jennifer Bockhorst prosecuted the case.
NewGen Technologies, Inc., manufacturer and distributor of premium biofuels and hydrocarbon blends, last month signed agreements to acquire APPCO. The acquisition is expected to be completed in the first quarter of 2007.
APPCO supplies Exxon, BP, Marathon, Sunoco, CITGO and its proprietary APPCO-braded fuels to retail and wholesale customers in Tennessee, Kentucky, Virginia, West Virginia, North Carolina and South Carolina. The company also operated 58 company-owned convenience stores and supplies fuel to more than 160 other individual dealers.