Robert and Mike Ammerman of Farmer's Tobacco Company of Cynthiana Inc. pleaded guilty Tuesday, June 29, in federal court in Mississippi, where a multistate investigation of cigarette-tax fraud has been centered.
Robert Ammerman, 69, of Falmouth, and his son Mike Ammerman, 47, of Cynthiana, face up to three years in prison, according to a news release from acting U.S. Attorney William C. Martin in Mississippi.
The two also agreed to forfeit to the government $8 million in cash, which represents the proceeds of their illegal activity, according to the news release.
That is one of the largest forfeitures in the history of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, which helped investigate, the news release said.
The Ammermans are the first cigarette-company executives from Kentucky to plead guilty in the fraud case in Mississippi. The FBI searched another company in the state last year as part of the case.
Charles Wells, a tobacco wholesaler from Hopkinsville, pleaded guilty in May to lying about cigarette sales so he could avoid paying taxes.
Wells conspired with a wholesaler in northern Mississippi in that case, reporting that he had sold cigarettes there when in fact he sold them in Kentucky, according to a court document.
The Ammermans schemed with Wells as well, according to documents in their case.
Wells supplied the Ammermans with raw tobacco. In return, they made VB and Kentucky's Best brand cigarettes "off the books" and sold them to Wells at below the usual cost, according to their plea agreements.
The father and son falsely reported the number of cigarettes they sold to Wells, the court document said.
Tobacco companies are required to report to state and federal governments how many cigarettes they sell and to pay taxes and fees on the cigarettes.
Wells sold the cigarettes he got from Farmer's Tobacco to a wholesaler in Mississippi, who sold them there and elsewhere, according to court documents.
Mississippi has been a focus of the cigarette-tax fraud investigation because it was not in the group of 46 states which sued tobacco companies in the 1990s to recoup the cost of treating sick smokers.
A 1998 settlement in that case required cigarette makers to pay billions of dollars to the states and limit advertising.
Mississippi and three others states had sued separately, so they were not part of the larger settlement.
That means a cigarette maker could claim to ship products to Mississippi and avoid paying a per-carton excise fee required under the national settlement, according to court documents.
The settlement made it harder for small tobacco companies to get a toehold in the market, the Farmer's Tobacco Web site says.
"Kentucky's Best gets calls every day from all over the country with requests for our cigarettes. Unfortunately, lawyers and the government have made that a challenge for small companies like ours," the Web site says. "The (settlement) that ended lawsuits against the tobacco industry has resulted in exorbitant costs and even tougher rules for selling cigarettes in some states."
The Ammermans have been a success story in Harrison County.
The company's Web site says they are fourth- and fifth-generation tobacco farmers who bucked giant tobacco companies and foreign competition to start making cigarettes with second-hand equipment in 2000, providing a market for leaf grown in the area.
The company's signature brand is Kentucky's Best. It distributes cigarettes in more than a dozen states but is working to expand that reach, according to the Web site.
The company's Web site lists Robert Ammerman as president of Farmer's and his son as vice president and chief of operations.
Farmer's Tobacco employs 35 people, according to the Web site of the state Economic Development Cabinet.
In addition to searching Farmer's last year, the FBI also searched Tantus Tobacco LLC in Russell Springs, as well as companies in other states.