Following thirteen years on the lam as a fugitive, Aaron Misulovin pleaded guilty yesterday "to conspiring to committing one of the nation's largest known motor fuel excise tax schemes," and will be sentenced to five years in prison:
On Aug. 3, 1995, an indictment was returned by a federal grand jury in New Jersey, charging Misulovin and 24 other individuals, 15 of whom were emigres from Eastern Europe, with conspiring to defraud the United States and the state of New Jersey of approximately $138 million in motor fuel excise taxes, and to commit the substantive offenses of wire fraud, money laundering and tax evasion. Misulovin was born in Riga, Latvia, and was naturalized as a U.S. citizen. According to the indictment, Misulovin and co-defendants Igor Erlikh and Demetrios Karamanos, operated Kings Motor Oils (Kings), a wholesale fuel distributorship with offices in Edison, N.J. From 1989 through 1994, Kings purchased hundreds of millions of gallons of tax-free home heating oil, but through an elaborate scheme sold it as tax-paid diesel fuel to PetroPlus, a fuel wholesaler located in Deptford, N.J., which was owned and operated by co-defendant Daniel Enright. PetroPlus then sold the fuel to unknowing customers as diesel fuel for highway use, and charged and collected the applicable federal and state taxes. Under U.S. and New Jersey law, the co-conspirators incurred the tax liability for the sale of the fuel. However, instead of paying the IRS and state revenue authorities as required, the amount collected for the taxes were distributed among Enright, Misulovin, Erlikh, Karamanos and other conspirators in the scheme.
The racket in which Misulovin was involved is commonly known as a "daisy chain" scheme, and is popular within the Gambino crime family, the Russian Mafia and eurasian crime groups in California, New York and New Jersey:
According to court documents, Kings and PetroPlus insulated themselves by inserting a series of shell companies, nominee companies and other sham entities (known collectively as "middle companies") between them in the distribution chain to give the appearance that these companies actually bought and sold the fuel. In reality, these companies never took title or possession of the fuel. According to court documents, the sole purpose of these middle companies was the generation of false and fraudulent invoices and other paperwork to disguise the true transactions between Kings and PetroPlus. One of the middle companies in each transaction would be positioned as the "burn" company - the entity that appeared on paper to bear the tax liability and that would disappear in the event of an investigation. However, the scheme was designed so that on the face of the paperwork, it always appeared that Kings and PetroPlus were relieved of any tax liability. In the early 1990s, this scheme was commonly known as a "daisy chain" scheme, and often involved organized crime groups. The "daisy chain" made it difficult for the IRS and state revenue authorities to identify those responsible to pay the federal and state taxes, and to trace the movement of the illicit proceeds. The illicit proceeds were then laundered through various bank accounts throughout the United States and overseas.
Misulovin was apprehended by Israeli police in April 2004 "in connection with their investigation of a major international money laundering operation involving an underground bank in
Erlikh also fled the country following the 1995 indictment but was returned to
On
June 19, 1998, following a nine-and-a-half-month jury trial before Judge Irenas in U.S. District Court for the District of New Jersey, Enright and Karamanos were convicted for their role in the conspiracy and related charges. Also convicted at trial were co-defendants Richard Pedroni and Mary Ingram, both wholesale motor fuels distributors in New Jersey. Two additional defendants were acquitted. Seventeen co-defendants pleaded guilty prior to trial. Enright was sentenced to 16 years in prison and ordered to pay restitution of $1 million.
The "daisy chain" scheme was conceived by former Colombo capo Michael Franzeze in the 1980s who perpetrated a "multi-billion dollar gasoline tax scheme":
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