Former Owner of National Cigarette Retailer Convicted of Bank Fraud

A former owner and officer of Cigarettes Cheaper!, which at its height had nearly 800 retail stores nationwide and $1 billion in annual revenue, was convicted by a federal jury yesterday of one count of conspiracy to commit bank fraud and to make false statements to Comerica Bank, 13 counts of bank fraud, and 14 counts of false statements to a bank, United States Attorney Melinda Haag announced. 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, in the fall of 2003, he knowingly submitted weekly borrowing base reports of inventory with inflated inventory valuations. The jury also found that 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. The guilty verdict followed a month-long jury trial before United States District Court Judge Ronald M Whyte.

Co-defendant John Roscoe, also an owner and officer of Cigarettes Cheaper! and Ned Roscoe’s father, pleaded guilty on January 21, 2011, to conspiracy to make false statements to Comerica Bank. John Roscoe, 81, resides in Green Valley, Calif. Evidence at trial showed that Ned Roscoe, 51, of Fairfield, Calif ., directed company accountants from August 22, 2003, through November 14, 2003, to inflate the company’s weekly borrowing base reports of inventory submitted to Comerica Bank, eventually inflating the value of Cigarettes Cheaper!’s inventory by more than $16 million. The evidence showed that Ned Roscoe did this in order to obtain additional money from Comerica through Cigarettes Cheaper!’s $21 million line of credit and to avoid a pay down on the line of credit of $10.7 million.

The evidence also showed that Ned and John Roscoe conspired to defraud Comerica Bank and make false statements to the bank. It further showed that Ned Roscoe directed and caused a company accountant to falsely inform Comerica Bank in late November 2003 that the cause of the $16 million in inflated inventory was due to clerical or accounting errors. 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 the 28 counts presented to the jury.

The sentencing of Ned Roscoe is scheduled for June 6, 2011, before Judge Whyte in San Jose. No sentencing date has been scheduled for John Roscoe, but one is expected to be set shortly. The maximum statutory penalty for count 1, in violation of 18 United StatesC. § 371, conspiracy to commit bank fraud and to make false statements to a bank, is five years and a fine of $250,000, plus restitution if appropriate.

The maximum statutory penalty for counts 2 through 14, in violation of 18 United StatesC. § 1344, and counts 15 through 28, in violation of 18 United StatesC. § 1014, false statements to a bank, is 30 years as to each count, and a fine of $1 million, plus restitution if appropriate. However, any sentence following conviction would be imposed by the court after consideration of the United States Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 United StatesC.

§ 3553. Eumi Choi and Grant Fondo are the Assistant United States Attorneys who prosecuted the case with the assistance of Kamille Singh. The prosecution is the result of a three-year investigation by the Federal Bureau of Investigation. The FBI initiated its investigation in 2004 after a referral from Comerica Bank.