International Criminal Figure Pleads Guilty to $138 Million Fuel Tax Scheme After Nearly 13 Years as a Fugitive

WASHINGTON – After nearly 13 years as a fugitive, a former New Jersey resident has been returned to the United States, and pleaded guilty today to conspiring to committing one of the nation’s largest known motor fuel excise tax schemes, Acting Assistant Attorney General Rita M. Glavin of the Criminal Division announced. Aaron Misulovin a/k/a Albert Friedman, a/k/a Valery Vibornov, pleaded guilty before U.S. District Judge Joseph E. Irenas in Camden, N.J., to one count of conspiracy, three counts of wire fraud, three counts of money laundering and three counts of tax evasion. According to the terms of the plea agreement accepted today by Judge Irenas, Misulovin will be sentenced to five years in prison, and could face a fine of up to $2.5 million and restitution. Sentencing is scheduled for June 19, 2009. 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 émigrés 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. 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. Court documents show that the sophistication and scale of this illegal operation required the participation of a number of Eastern European émigrés responsible for the creation of many of the middle companies. According to court documents, the conspirators used false identification to incorporate companies, open bank accounts, and establish storefront offices used to facilitate the s