"Cigarettes Cheaper" Fraud Sentencing

John Roscoe, 82, of Green Valley, California was sentenced to five years probation with 12 months home detention for going along with an equipment leasing scheme on both nonexistent and overinflated costs, as well as a fraudulent accounts receivable line of credit. In the trial with attorneys Ken Greene and Tom McCurrin, it was proven the fraud was masterminded John Roscoe’s son Ned, 51, Fairfield, California. He was sentenced to five years in prison. A restitution hearing is scheduled for March 5, 2012.

The father John Roscoe had pled guilty to an indictment that cost American Express Equipment Finance, LEAF Funding, and GE Capital almost $5 million, as well as a receivable line of credit at Comerica bank that at one time reached $16 million and wound up costing the bank $10.7 million.

“John Roscoe said Cigarettes Cheaper! had about 4% of the U.S. cigarette market and hoped to add another 5,000 outlets to its Benicia, Calif.-based chain when R.J. Reynolds sued the company for making gray-market cigarette sales. It was that suit that helped propel the Roscoes into their current predicament, “he had claimed.

According to CSPnet.com, “John Roscoe not out just yet. At 82, he’s working for his grandchildren’s company, Fresh Choice Tobacco Inc. The Vacaville, Calif., firm just launched a commercial cigarette-rolling machine, “The Revolution,” to complement the roll-your-own (RYO) machine it unveiled in 2006 that can produce a pack in two minutes. Retailers can buy the tabletop machines for use in-store by customers who want to roll their own with natural tobacco they shred on site, or they can sell the machines for $499 each.

http://www.cspnet.com/news/tobacco/articles/what-happened-long-story

Court document show the company with 800 nationwide stores got into financial difficulties and with their revolving line of credit with Co-America, San Jose, California allegedly first began using retail prices for whole invoices that it presented to the bank, and then started presenting invoices from the line of credit for cigarettes supposedly delivered but not yet, and then as it got worse, allegedly presented invoices for cigarettes that were never to be delivered, as well as leasing equipment twice or three times and then equipment that did not exist in a means to make payments.

“a. In 2003, the Company entered into an agreement with another tobacco company, hereinafter referred to as B.T., in which Ned Roscoe, through the Company, requested B.T. to invoice purchases of Revenge Brand cigarettes at $27.64 per carton. In truth and in fact, the Company paid B.T. $6.80 per carton of Revenge Brand cigarettes. The cost the Company later reported to Comerica on borrowing base certificates was not the actual cost of $6.80 per carton, but rather the inflated invoice cost of $27.64 per carton. These fraudulent misrepresentations accounted for more than $1 million in overstatements in the weekly borrowing base inventory reports the Company made to Comerica Bank.”
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“12. In late November 2003, Ned Roscoe instructed accountants to provide an analysis comparing figures the Company had reported to the bank in weekly reports and a strict interpretation of the loan agreement’s borrowing base provisions. An accountant reported that, as of November 11, 2003, the discrepancy between the inventory figures the Company had provided to the bank and the correct figures was approximately $16.5 million dollars. After reviewing the report and discussing it with R.M., Ned and John Roscoe agreed on a fraudulent strategy that they would tell Comerica Bank officials that differences in their weekly inventory reports were the result of ‘clerical or accounting errors’.”
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Plea Agreement:
http://leasingnews.org/PDF/RoscoePlea.pdf

Previous Story:
http://leasingnews.org/archives/Jan2011/1_20.htm#police