Tobacco scheme probe widens

By Patsy R. Brumfield/NEMS Daily Journal

OXFORD – The alleged involvement of Yakima Nation tribal businessman Delbert L. Wheeler in a multistate black-market cigarette scheme is the latest wrinkle in a federal investigation that runs through North Mississippi.
New federal court documents show that prosecutors want nearly $1 million and 23 classic cars seized recently in Washington state from accounts in the name of King Mountain Tobacco Co. and Wheeler, one of its founders.
Wheeler’s son and several associates also are implicated in the documents.
A spokesman at Wheeler’s office declined comment Tuesday.
King Mountain cigarettes are manufactured on an Indian reservation about 35 miles from Yakima.
The forfeiture action is similar to how the government seized substantial sums of money, a plane and vehicles belonging to Tupeloan Jerry Burke, who in the fall of 2009 was indicted and pleaded guilty to involvement in a similar cigarette conspiracy. Burke began serving a prison sentence two months ago.
Both tobacco schemes allegedly involved diversion of cigarettes into Mississippi, where certain national payments aren’t required, as they are in most other U.S. states. Then, the Mississippi cigarettes were alleged to have been diverted without paying what was due in those states.
Burke and a partner were accused of working the scheme from early 2003 until June 2008 and reportedly underpaid South Carolina some $800,000 and New York and other states some $5.4 million.
State taxes and federal excise taxes also were subject to be paid.
Thousands of cartons of King Mountain brands were among tobacco products seized at two Tupelo area warehouses in 2009 and later auctioned off by the federal and state governments.
The Mississippi investigation was a spin-off of a similar, ongoing investigation on the East Coast.
Authorized by Magistrate David Sanders, the Feb. 25 seizure of King Mountain and Wheeler property comes from allegations that they participated in the diversion scheme from KMT’s manufacturing facility to tobacco wholesalers in Georgia and South Carolina.
They also are accused of using the scheme to avoid paying state and federal excise taxes.
The KMT deals, the government alleges, totaled some $22 million.
The money and the vehicles the government wants to claim represent property it says is “traceable to the proceeds of the violations” it alleges, which makes them subject to be forfeited to the government.
In Burke’s case, similar forfeiture documents were filed with the U.S. District Court prior to public news of charges against him.
Among the vehicles the government wants are classic models such as the 1967 Ford Shelby GT 350 Fastback Mustang, a 1966 Chevy Corvette Stingray and a 1956 Ford Thunderbird convertible. The oldest is a 1939 Buick Series 40 Business Coupe.
An 87-page sworn statement by Tupelo FBI Special Agent Matthew Bullwinkel, which provided probable cause to Sanders to authorize the new seizures, claims King Mountain Tobacco and their undercover informant were involved “in different schemes” since 2007.
He says the first shipment of King Mountain brands came to a Guntown warehouse, operated by the informant. Bullwinkel claims KMT officials repeatedly visited Tupelo and the warehouse.
The agent also said that when an April 2009 news release announced that a North Mississippi warehouse was “discovered,” with about $20 million in contraband cigarettes, the event actually was a “simulated raid” used to secure the evidence and remove their informant from the network.
It also was an excuse, Bullwinkel said, to contact investigation subjects, including Wheeler, who said his products were being diverted without his permission.
From June until October 2009, Wheeler and other KMT officials heard and saw much of the evidence against them.
Later, Bullwinkel said KMT came under suspicion for sales in South Carolina.
The U.S. attorney’s office in Oxford declined to speculate on further events in the case.

Contact Patsy R. Brumfield at (662) 678-1596 or patsy.brumfield@journalinc.com.