Three men, who played different roles in a conspiracy to divert cardboard proceeds from the Kroger Company, were sentenced this morning in the United States District Court for the Western District of Virginia in Lynchburg.
Thomas Faulkner, 39, of Waynesboro, Va., was sentenced to 18 months incarceration, supervised release for three years and $1.6 million in restitution. He previously pleaded guilty to one count of multi-object conspiracy to commit money laundering, hiring illegal aliens and mail fraud.
Glenn Miguel Wagner, 41, of Salem, Va., was sentenced to three years probation and $43,706 in restitution. Wagner previously pleaded guilty to one count of misprision of a felony pertaining to mail fraud. Finally, Bernard “Buddy” Smith, 58, of Penhook, Va., was sentenced to two years probation, a fine of $15,000 and restitution to the IRS. He previously pleaded guilty to filing a false tax return.
“Through their fraudulent scheme, these defendants stole millions of dollars from Kroger,” United States Attorney Timothy J. Heaphy said today. “The prosecution of financial fraud is a priority for the Department of Justice and this United States Attorney’s Office. We will continue to use every possible resource to prosecute fraudsters and recover stolen assets for their victims.”
According to evidence presented by Assistant United States Attorney Charlene Day, Kroger owns a distribution warehouse in Salem, Va. The company outsourced warehouse operations to multiple contractors. Starting in 2006, Kroger contracted with Valley Logistic Services (VLS) to conduct salvage operations at the Salem Warehouse. Faulkner owned and operated VLS and Wagner was the operations manager for VLS at the Salem warehouse. Smith was the manager of Atlas, another contractor hired by Kroger to maintain its warehouse in Salem.
It was the duty of VLS to collect and transport used packing and shipping materials, including wooden pallets and cardboard, to Kroger authorized recycling companies. Kroger wouldreceive payments and/or credit offsets based on the amount of salvage the warehouse delivered.
Faulkner has admitted to setting up a scheme in which some of the cardboard from the Salem warehouse would be diverted from the pre-approved recycling companies and sent instead to other facilities, without Kroger’s knowledge. Instead of the Kroger receiving a credit for the salvage, Faulkner set up a shell company, Valley Warehouse Services (VWS), which was paid for the diverted cardboard.
Wagner assisted in the scheme by instructing employees at the Salem warehouse to divert cardboard from the trucks going to the Kroger-approved recycling companies to trucks that transported the diverted cardboard to other facilities.
Smith assisted with the cardboard diversion and as a result, Faulkner wrote Smith cashier’s checks for his assistance in diverting the cardboard. In addition, Faulkner directly paid for home improvements to Smith’s home, monthly landscaping bills, bought personal items, and paid for family vacations. Smith failed to report the income he earned from Faulkner for the sale of diverted cardboard on his tax forms. In all, Faulkner’s diversion scheme caused losses of approximately $1.6 million to Kroger Company.
The investigation of the case was conducted by the United States Postal Inspection Service, the Internal Revenue Service, the Roanoke County Police Department and U.S. Immigrations and Customs Enforcement. Assistant United States Attorneys Charlene Day and C. Patrick Hogeboom are prosecuting the case for the United States.