Former Employee Pleads Guilty to Defrauding Raley’s of More Than $2.5 Million
|U.S. Attorney’s Office February 12, 2013|
SACRAMENTO—Auburn-area resident David John Magana, 46, pleaded guilty today to a conspiracy to commit mail and wire fraud and a money laundering conspiracy, United States Attorney Benjamin B. Wagner announced.
According to court documents, Magana, the former director of advertising for Raley’s Family of Fine Stores, conspired with others to defraud Raley’s of more than $2.5 million using a number of schemes. The investigation is ongoing.
“The magnitude of Mr. Magana’s misconduct is unacceptable,” said Sacramento Division FBI Special Agent in Charge Herbert M. Brown. “The FBI is dedicated to identifying and pursuing cases where an employee intentionally takes advantage of an employer for financial gain.”
“Mr. Magana abused his position to take control of millions of dollars of company money for personal profit,” said IRS-Criminal Investigation Special Agent in Charge Jose M. Martinez. “Not only did he defraud his employer, but the everyday customer. IRS-CI is committed to identifying and investigating those who take advantage and impact the financial well-being of others for their own benefit.”
According to court documents, Magana demanded that a company that provided printing services to Raley’s, Vertis Inc., and a company that provided paper supplies, Graphic Communication Holding Inc., pay a co-conspirator unnecessary commissions in order for them to keep doing business with Raley’s. Given Magana’s position as director of advertising, both Vertis and Graphic agreed to pay Magana’s co-conspirator, so long as Magana made sure that Raley’s reimbursed them. Magana reimbursed the unnecessary commissions to the companies by disguising them as additional charges within their regular invoices. Magana approved for payment all of the inflated invoices from both Vertis and Graphic. Magana’s co-conspirator paid Magana a kickback after he received money from Vertis or Graphic.
Magana and others also worked together to sell significant quantities of Raley’s paper inventory to third parties at a discounted rate. Much of that paper was stored in a warehouse managed by a logistics company. As Raley’s director of advertising, Magana had access to the paper in the warehouse. Magana and his co-conspirators advertised the discounted paper by word of mouth and through the Internet and kept most of the proceeds. They falsely reported to Raley’s that the paper had been used in the normal course of business.
Magana and a co-conspirator used a company known as Seven Sisters Media Inc. as a shell corporation through which they laundered the proceeds of their fraud against Raley’s. Magana and another one of his co-conspirators used a company known as Advantage Paper Inc. to receive a portion of the proceeds from the fraud scheme. They also used Advantage Paper to supply paper to Raley’s at an inflated price. They met from time to time to determine the ultimate amount Raley’s would pay for paper. In each instance, part of the inflated price included the money paid to Magana by Advantage Paper as a kickback.
This case is the product of an investigation by the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation. Assistant United States Attorney Michael M. Beckwith is prosecuting the case.
Magana is scheduled to be sentenced by United States District Judge John A. Mendez on June 4, 2013. He faces a maximum sentence for the mail fraud charge of 20 years in prison; a fine of $250,000 or twice the gross gain or loss, whichever is greater; and a three-year term of supervised release. The maximum sentence for the money laundering charge is 20 years in prison; a fine of $500,000 or twice the value of the laundered property, whichever is greater; and a three-year term of supervised release. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory sentencing factors and the Federal Sentencing Guidelines, which take into account a number of variables.