Former Owners of Cigarettes Cheaper Ordered to Pay Multi-Million Resitution

As part of their sentence, John Roscoe and Ned Roscoe were ordered yesterday to pay restitution in the amount of $10,206,665.68, Unite...

As part of their sentence, John Roscoe and Ned Roscoe were ordered yesterday to pay restitution in the amount of $10,206,665.68, United States Attorney Melinda Haag announced.

John and Ned Roscoe were former owners and officers of Cigarettes Cheaper!, which at its height had nearly 800 retail stores nationwide and $1 billion in annual revenue. On February 8, 2012, U.S. District Court Judge Ronald M. Whyte sentenced Ned Roscoe to five years in prison, followed by a five-year period of supervised release. His father, John Roscoe, was sentenced to five years of probation with 12 months home detention. Ned Roscoe is scheduled to begin serving his sentence on May 14, 2012. John Roscoe began serving his sentence immediately. Ned Roscoe, 51, who resides in Fairfield, California, was convicted by a jury on all 28 charges on February 22, 2011 after a month-long trial.

The jury found that Ned Roscoe conspired to defraud and make false statements to Comerica Bank, committed 13 acts of bank fraud and made 13 false statements to Comerica Bank when he knowingly submitted weekly borrowing base reports of inventory to Comerica from August 22, 2003 through November 14, 2003 with inflated inventory valuations, eventually inflating the inventory by more than $16 million. The jury also found that Ned Roscoe had caused an additional false statement to be made to Comerica Bank when he directed an employee to falsely explain the cause of the inventory inflation.

Judge Whyte found that John and Ned Roscoe’s actions caused a loss to the bank of more than $10.7 million. John Roscoe pleaded guilty during jury selection, on January 21, 2011, to conspiracy to make false statements to Comerica Bank. John Roscoe, 82, resides in Fairfield. According to the plea agreement, John Roscoe admitted that from August 22, 2003 through November 24, 2003, Ned Roscoe intentionally prepared, or caused to be prepared, falsely inflated valuations of company inventory reported to Comerica; that John Roscoe agreed with Ned Roscoe that he would prepare, or cause to be prepared, these borrowing base reports; and that John Roscoe agreed that they be submitted to Comerica Bank. John Roscoe further admitted that he was aware that an employee was directed to falsely explain the cause of the inventory inflation.

The restitution included $8,229,692.58 in principal and $1,976,963.10 in pre-judgment interest, due and payable immediately. The court’s restitution order reflected that the bank’s losses were partially mitigated by the bank’s prior liquidation of the defendants’ collateral. Judge Whyte further ordered that John and Ned Roscoe each make an initial payment of $5,000, plus no less than $2,500, per month until the restitution orders are satisfied. Ned Roscoe was ordered to pay $25 per quarter while serving his time in prison. The Federal Bureau of Investigation initiated its investigation in 2004 after a referral from Comerica Bank. Ned and John Roscoe were indicted by a federal grand jury on June 16, 2007. On September 30, 2011, the grand jury returned a second superseding indictment containing 28 counts.

Eumi Choi and Grant Fondo are the Assistant U.S. Attorneys who are prosecuting the case with the assistance of Kamille Singh. The prosecution is the result of a three-year investigation by the Federal Bureau of Investigation.

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