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PR- 130-11
April 21, 2011


Lawsuit Filed Under Contraband Cigarette Trafficking Act for Illegal In-City Sales of Nearly 4.4 Million Packs of Unstamped Cigarettes

City Seeking to Recover $19.5 Million in Lost Revenue and Fines

Mayor Michael R. Bloomberg, Commissioner of Finance David M. Frankel, and Corporation Counsel Michael A. Cardozo today announced a lawsuit filed by the City in the Federal District Court for the Southern District of New York against a Kentucky-centered ring of individuals and companies and their New York City customers that operated over the Internet to serve as significant sources of bootlegged, non-taxed cigarettes in New York City. The suit alleges that cigarette sellers operating from Kentucky, California, and Michigan, under the name Cigarettes Direct, received Internet and telephone orders and shipped 437,721 cartons, or 4.37 million packs, of cigarettes into New York City without having paid for the required City tax stamps, in violation of federal anti-cigarette trafficking and racketeering statutes. The City residents who comprise the defendants in the suit purchased thousands of cartons of non-taxed cigarettes and alleged to have re-sold the cigarettes in the City, in violation of the same federal statutes. The largest offender bought a total of 322,320 packs of 22 different brands in less than three years. Sales of non-taxed cigarettes deprive the City of millions of dollars in lost cigarette tax revenues, hurt law abiding small businesses and undercut public health measures designed to discourage smoking, especially by teenagers.

The City estimates a tax loss of approximately $6.5 million from this single Internet ring. Sales of non-taxed cigarettes over the Internet were recently outlawed by passage of the federal Prevent All Cigarette Trafficking (“PACT”) Act, which in addition generally bars cigarettes from the U.S. Mail. Each violation is also a “racketeering act” as defined under the RICO statute, and the City is accordingly entitled to three times the amount of its damages and to attorney fees.

“Illegal cigarettes cost our City and State billions of dollars, through increased health care costs and by cheating law abiding small businesses out of customers and cheating taxpayers out of much needed tax revenue,” said Mayor Bloomberg. “We will continue working with our partners in the federal government to protect the public health and fiscal health of our City and State.”

The suit is the result of an information-sharing effort by the federal Bureau of Alcohol, Tobacco, Firearms & Explosives (“ATF”), whose investigation of the entities involved with Cigarettes Direct uncovered a network of cigarette wholesalers and internet sellers that distributed non-tax paid cigarettes nationwide, including to New York City.

“This latest lawsuit is another step in our continued efforts to halt illegal cigarette trafficking,” said Corporation Counsel Cardozo. “In these challenging economic times, we will continue to use the law to defend the public fisc from tax evaders.”

“By merging our Office of Tax Enforcement with the Office of the Sheriff under the leadership of Edgar Domenech, Finance has increased its ability to work across jurisdictions, conduct investigations, and find illegal and unstamped cigarettes at their source,” said Finance Commissioner Frankel. “We are very appreciative of the work done by Corporation Counsel Michael Cardozo and his team, and we will continue to work with them and our other law enforcement partners to snuff out illegal cigarette activity in New York. It is our job to protect the New Yorkers who do the right thing from higher costs or reduced services from those that abuse the system to evade taxes.”

The City’s action is brought against Israel Chavez, Pam Chavez, Chavez, Inc., Pam Chavez, Inc. and certain of their wholesale suppliers, and alleges that these entities would receive orders under the name “Cigarettes Direct 2 U” over a variety of internet websites, including,,,,,, and The cigarettes, which did not bear either New York State or New York City tax stamps, were then shipped by United States Postal Service or common carrier to purchasers located throughout the five boroughs. Also named as defendants in the suit are approximately 30 City residents whose purchases indicate that they were re-selling the non-tax paid cigarettes. Information obtained by the City from ATF demonstrated that some Cigarettes Direct 2 U buyers in the City had purchased thousands of cartons of cigarettes, with such frequency and in such a variety of brands and styles as to be purchasing the cigarettes for re-sale, such as the customer who over a three year period purchased approximately 32,000 cartons, in 22 different brands, in orders of approximately 30 or more cartons at a time, 10 or 15 times each month, spending nearly $1 million dollars on cigarettes. The transactions in unstamped cigarettes both by the parties connected with Cigarettes Direct 2 U and by City residents violate the federal Contraband Cigarette Trafficking Act, and also serve to support claims for treble damages under the Racketeer Influenced Corrupt Organization Act (“RICO”).


Stu Loeser / Jason Post   (212) 788-2958

Kate Ahlers / Connie Pankratz   (Law Department)
(212) 788-0400

Owen Stone   (Department of Finance)
(212) 669-2566


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