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3rd Local Resident Sentenced in Federal Case to Defraud Raley’s

David John Magana, age 47, of Newcastle, was sentenced Wednesday by United States District Judge John A. Mendez to three years and 11 months in prison and ordered to pay more than $2.9 million in restitution for defrauding Raley’s Family of Fine Stores of more than $3 million, according to a statement released by United States Attorney Benjamin B. Wagner.

Magana is the third and last defendant to be sentenced in this case. Two other defendants pleaded guilty and were sentenced on December 3, 2013. Jason Allen Smith, 47, of Foresthill, was sentenced to three years and one month in prison and ordered to pay $1.6 million in restitution. Martin Stewart Cullenward, 60, of Cool, was sentenced to three years and five months in prison and ordered to pay $1.4 million in restitution.

According to court documents, from at least as early as May 14, 2007 until September 28, 2010, Magana conspired with Smith and Cullenward to devise several schemes to defraud Raley’s. In one scheme, Magana demanded that a printing company and a paper company pay Cullenward unnecessary commissions in order to keep doing business with Raley’s. Given Magana’s position as director of Advertising, both companies agreed to pay Cullenward, as long as Raley’s reimbursed them. The unnecessary commissions were disguised as additional charges within their regular invoices to Raley’s. Magana approved for payment all of the inflated invoices, and Cullenward paid Magana a kickback after he received the “commissions.”

Magana and Cullenward sold 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, Smith, and Cullenward 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 Smith used a company Smith had created legally, Advantage Paper Inc., 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. The proceeds from the inflated paper purchases were deposited into Advantage Paper’s bank accounts and later split with Magana. At times, Smith paid Magana a portion of the fraud proceeds in cash. In other instances, he paid for bills on Magana’s behalf.

This case was 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.

USDOJ

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