ABERDEEN – Calvin Phelps was sentenced to 40 months in prison and $5.1 million in restitution payments Monday for his involvement in a multi-state scheme to avoid taxes and fees on tobacco sales.
The sentence in federal court came nearly two years after Phelps’ guilty plea.
U.S. District Judge Sharion Aycock gave Phelps, of North Carolina, a sentence lower than the federal minimum due to his cooperation in other federal investigations.
In June 2012, Phelps pleaded guilty to schemes to defraud federal and state taxing agencies, money laundering and to lying about his business dealings.
He admitted to working through a Lee County undercover business known as G-Corp in Guntown to develop a fake paper trail giving the illusion he shipped tobacco products out of the U.S.
He admitted his actions were aimed at avoiding paying Master Settlement Agreement monies owed from participating tobacco companies to states involved in the tobacco settlement.
The MSA is an agreement between participating states and certified tobacco manufacturers and brands in which the manufacturers pay a per-carton sold settlement fee to the settling states at the end of each year.
Phelps argued that since many states were fighting to keep his brands from being certified for sale in their state, his restitution amount should be lower than $5.1 million (calculated from the approximate $5 per carton sold settlement fee).
Aycock ruled the fraudulently sold cigarettes were subject to MSA payments for multiple reasons, notwithstanding his admission of fraudulently selling better than 997,000 cartons of Dallas and Makro brand cigarettes. The cigarettes at the time of sale and bankruptcy proceedings were listed as brands of his certified manufacturing company Cutting Edge and subject to MSA payments.
Phelps also was charged with a $100 special assessment for each of the three counts brought against him and three years of post-release supervision following his 40-month prison sentence.
He requested to be placed in the Butner Federal Corrections Complex in Grandville County, N.C., due to its proximity to his home and family.