ROANOKE, Va. -- U.S. Attorney John L. Brownlee said that Appalachian Oil Co. Inc. (APPCO) has entered into a pretrial diversion agreement for conspiracy to commit wire fraud.
Under the conditions of the pretrial diversion agreement, Appalachian Oil accepts responsibility for the conduct outlined in the Information and will pay $255,000 in forfeiture. Appalachian Oil will also pay R.J. Reynolds Tobacco Co. $2.5 million, representing the restitution due to R.J. Reynolds for off-contract sales of discounted cigarettes.
According [image-nocss] to the one-count Information filed in U.S. District Court in Abingdon, Va., Appalachian Oil entered into a series of marketing contracts with R.J. Reynolds Tobacco to obtain discounted cigarettes that are to be sold exclusively to customers. Instead, Appalachian Oil would sell large quantities of discounted cigarettes to wholesalers in direct violation of their marketing contract.
"In an effort to cover up their scheme, Appalachian Oil Co. created false invoices, which they submitted to R.J. Reynolds Tobacco Co.," said Brownlee. "We hope to send the message that those who commit fraud will be held accountable for their actions."
Between June 2002 and May 2004, Appalachian Oil 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. Between March 7, 2003, and Dec. 3, 2003, 36 special orders of R.J. Reynolds' cigarettes were placed by Appalachian Oil. According to the suit, for each order, a company official would create a fraudulent invoice in order to falsify the records. The falsified invoices created a paper trail that made it appear that the cigarettes had been purchased for and delivered to Appalachian Oil 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.
R.J. Marketing did not have a contract with R.J. Reynolds Tobacco and thus could not purchase brand-name cigarettes from a wholesaler at the reduced brought-down price.
The agreement also states that Appalachian Oil will not rehire the former president of the Convenience Store Division and will appoint someone to serve as their compliance officer to ensure that employees comply with all federal, state and local laws as well as Appalachian Oil's policies and procedures.
Finally, Appalachian Oil will maintain a disclosure program whereby citizens can disclose issues or questions to the compliance officer involving its compliance with this agreement. In exchange, the United States agrees to defer prosecution for three years. If the company complies with the conditions outlined above, the Information will be dismissed.
As reported in CSP Daily News, R.J. Reynolds filed a lawsuit in September 2005 alleging that certain wholesalers, retailers and other individuals conspired to defraud the company. The complaint outlined allegations that the defendants were guilty of racketeering, unfair and deceptive trade practices, civil conspiracy, as well as additional counts. The company sought more than $20 million in compensatory damages and attorneys' fees.
Wholesalers, retailers and individuals then named in the suit included:
Market Basket Food Stores Inc., Taylorsville, N.C. Stephen Hunt, owner and operational manager of Market Basket Food Store Inc. RJ Marketing Inc., Kingsport, Tenn. Jason Carpenter, co-owner and operational manager of RJ Marketing Inc. Ronald Clark, co-owner of RJ Marketing Inc. J&L Distributors, Weber, Va. Foster Qualls, owner of J&L Distributors Dave's Distributing, Troutman, N.C. Dave Ritchie, owner of Dave's Distributing Appalachian Oil Co. Inc. (APPCO), Blountville, Tenn. Jeffrey H. Benedict, president of APPCO Daniel Blackburn, president of c-store operations for APPCO MAP of Virginia dba Wholesale House Tobacco Outlet (WHTO), Abingdon, Va. Michael Patrick, owner of WHTO Hileman Tobacco Stores, Saint Paul, Va. Danny Hileman, owner of Hileman Tobacco Stores BCW Properties dba Holiday Foods, Wilkesboro, N.C. James Crump, owner of Holiday Foods DWI LLC, Russell, Ky. Hobart Anderson, owner of DWI LLCJeffrey Benedict, president of APPCO, told CSP Daily News at the time, I do know that neither [APPCO, myself] nor Danny Blackburn has engaged in any fraudulent conduct of any kind, despite the clams of R.J. Reynolds to the contrary. In December 2004, APPCO sued R. J. Reynolds for breach of contract and for violations by R.J. Reynolds of the Tennessee Unfair Trade Practices Act. To my knowledge, that lawsuit contains all the valid legal disputes between APPCO and R.J. Reynolds. We are involved in a contract dispute with R.J. Reynolds. I have no knowledge of any conspiracy.
APPCO, a major southeastern wholesale and retail distributor of petroleum products, as well as c-store operator, entered into a deal in mid-January to be acquired by biofuels company NewGen Technologies Inc., Charlotte, N.C. APPCO operates 58 company-owned gas station c-stores and supplies petroleum products to more than 160 other independent dealers in Tennessee, Kentucky, Virginia, West Virginia, North Carolina and South Carolina. In the 12-month period ended Sept. 30, 2006, the company had revenue of more than $400 million.
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