NEW YORK -- Tariq Khan used "illicit, wide-ranging schemes" to "secretly and successfully siphon hundreds of thousands of dollars in cash" from his five convenience stores on Long Island, N.Y., according to the complaint filed by 7-Eleven Inc. in New York on Friday.
"Tariq intentionally failed to report multiple hundreds of thousands of dollars of merchandise sales, including taxable sales, at the stores by manipulation of the cash registers and working from 'open drawers'," 7-Eleven claimed in a 59-page court document obtained by CSP Daily News.
Khan, a former chairman of the National Coalition of Associations of 7-Eleven Franchisees (NCASEF), told CSP Daily News earlier this week that there is "no truth" to 7-Eleven's claims. Still, he and his nine co-defendants have a mountain of accusations to overcome as the civil lawsuit wends its way through the legal system.
Initial Concerns
"Tariq intentionally caused inventory shortages to be created artificially and, thus, falsely underreported his net income to the federal and state governments," 7-Eleven claims in the complaint, the result of a three-year investigation that began in March 2010 following an "operational review" in connection with the renewal of one of the franchise agreements. "The results [of the review] were so startling that, in lieu of confronting Tariq with such results, an investigation of all stores, under the auspices of 7-Eleven's Asset Protection Department, was commenced."
Those initial concerns included:
- Writeoffs of fresh food that exceeded the writeoff dollars available.
- Sales of merchandise at prices significantly in excess of prices reported by Khan to 7-Eleven.
- Reported sales of merchandise exceeding reported purchases by more than $150,000 over 12 months.
- Inventory shortages in excess of $125,000 over 12 months.
The results, 7-Eleven said, suggested Khan was "operating a 'business within a business,' which deprive[d] 7-Eleven of its contractual share of the store's gross profit and which result in an understatement of net income to the detriment of 7-Eleven and the state and federal authorities."
A Three-Year Probe
The larger investigation allegedly showed Khan's five stores "experienced inventory shortages in excess of $2.43 million in aggregate" from Oct. 8, 2009, through Feb. 15, 2013.
The investigation came to a head the morning of June 21, when the civil lawsuit complaint was filed in the U.S. District Court, Eastern District of New York, and 7-Eleven Inc. terminated its franchise agreements with Khan and his wife, Senita, who is a co-franchisee in one of the five stores. At the time, Khan "declined to voluntarily vacate the stores and … refused to turn over 7-Eleven's property (the inventory and proceeds subject to 7-Eleven's security interests)," according to the court document.
The result is multiple claims again Khan, his wife, his son and several "lieutenants," store managers, and sales associates, in addition to up to 50 other defendants listed in the complaint simply as "Does," or unnamed "co-conspirators, agents, members, servants, employees," etc. acting on Khan's behalf.
The eight specific legal claims in the lawsuit, in which 7-Eleven requests damages of "not less than $1 million," include:
- Violation of the Racketeer Influenced & Corrupt Organizations (RICO) Act against all defendants.
- Conspiracy to violate RICO against all defendants.
- Common-law fraud against all defendants.
- Breach of contract against Tariq and Senita Khan.
- Declaratory judgment against Tariq and Senita Khan.
- Trademark infringement against Tariq and Senita Khan.
- Mandatory injunction against all defendants.
- Recovery of chattels (possessions) against Tariq and Senita Khan.
A summons to the lawsuit was issued June 25 to Tariq and Senita Khan and eight other defendants. Each defendant has 21 days to respond.
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