Web Smoke Split Decision

Man found not guilty of racketeering, guilty of unlawful distribution

Published in CSP Daily News

HILLSBORO, Ore. -- The Oregon Department of Justice lost its racketeering case Tuesday against a man who sold untaxed cigarettes online, but the prosecutor says officials are winning a larger battle against unregulated Internet sales, reported The Oregonian.

Washington County Circuit Judge Michael McElligott found Eric Ivan Guthrie not guilty of racketeering and computer crime for selling cigarettes through the now-defunct Inexpensivesmokes.com website; however, McElligott found Guthrie guilty of doing business as a cigarette distributor without a license, [image-nocss] two counts of unlawful distribution of cigarettes for not affixing the packs with Oregon revenue stamps and five counts of failing to comply with tobacco sale requirements for not verifying that buyers were at least 18 years old, said the report.

"We wanted to get that conviction because it would have sent a larger message," Donna Brecker Maddux, assistant attorney general, told the newspaper concerning the racketeering charge. "But without it, we still have the local effect."

Online sites were popular with smokers because they sold cigarettes at about two-thirds the cost of retailers by bypassing the state tax. They would ship the cigarettes from foreign countries directly to U.S. buyers.

Oregon prosecutors were the nation's first to go after local Internet tobacco sellers, the report said. When they did, Maddux said, delivery and credit card companies took notice. She said credit card companies have quit accepting online cigarette purchases and DHL no longer handles overseas cigarette shipments into John F. Kennedy International Airport in New York. As a result, numerous online cigarette sales sites have folded, including yessmoke.com, which Maddux described as the world's largest tobacco website and the provider of cigarettes to Guthrie's buyers through Switzerland.

Maddux estimated the Oregon Department of Revenue has the names and sales receipts for 7,500 people who bought cigarettes online without paying the state tax of $1.18 a pack. A small percentage have been sent bills, and officials are determining how many others will be asked to pay the state. "There is no exact estimate, but Oregon is losing millions of dollars a year," Maddux said.

Guthrie, 36, was charged with selling five cartons of Marlboro and Camel cigarettes to undercover Oregon State Police detectives, The Oregonian said. Twice the detectives used juveniles to buy online.

All told, Maddux said Guthrie's computer records indicate he sold at least 2,000 cartons of cigarettes to online buyers worldwide between January and August 2004.

Kelly Hodsdon, who sold the Inexpensivesmokes.com website to Guthrie, testified that the site's owner made about $5 profit on each carton. He said he hired an attorney who told him the business was legal.

Guthrie told the judge he "tried to learn a new skill" and the online tobacco business was legal when he bought it in August 2003 to supplement his fencing and decking company. "Then it was changed behind the scenes," said Guthrie, who complained that no one from the Oregon Department of Justice told him he was out of compliance before his arrest.

It was legal to import 200 cigarettes, which is how many are in a carton, until January 2004, when state law changed the limit to 199. McElligott said Guthrie "probably had a fairly good faith belief that he wasn't committing a crimebut he was."

Defense attorney John Tyner argued that Guthrie used his laptop to run Inexpensivesmokes.com, which meant he could have been located outside the state of Oregon, said the report. He also argued that DHL, Mastercard, the U.S. Postal Service and other companies named in the racketeering charge were headquartered outside Oregon and Guthrie was not actually a cigarette distributor because he never had physical possession of the product.

The judge did not buy those arguments, but rejected the racketeering charge, saying there was not enough evidence to prove Guthrie intentionally participated in an illegal enterprise or pattern or criminal activity.

McElligott sentenced Guthrie to 18 months' probation on the tobacco charges and 10 months in the Washington County Jail for being a felon in possession of a handgun that was found during a July 2004 search of his home. He previously was convicted of growing marijuana, according to the report.