Indian American tobacco wholesalers plead guilty to defrauding State of Connecticut of more than $5.8M

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Indian Americans Rishi Malik, 46, of Fairfield, Connecticut, and Pavan Vaswani, 40, of West Haven, Connecticut have pleaded guilty to charges of defrauding the State of Connecticut in millions of tax dollars on imported tobacco products.

According to court documents and statements made in court, the State of Connecticut imposes tax on tobacco products imported into state for distribution within the state, and tobacco amounts purchased with taxes due, are reported on Forms OP-300, which are filed with the Connecticut Department of Revenue Services.

However, according to a Department of Justice press release, for several years until 2012, Malik had been operating Connecticut Discounts LLC, a tobacco wholesale business based in Bridgeport, Connecticut, though which Malik obtained tobacco products from out-of-state suppliers and distributed the products to a network of clients who offered tobacco products for retail sale.

He also under reported the amount of tobacco he imported into the state for distribution on his OP-300 forms.

But in June 2012, Malik sold Connecticut Discounts to Vaswani who continued the tobacco wholesale business under the name KDV Discounts, LLC, and from approximately June 2012 to April 2017, Malik frequently assisted Vaswani in importing tobacco products from out-of-state suppliers, including those in Pennsylvania, according to a Department of Justice press release.

Malik sometimes even drove to Pennsylvania to pick up products and also participated in making orders as well as delivering payments in cash, at times.

Between January 2013 and April 2017, KDV acquired almost $12 million in tobacco products, primarily cigars and other products from suppliers in Pennsylvania, and distributed these products to hundreds of customers in Connecticut, who then stocked tobacco products for retail sale.

On the OP-300 forms that Vaswani filed with the Department of Revenue Services on behalf of KDV, the amounts reported were a small fraction of what KDV actually acquired.

Through this scheme, Vaswani failed to report approximately $5,821,057 in tax to the State of Connecticut.

In 2014, Malik registered Discount Deals, LLC, with an address in Sciota, Pennsylvania, which he held out to be a tobacco distribution business, though the unit he rented was not a space for a legitimate tobacco business, according to a Department of Justice press release.

Between 2014 and at least April 2017, Malik used Discount Deals to purchase more than $1.1 million in smokeless tobacco products from Pennsylvania suppliers to subvert other federal regulations regarding interstate transport of smokeless tobacco

A substantial amount of these smokeless tobacco products were provided to KDV for distribution in Connecticut during this time, while Discount Deals made no tax payments to the State of Connecticut.

Thus, approximately $400,000 in smokeless tobacco tax was not reported to Connecticut or other states.

Malik and Vaswani were arrested on January 11, 2018.

Both of them have pleaded guilty to one count of conspiracy to commit wire fraud and to violate the Contraband Cigarette Trafficking Act (“CCTA”) and one count of wire fraud.

While Malik is scheduled to be sentenced on January 23, 2019, Vaswani still awaits his; they have both agreed to a restitution order of $5,821,057.