May 12 (Westlaw Journals) - New York City has sued an out-of-state Internet ring in federal court for allegedly depriving it of $6.5 million in tax revenue by selling hundreds of thousands of cartons of untaxed cigarettes.
The suit, filed in the U.S. District Court for the Southern District of New York, claims Kentucky-based Cigarettes Direct to You, or CD2U, sold unstamped cigarettes through numerous websites and via telephone.
Various companies and individuals in Kentucky, California and Michigan used the CD2U name to sell the illegal cigarettes, the complaint says.
From 2003 to 2009 they shipped 437,721 cartons, or 4.37 million packs, of bootlegged cigarettes into New York City without paying for city or state tax stamps, in violation of federal racketeering and anti-trafficking laws, the suit says.
The city excise tax was $1.50 per pack or $15 per carton.
The suit claims the defendants violated the Contraband Cigarette Trafficking Act, 18 U.S.C. § 2341, and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961.
Some of the cigarettes were then purchased by other defendants who illegally resold them in the city, according to the lawsuit.
One defendant allegedly bought 322,320 packs of the bootlegged cigarettes in a three-year period, according to an April 21 statement on the city's official website.
Also included as defendants are the suppliers that allegedly distributed the contraband cigarettes to the Internet ring.
"The city was accordingly injured in its business and property by reason of the defendants' operation of an enterprise through a pattern of racketeering activity," the suit says.
The city seeks to recover the $6.5 million it says it lost in tax revenue, as well as treble damages as penalties under both the CCTA and RICO.
City of New York v. Chavez et al., No. 11-CV-2691, complaint filed (S.D.N.Y. Apr. 20, 2011).
(Reporting by Rae Theodore, Westlaw Journal Tobacco Industry)