NEWARK, N.J., Aug. 7 -- In what federal prosecutors called the biggest motor fuel tax scheme in United States history, 25 people were charged Monday with evading more than $140 million in fuel excise taxes. 'This scheme cost every American taxpayer because we all have to dig into our pockets when fuel taxes are avoided on such a massive scale,' said Faith Hochberg, U.S. attorney in Newark, N.J. Hochberg said the suspects were arrested in a series of early-morning sweeps, ending a two-year probe.
She said the investigation was called 'Operation Red Daisy' because the suspects set up a series of shell companies, or a 'daisy chain,' in six states. The defendants include 15 Russian immigrants and several other foreigners, including Demetrios Karamanos, a Greek national described by Hochberg as one of the scheme's ringleaders. Hochberg said that in 1988, Igor Erlikh and Aaron Misulovin set up a Brooklyn company called Kings Motor Oils, Inc., and along with Karamanos, purchased millions of gallons of tax-free home heating oil. Prosecutors allege the company then sold the oil as diesel fuel to PetroPlus Petroleum, a fuel distributor in Deptford, N.J. Daniel Enright, president of PetroPlus, was charged with selling the oil to customers and collecting federal and state taxes, then dividing the tax monies with the owners of Kings Motor Oils. In legitimate gasoline and diesel fuel businesses, excise taxes are supposed to be paid somewhere along the line as the fuel goes from the wholesaler to the retailer. No taxes are due on home heating oil, which is similar to diesel oil. Hochberg said all the defendants were being arraigned Monday in federal courthouses in New Jersey, Pennsylvania, New York, Virginia, Minnesota and California. If convicted, Enright, Karamanos, Erlikh and Misulovin each face maximum 30-year prison terms and millions of dollars in fines.