When it comes to organized crime, and especially the Italian and Soviet flavour of it, California takes a back seat to the personalities that roamed New York and the history that took place on the East Coast. While I complained before about the lack of a long-form narrative on the Mafia Gas Tax Scheme in the Tri-State Area, there were at least enough newspaper articles, books, and academic essays available to piece something together. Now that I have turned my attention to California to try to put together a preliminary timeline and note down the major players, I realize I can barely even do that. Unlike New York, none of the California informants turned biographers ever participated in fuel schemes, so their books were of no help. The late professor Alan A. Block never got around to writing a dedicated paper on California, after mentioning a few cases in passing in his seminal essay Racketeering in Fuels: Tax Scamming by Organized Crime. While his follow-up in Phil William’s study on Russian Organized Crime focused much more on the Soviets’ start in the business, mention of the Golden State was conspicuously absent (even though they had a much more dominant role in perpetrating it). As such, this essay had to largely rely on a scant collection of newspaper accounts from the time, augmented with a few court case appeals, and some other reports. Unfortunately, this means this is more of a collection of notes than a proper article. Doing my best!
It’s pretty easy to see why California never garnered the same interest as New York from past authors when it came to fuel tax scams; the scale of the problem was simply incomparable. In 1985, when California was contemplating a bill to change the point of taxation from the 22,400 or so service stations dotting California to shift responsibility onto refiners, a state senator’s office estimated the government was being cheated out of $150 million annually, while some industry participants placed the figure closer to $500 million.[1] A more realistic number was shown in a 1987 U.S. Treasury report presented to Congress, which put California’s state gasoline tax evasion at an annual $30-50 million loss.[2] This was a paltry sum considering the same report estimated New York’s leakage at $173-254 million per year. This scale of theft was reiterated in 1993 when officials claimed that scrupulous diesel dealers cost the state $50 million annually.[3] Not an insignificant amount, but also just not the same level of opportunity that was present in New York.
Background
It is also worth exploring a bit of why it never became such a problem. After all, in 1975, California had the highest total highway gasoline sales, at 10.2 billion gallons.[4] There seem to have been three major reasons for this development. The first has to do with the taxes themselves, or rather how they were collected. In 1983, California hiked their state gasoline excise taxes to 9 cents from the previous 7 per gallon and coupled with the federal hike to 9 cents, and an accompanying state sales tax (ranging from 6-7%), drivers were charged ~24 cents worth of taxes per gallon on a 15-gallon fill-up.[5] This is comparable to the taxes charged in New York (~27 cents) and Florida (~21 cents) and so on paper should have been extremely lucrative for potential criminals. However, prior to 1986, both the state gas excise and sales tax were collected and remitted back to the government on the retail level.[6] This was the exact same system that was employed in New York prior to mid-1982 that gave gasoline bootleggers their start.[7] However, as pointed out in New York, it was only when the point of collection was changed to the wholesale level (i.e. the middleman between gas stations and refiners/terminals) that gasoline bootlegging reached its peak and started to alter industry-wide economics. California, however, seeing what was happening in New York, changed their collection point on July 1st, 1986, to a “first sale in state” system, requiring a prepayment of 4 cents of tax by the distributor.[8] As such, daisy chain schemes were rendered less effective and without them, large quantities of fuel could not be “burned” to reap the type of profits seen on the East Coast. This was confirmed in a 1986 investigation done by the government in California which concluded that neither daisy chain operations nor organized crime involvement had been found on the West Coast.[9]
Another contributing factor must have been the weakness of organized crime itself. The 1980s were famously a tough time for California’s indigenous families. A series of indictments and convictions in 1980-1981, 1984, and 1987, sent most of Los Angeles’s top brass to prison for different stretches of time, disrupting any potential to sink their hooks into dishonest dealers.[10] Other families had a minimal presence there. Between 300,000 and 600,000 immigrants from the Soviet Union arrived in California in the 1980s and 1990s, although criminal groups gestating in Brooklyn would not arrive in large enough numbers until 1986-1987 to start racketeering in fuels.[11] In terms of other ethnicities, the only other ones to have played a role in fuel tax excises besides the conventional Italian and “Russian” ones were Indians (Sikhs especially) and Mideastern (Turkish and Lebanese) migrants, and neither were present in large quantities on the West Coast.[12] As such, even if there were criminally minded fuel station owners and wholesalers, there was a lack of a unifying force that could compel them to come together to form a cartel as was the case in the Tri-State Area.
Finally, one cannot discount sheer luck and Great Man Theory to some extent in the form of Lawrence Iorizzo and his network (including the likes of George Kryssing, Ronald Weiner, and Sheldon Levine). Iorizzo was a serial fraudster who masterminded his way into owning the largest non-branded gasoline chain on Long Island. He made a lot of money during the 1979 Oil Crisis, and with the backing of the Colombo crime family, was ready to take advantage of New York’s law change in 1982 to form a consortium with virtually every independent marketer/wholesaler on Long Island. Their impact on the market was so profound that extremely large legitimate companies, such as Power Test (Getty Oil), SOS Petroleum, ATI, and Oil City (essentially all the largest station owners/wholesalers that didn’t own their refineries) were forced to cooperate and buy from (or sell to) their group, furthering their reach and influence. There was also some pure luck in the form of Phillip Moskowitz, a petty crook with ties to the Franzese family, who happened to be at attorney Marvin Kramer’s office when the latter took a meeting with Romanian bootlegger Michael Markowitz, connecting the Italian/independents with the Russian/Warsaw Pact criminals. One cannot also discount the impact of quality journalism done by Newsday who blew the whistle on gasoline bootlegging in the first place in 1981. They were ahead of the curve and were the first to sound the alarm about scrupulous dealers and their successful exposé created such a buzz that it prompted law enforcement investigation and legislative action. While well-intentioned, unfortunately, their series of articles titled ‘The Gasoline Bootleggers’ partly caused the taxation point to move to the wholesale level which ballooned the illicit profits generated by the criminals to levels even beyond their initial calculations. No such investigations/similar articles were written in California. Such luck doesn’t repeat twice, and it is no wonder that a similar development did not happen in parallel on the West Coast; some of the ingredients just were not there.
Early California Schemes
When the law to change California’s tax collection point was being debated, an official of the Board of Equalization (the state tax administrator) mentioned that the problem of tax cheats began to show up in 1983.[13] Indeed, I did a pretty thorough scan of Newspaper.com for gasoline, diesel, and fuel tax fraud since 1979 and I could not find a single criminal case until 1986. The first “victim” of the board’s new pilot program to combat sales tax cheats was Charles Nathan Shooster, who was indicted, alongside his wife, on 22 counts for violating four sections of the California Revenue and Taxation Code.[14] Authorities alleged that Shooster, who ran 17 service stations across Los Angeles through his companies Sunny Gas and Good Cents Gas, underreported gross sales by $34 million over a 5-year period between 1980-1985, which meant he stole $8.2 million in taxes.[15] The fraud was revealed after an audit was conducted on 7 fuel distributors supplying his stations with gasoline. At the time, authorities believed it was the largest sales tax fraud case since the inception of sales tax 50 years prior to the indictment. Ironically, Shooster was a member of the Serve Yourself and Multiple Pump Association, sponsor of the aforementioned bill that changed the point of taxation to combat bootlegging. A factor that led to his criminality was the cutthroat pricing in the industry and razor-thin profit margins (similar motivating points that were also present on the East Coast). In 1988, he was sentenced to serve 18 months in prison and fined $34,000.[16] Over the course of the next couple of years, several more people were indicted as part of the state’s enforcement program targeting small chains and even single station owners.[17] Overall, the frauds uncovered were fragmented, small in scale, and lacked the sophistication of what was going on on the East Coast.
Oleg Yasko – The First “Butterfly” Bootlegger
While the exact first progenitor of the bootleg gas scheme involving daisy chains and burn (or butterfly) companies in New York is hotly debated, authorities were very sure about its originator in California. Oleg Yasko, born in either 1952 or 1953 in the Soviet Union, sought refuge or riches (or both) when he made his way over to the United States and like so many of his brethren, settled in New York. When or precisely who first introduced him to the (bootleg) gasoline business is something I don’t have an answer to (as in so many cases, unfortunately). However, I do know that by mid-1984 he was in the game. Marvin Kramer, an attorney who figured prominently in the fuel tax scams up through the 2000s, incorporated Jolana Enterprises in June of 1984, of which Yasko was made the president and Oleg Schumin was named the secretary-treasurer.[18] In the latter part of 1984, Jolana purchased a gasoline terminal in Hudson, New York, becoming known as Jolana Terminal. Where they acquired the money to buy it, I do not know, but some wiretap transcripts I have access to make reference to some unnamed partners. By the end of 1984, the duo’s participation in tax evasion became known to law enforcement as a routine audit conducted by the NY State Tax Department in December revealed that it purchased and stored 800,000 “tax paid” gallons of gasoline from Rappaport Fuel. This is pure speculation on my part, but I would guess that Oleg was likely initially associated with the Franzese-Markowitz faction because of his aforementioned registration through Kramer, who was initially associated with Markowitz/Moskowitz, and the connection to Rappaport which was taken over by the Colombo family at the end of April 1984.[19] Over time, however, it seems he and Schumin migrated closer to the Galizia-Levine-Balagula faction as they were overheard discussing new partnership arrangements and novel evasion techniques in 1985. This is not the appropriate time to discuss all that went on at Jolana in New York, as that warrants a separate focused piece.
Fast forwarding to February 1986, law enforcement conducted a massive raid across New York and Long Island, targeting nine locations to gather evidence on gasoline bootlegging conducted by organized crime and Soviet immigrants.[20] This phase of the investigation focused specifically on Sheldon Levine and Joseph Galizia’s faction and immediate associates after Michael Franzese’s faction was brought down in a double indictment just a couple of months prior. While Jolana Terminal was one of the targeted facilities, Oleg Yasko and his partner Schumin were not indicted in the case that took down Levine and Galizia.[21] Facing police pressure, Jolana Terminal was leased to a group of private investors put together by a senior banker named Mark Stahl working for Shearson Lehman Bros.[22] This has been a big break for me since for a while now I could not find any direct connection between Stahl and his future bootleg ring to that of the main ones run by Italian and Soviet organized crime. I first learned of his existence from Alan Block’s brief mention in his essay, but he did not connect him to the main bootleg fuel rings. I was convinced that Mark could not operate alone in a vacuum, and this was a first step in connecting him to the wider New York conspiracy. The Shearson Lehman Bros connection is also interesting because in parallel to Stahl’s scandal and fraud at the bank, Nichalos Uccio, Manos Sarantopoulos, and Shearson employee Gregory Barton attempted to defraud the bank out of $7.4 million in 1988.[23] Nicholas Uccio was also a defendant in a Long Island gas tax case with Leon Uzdin, Jeffrey Broner, and Vladimir Zack, which operated under the protection of organized crime.[24] Apologies for the tangent, it is time to refocus on Oleg.
Evidently, law enforcement was relentless and even though Oleg Yasko was never indicted in New York, federal authorities claimed that they forced him out of the state, making him to flee to Los Angeles in 1987.[25] For some reason, his partner Oleg Schumin didn’t go along. It didn’t take long for Yasko to find a new crew and get back to doing what he did best, gasoline bootlegging. By the summer of 1987, he’d set up a new daisy chain after obtaining a federal tax exemption certificate for the butterfly company named Janice Ventures.[26] Using his old company Jolana Enterprises, Yasko would “sell” gasoline tax-free to Janice, who would accrue the tax liability, and in turn, sell it to three distributors that would then sell to legitimate wholesalers. Between May and August 1987, 14 million gallons were washed through this chain, pocketing Yasko and his cronies $1.3 million in excise taxes. This was the chain that ended up being prosecuted, and so the total amount stolen by the ring could potentially have been much higher. Apparently, their pricing was so aggressive that rival dealers complained to authorities after which the IRS took notice and began its investigation.[27] Janice Ventures, the dummy corporation used in the scheme, was also a burn/butterfly corporation found in the Marat Balagula/Joseph Macchia conspiracy and showed up in book transfer records in June 1986, indicating that much like Jolana, it was incorporated and used in New York fuel schemes before being transported by Yasko to California.[28] This indicates that Yasko continued to work with Balagula after the Levine/Galizia indictment. Anyways, he and his crew had a fairly short run and in December 1990, Oleg Yasko, Boris Lomazov, Lieb Yarmolkin, Feliks Rozen, Jeffrey Torgan, and Roman Raskin, were indicted on federal fraud charges. Going to trial and losing, Yasko wound up with a 10-year sentence in prison.[29] Co-conspirator Lomazov’s residence was in San Francisco, indicating that the scheme might not have been just concentrated in the Los Angeles Metropolitan area.[30] With this case, the first bootlegging crime ring went down, but not before they were able to teach others their ways.
The Talkative Bunch – Abram Egyazarov and Eugene Slusker
As the Yasko case was concluding, a Grand Jury in California was getting ready to indict their next set of players in the form of Abram Egyazarov, Eugene Slusker, Mark Sertich, and Samuel Lehtzer.[31] For some reason, this case went completely unnoticed by the media. This eclectic bunch are notable for the fact that prior to coming to California, some of them participated in other fuel schemes located in New Jersey and in the Midwest (something that warrants its own look at some point in the future).[32] Out of all of them, Eugene Slusker is the most interesting. Like so many “Russian” criminals operating bootleg fuel scams, Eugene was actually Ukrainian, hailing from the port city of Odes(s)a and immigrated to the U.S. in 1977.[33] As in so many cases, he first settled in Brighton Beach, Brooklyn where he almost definitely learned about fuel bootlegging.[34] He was involved in scams selling diesel fraudulently to truck stops as far west as Ohio in 1990, before moving to California to orchestrate a similar scheme. During one of his two stints in prison in the 1990s for tax frauds, Eugene apparently met and socialized with Vyacheslav Ivankov, the notorious vor v zakone (‘thief-in-law’). After getting out of prison, he was indicted in a penny stock pump-and-dump scam that was affiliated with the Colombo crime family, specifically with John “Sonny” Franzese.[35] He fled to Russia before getting arrested and resurfaced years later as a bank entrepreneur in Crimea following Russia’s seizure of the peninsula in 2014.[36] Mark Sertich, is also interesting because prior to his arrival to California, he participated in a fuel scam of his own with Richard Allen in Indiana.[37] Instead of a classic daisy chain, Seritch and Allen profited from the exchange of diesel fuel for gasoline and illegally manipulated the federal and state motor fuel tax on each. The duo would be reunited in the Golden State in the summer of 1991. Now let’s discuss the actual Californian conspiracy.
Eugene Slusker and Abram Egyazarov contacted Richard Allen in December 1990 to rent tank space for diesel at his storage terminal company called Mark Diamond, Inc.[38] At around this time, Mark Sertich joined Allen’s company in California after working as a construction manager in Florida.[39] In February of the following year, Slusker and Egyazarov came back to reclaim their stored diesel fuel, only to find out that it wasn’t there. Angered at this revelation, the two forced Allen at gunpoint to sign over documentation turning over his storage terminal to them. Alongside his company, they stole his car, claimed his diesel transport trucks, and took over the office. Mark Diamond Inc. was renamed Mark Investments, Inc. and the terminal now stored diesel fuel being used in Slusker and Egyazarov’s daisy chain schemes. Allen reportedly observed Abram in possession of at least 5 fraudulent Form 637s intended to be used to accrue tax liability in his own schemes, after they had already been used in prior daisy chains. Who Abram/Slusker were collaborating with and purchasing these tax exemption certificates from is unknown. However, we do get a clue from an acquisition by the criminals in late summer of 1991. Meanwhile, Lehtzer’s job was to take cash derived from fuel sales to banks to convert them into cashier’s checks and pay refiners for the fuel. Sertich, continuing to work for Egyazarov, was in charge of the accounting, keeping the books/records tidy, and setting up the paperwork to create the burn companies. How much the ring stole is unknown.
Evgeny Dvoskin, a.k.a. “Eugene Slusker”
After the takeover of his company, Richard Allen was forced to work for a different fuel corporation and started to suffer financial difficulties. He met with Eugene to explain his troubles, and the latter offered him to head up a wholesaler with a valid Form 637 that he was planning to buy. On August 1, 1991, Slusker and Allen met up with Sarkis Parsegian to purchase Boland Petroleum for $50,000.[40] Parsegian would later be indicted in September 1995 as a member of an Armenian-Russian crime ring headed up by Hovsep Mikaelian.[41] Given their involvement in unspecified daisy chains schemes and this specific connection to Mikaelian, it can be reasonably assumed that Abram and Eugune were connected to the wider Russian-Armenian fuel crime networks operating in Southern California. This pattern of collaboration follows the development of what happened in New York. Once Boland was purchased, the Soviet criminals made Allen sign an agreement identifying him as the president of the company and over the next two weeks began to purchase diesel tax-free from refineries. Unfortunately for Allen, he made a mistake, and three loads of fuel were diverted to truck stops not authorized by Slusker to receive fuel. After learning of this error, Slusker and Egyazarov assaulted Allen as punishment. At the same time, the diesel refineries informed Allen that they were going to confiscate prepayment funds made by Boland to secure tax-free diesel because the company was still using Form 637 which was registered under the previous owner, which cannot be passed alongside a change of ownership. As such, the Soviets compelled Allen to file for a new certificate under his own name and threatened that he should, “Get his ex-wife to set a date for the funeral,” if he were to fail.[42] On October 10th, 1991, Allen called Sertich and Egyazarov to inform them about Boland’s approval for a new certificate, elating the duo who called for a meeting the following day and a celebratory bottle of cognac. The following day, all four criminals and Allen met to discuss the next steps. Egyazarov informed Richard that Boland Petroleum would now be involved in a big deal whereby they would buy diesel from refiners to sell tax-free to another distributor that Abram would provide the name of and for which he possessed a Form 637. To make their point, Eugene would tell Allen, “If you make another time wrong, I kill you. Trust me, believe me”.[43] Egyazarov doubled down on the death threat. Later during the day, as Eugene wanted to look at a box of files, he discovered a transmitter device hidden on Allen’s leg and disconnected it. Richard Allen was wired for sound and had been a cooperating witness since his assault at the hands of Abram and Eugune. After his revelation as a police informant, Federal law enforcement agents burst onto the scene and arrested the four defendants. Their scheme was over. Eugene Slusker would plead guilty and receive a 27-month prison sentence.[44] During sentencing, it was revealed that he cooperated with the government but failed to provide substantial information that would warrant a downward departure. It did not stop him from continuing his involvement in criminal activities and seemingly both Italian and Russian organized crime were unaware of this deed.[45]
Operation Diesel Storm – A Lot of Unknowns
Combating what seemed like an unending red wave sweeping America’s fuel industry and pilfering the government’s precious tax coffers, the IRS launched its most ambitious crackdown on the fuel industry yet, titled ‘Operation Diesel Storm’.[46] Unfortunately, California’s lacklustre journalism lets us down once again. While the raids in Western Pennsylvania are documented in intricate detail by the Pittsburgh Post-Gazette which helped me establish Russian Organized Crime and more importantly Cosa Nostra’s involvement in them, the same can’t be said about the quality of The Los Angeles Times’s or The Fresno Bee’s account of events of the same operation in California and the complete lack of follow-ups.[47] All that was said of the operation was that on Tuesday, March 2nd, 1993 just after 6 AM, IRS agents arrested Lazar Kumpan, Meir Itaev, Grigor Termendjian, and his younger brother Levon.[48] It was never reported what companies were involved, when the fraud took place, or about any potential links to other crime groups/fraud rings operating in the area. All that was said was that the fraud involved more than $1 million.[49] Given this, it is hard to even analyze or contextualize this particular ring within California’s network. All I can speak to are some of the individuals themselves.
Meir Itaev was supposedly a criminal of significant stature within the “Organizatsiya” (less a rigid organization and more of a loose network of ex-USSR criminals founded by Evsei Agron in Brighton Beach, Brooklyn).[50] A convicted cocaine trafficker, he led his own brigada (“crew”) and operated out of Los Angeles. Together with Igor Grafman, another leader within the same network in Brooklyn, he was involved in a failed attempt to assassinate Monya Elson, a rival Russian gangster who was part of a separate criminal network.[51] Police speculated that the conflict was over a struggle to dominate drug trafficking. This is me reaching, but fuel tax evasion could have also contributed to the tensions. As part of Elson’s “protection” services, he provided krysha (“roof”) to Victor Zilber and his gasoline/diesel operation. In rivalries that even the Italian Mafia could not contain at times, despite all Russian/Soviet bootleggers ostensibly being members/under the protection of the Association, Zilber was in an on-again/off-again conflict with Joseph Reisch and Victor Dobrer, who ran a separate but intertwining tax evasion scheme with Zilber. This faction of the gas scheme was likely more closely associated with the Organizatsiya for historical reasons, and given Grafman and Itaev’s membership in it, would put them at odds with Elson.
Levon Termendjian
Grigor Termendjian and his younger brother Levon, especially, are also fascinating. Immigrating from Armenia to Los Angeles in 1980, the brothers became acquainted with the fuel business as teenagers working at a gas station at night.[52] Levon would go on to own a string of petrol stations and truck stops under his company NOIL and vertically integrate by coming to own a fuel-transport corporation called Lion Trucking. The FBI and other Federal agencies believed that all his businesses were criminal in nature and took a run at him in that 1993 indictment. Unfortunately for them, both Levon and Grigor were acquitted of all charges. Grigor would later boast to associates that they secured their acquittal with a $10 million bribe. I’m not sure of Kupman or Itaev’s fate regarding that case. Before long, Levon would become a billionaire by the age of 30 and in 2017 became a naturalized citizen under the name of Lev Aslan Dermen. If you haven’t caught it by now, Levon has a fascination bordering an obsession with lions. Lev means lion in Russian, Aslan means lion in Turkish, NOIL is lion spelt backwards, and the trucking company’s name goes without saying. Lev would go on to play a prominent role within Armenian organized crime, forge connections with the Turkish state apparatus, corrupt federal law enforcement, and engage in a $1 billion biofuel scam with Mormon polygamists out of Utah. For more information, please read Michelle McPhee’s brilliant account about the man in the Los Angeles Magazine.
Operation Diesel Storm also yielded another case involving Joseph Yosi Ezra and Leah Isaac who pled guilty to their involvement in a scheme which stole almost $2 million in federal excise taxes in just two months.[53] Due to the lack of media coverage, I am not sure how this case is related to the Itaev one, if at all.
Operation Gas Gangster – The West Coast’s Answer to Red Daisy
Despite all these indictments, fines and doled-out prison sentences, fuel tax scams still dogged the state. Taking a page out of the Operation Red Daisy investigation in New York-New Jersey, which effectively broke organized crime’s hold over the bootleg industry and led to the demise of the industry itself (barring one or two exceptions), investigators in California took a similar approach. Operation Gas Gangster involved the creation of an undercover FBI fuel dealer named Magnum Oil used to root out the industry’s criminal element.[54] In total (or at least that’s what I gathered from my newspaper scan) this operation was able to uncover two supposedly separate but related criminal fuel rings. The common denominator among most fuel scams in Southern California was Youssef Kamel Keroles.[55] On August 30th, 1995, he was indicted alongside 9 individuals (the ‘Keroles Syndicate’) on 31 counts of criminal conspiracy and various frauds in connection with the purchase of $8 million worth of diesel through his company California Oasis Products over a three-month period.[56] The group evaded the state’s 18-cents-per-gallon excise on diesel as they sold it to retail stations and truck stops.[57] As part of this scheme, Keroles, Magdi Sabry Youssef, and Edward Adib Henein also set up a bogus Long Beach wholesaler called First and Last Oil Distributors Inc. which helped them evade $1.4 million in excise taxes.[58] Soon after they were indicted on the tax fraud case, the aforementioned trio were facing related money laundering charges and the government indicated that Keroles had been involved in these types of schemes before. Magdi Youssef was also said to have been facing bribery charges in New York, although the article never mentioned the cause and I couldn’t find another source for the claim. Keroles was also involved with a company called Hiway Enterprises, which was used to fraudulently sell diesel to retailers without remitting the tax back to the government.[59] This seems to have used a different daisy chain than the aforementioned California Oasis Product and First and Last Oil scheme. Another article (admittedly confusingly written) might suggest that Hiway was also related to the $1 million federal diesel tax fraud perpetrated by Dana P. Brewer and Petroglobe Inc. in 1993.[60] There is also a reference to Keroles’s involvement in a 1993 scheme that led to a tax avoidance of $925,000, although who were his associates or what companies were involved is unclear.[61] Finally, Keroles and his associates were involved in defrauding the FBI’s undercover fuel company. Through a series of deals whereby Magnum Oil acted as the middleman (and presumably, the burn company used to accrue tax liability), Keroles’s ring was supposed to deposit $135,000 into its account.[62] Despite faxing over a deposit slip as proof of payment, the criminals only wired $135 and ended up ripping off the FBI. The law caught up with Youssef and he was sentenced in December 1996 to 27 months in prison for the HiWay case.[63]
One of the key confederates in one of Keroles’s many schemes was Akop “Apy” Hakopian, owner of Pegasus Transportation.[64] Apy was one of the many fuel brokers employed by Keroles and helped arrange transactions between retail stations to purchase tax-free fuel from Keroles’s company, and helped facilitate transportation for some of that fuel through his corporation. Apy was indicted on 56 counts of fraud, money laundering, and other charges, went to trial, and was found guilty by a jury of his peers after less than two hours of deliberation. He was sentenced to 7 years in prison for his role in the scheme in 1996.[65]
The other major fuel crime ring busted in Operation Gas Gangster was one headed by self-proclaimed Armenian “Godfather” Hovsep Mikaelian.[66] On September 13, 1995, he and 13 other associates were indicted on racketeering and extortion charges with the main underlying scheme consisting of running a black-market diesel fuel network to supply retailers and truck stops with tax-free and “cocktailed” diesel. The make-up of the ‘Mikaelian Organization’, as the government dubbed it, consisted predominantly of Armenian and Slavic ex-USSR members, although Americans like Ronald Gerald Rushing contributed to the group as enforcers. Besides fuel scams, the group also engaged in narcotics trafficking through a New York contact, human trafficking of women from the ex-Soviet bloc, extortion of wealthy emigree from the Armenian business community, and the cloning of phones.[67] Certainly an entrepreneurial bunch. In terms of the specifics of the diesel scam, there is not a whole lot to write about since the details are far and few. Mikaelian and his group used threats of force and sometimes actual violence to gain control of a “large segment” of independent fuel wholesale and retail service stations as well as truck stops.[68] That characterization seemed to be somewhat of a hyperbole given elsewhere I’ve seen this “network” being described as consisting of two dozen stations or so.[69] The group was also able to fraudulently obtain permits to buy and sell tax-free diesel for off-road purposes and purchased large amounts of fuel through Magnum Oil, the undercover FBI company.[70] The aforementioned Parsegian, an owner of truck stops himself, was described as a lieutenant in the organization, exhibiting a great deal of autonomy in carrying out the frauds.[71] He was also instrumental in helping the group defeat a new Federal law put in place to combat diesel tax evasion that required the fuel to be dyed red, making frauds easier to detect. Instead of purchasing diesel, Parsegian arranged for the group to purchase tax-free jet fuel that was cocktailed (“mixed”) and sold as diesel. In just one year, the group was able to avoid paying $3.6 million in taxes.[72] The lucrative nature of the scheme was seen in the way Mikaelian behaved. A boast captured on tape by an undercover agent had him saying, “I’m well known in the Armenian community. Remember the movie, ‘The Godfather’, when they all go to the Godfather, they cry and he helps everybody? This is me”.[73] He apparently owned two Rolls-Royces, had a boat parked in the Marina Del Rey, and lived in a Spanish-style home in North Hollywood. He also claimed to have connections to John Gotti and the Russian Mafia, only the latter of which I personally believe.[74] In 1997, he was convicted and sentenced to serve 14 years in prison and pay $2.2 million in restitution.[75]
The amounts stolen by these fraud rings don’t really inspire much awe, especially when compared to the eye-popping figures found on the East Coast. Thus, it is time to discuss the final case in this series, the largest criminal conviction for violation of air pollution laws in the United States and the largest state gasoline tax fraud in California (as of 1995).[76] Gary and his wife Divine Grace (ironic name in hindsight) Lazar at one point owned up to 200 service stations, a mix of both branded and independent stations, all across Southern California in the 1980s and early 1990s through a maze of corporate entities used to hide their ownership. Unfortunately for consumers, the Lazars had a bad history of cheating their customers out of quality gasoline, mixing and blending different octane types of gasoline to sell at a premium already in the 1980s.[77] Perhaps a factor giving their criminal behaviour extra justification was the growing power of major oil companies in local gasoline markets, and the squeezing of independent wholesalers and retailers by refineries over time, a problem Gary even spoke to The Los Angeles Times about in 1990.[78] Around the same time, an investigation started on the “too good to be true” results of their underground storage tank tests.[79] Robert James Harrington, who coordinated construction projects for the Lazars from 1986 to 1988, first brought law enforcement’s attention to their faked test results. Normally, underground tests showed that 20% or more of the tanks tested had leaks and needed to be replaced, but the Lazars’ results were always suspiciously squeaky clean. In reality, their tanks were quite leaky… This investigation spiralled into a tax evasion investigation that determined that the Lazars secretly sold their customers cocktailed fuel, gasoline mixed with kerosene and diesel (“transmix”) that produced a dark, foul-smelling sludge that gummed up car engines and became the bane of vehicle motorists throughout the state. As mentioned previously, diesel and kerosene were available to purchase in a tax-free transaction, provided you had the right exemptions. As a result, the couple were able to avoid at least $10 million in sales tax and $13 million in state gasoline tax, not to mention the $1.6 million in avoided cigarette tax payments to boot. Eventually indicted on 54 felony counts of fraud, the couple received an 8-year prison sentence and a $162 million fine.[80] Well, what is the organized crime angle? Assistant Los Angeles County District Attorney Tony Patchett said, “They [the Lazars] are not Russian immigrants themselves. But they are associated with a large number of people who are Russian organized crime members”.[81] Patchett claimed the couple used a high-ranking ROC group member as their “chief enforcer”. Unfortunately, that person’s name remained unsaid as they were not indicted alongside the Lazars. Patchett added, “The Russian Mafia really controls a lot of the transportation of fuel for the independent dealers in this state. Anybody involved in the gasoline business in the way the Lazars were just has to have those contacts”. This alludes to involvement with one of the aforementioned fuel crime rings, either Keroles’s or Mikaelian’s. We just don’t know which one at this point.
Operation Gas Gangster was an unequivocal success for law enforcement and a testament to the fruitful collaboration between federal, state, and local agencies. Since January 1997, 33 people in the greater Los Angeles area were convicted of trying to evade fuel taxes and the operation netted the government more than $6 million in property and $3 million in restitution.[82] Subsequently, based on the drop-off in articles reporting on the topic, much like Operation Red Daisy, Gas Gangster had the intended effect of reducing the size of the bootleg fuel industry and breaking its connection to organized crime groups.
Almost completely absent from this piece is the Italian Mafia. Were they involved in California? I haven’t found evidence of the Milano Family’s involvement. As for New York? The Association, the Mafia’s governing body overseeing the illicit fuel bootleg sector of the Tri-State area, did extend its “protection” to fuel operators across the country. David Shuster, a prominent Soviet/Ukrainian criminal leader in New York, did travel to California in mid-1990 with Jefferey Pressman to encourage an unnamed individual to become involved in their scheme. Pressman, in fact, did start selling bootleg fuel in California under the protection of Anthony Morelli (the Gambino representative to the Association) and paid up to $40,000 at a time for sales made there. Pressman also ran into conflict with local Californian bootleggers. There is more to say about this subject, but it is best left for another time.
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[1] Carl Ingram, “Gas Stations Cheat State Out of Millions in Taxes,” The Los Angeles Times, September 26, 1985, 1 and 31.
[2] U.S. Department of the Treasury, Office of Tax Policy, “Report To The Congress On Evasion Of The Federal Gasoline Excise Tax”. December 1987. 13.
[3] Dan Bernstein, “State probes Russian crime families in fuel scam,” The Modesto Bee, October 19, 1993, B-3.
[4] David L. Green, “Econometric Analysis of the Demand for Gasoline at the State Level,” Prepared for the Department of Energy, July, 1978, 1.
[5] Stephen Green, “Many Taxes And Fees Changing But Their General Direction Is Up,” The Sacramento Bee, January 2, 1983, A22; U.S. House of Representatives, Committee on Ways and Mean, Subcommittee on Oversight, Compliance with Federal Gasoline Excise Tax Provisions: Hearing (Washington, D.C.: Government Printing Office, 1987). Page 122.
[6] U.S. House of Representatives, Committee on Ways and Means, Subcommittee on Oversight, Compliance with Federal Gasoline Excise Tax Provisions: Hearing (Washington, D.C.: Government Printing Office, 1987). Page 120.
[7] Please see my prior article on gasoline bootlegging in New York here: https://mafiabookreviews.com/2022/01/08/mafiagastaxscheme/.
[8] U.S. Department of the Treasury, Office of Tax Policy, “Report To The Congress On Evasion Of The Federal Gasoline Excise Tax”. December 1987. 13; U.S. House of Representatives, Committee on Ways and Means, Subcommittee on Oversight, Compliance with Federal Gasoline Excise Tax Provisions: Hearing (Washington, D.C.: Government Printing Office, 1987). Page 120.
[9] U.S. House of Representatives, Committee on Ways and Means, Subcommittee on Oversight, Compliance with Federal Gasoline Excise Tax Provisions: Hearing (Washington, D.C.: Government Printing Office, 1987). Page 99.
[10] Kim Murphy, “The L.A. Mob: Eking Out a Living Working Streets,” The Los Angeles Times, June 29, 1987, 18; “FBI sweep ‘decapitates’ Los Angeles mob,” The Tribune, May 23, 1987, 2/A; “5 Southland Mafia bosses are sentenced to prison,” Ventura County Star, January 21, 1981, B-8.
[11] Boris Dralyuk, “Taking stock of the vanishing landscape of ‘Russian Hollywood’,” The Los Angeles Times, November 16, 2022.
[12] Turkish involvement in gasoline bootlegging can be noted in both the Tri-State area (Turk Ozen) and the Midwest. Indian migrants (and especially Sikhs) were usually part of downstream chains in fuel schemes in Pennsylvania, Ohio, and West Virginia during the early 1990s that were ultimately sourced out of New York.
[13] Carl Ingram, “Gas Stations Cheat State Out of Millions in Taxes,” The Los Angeles Times, September 26, 1985, 31.
[14] Terry Pristin, “Pair Accused in What May Be Biggest Sales Tax Fraud in State,” The Los Angeles Times, July 31, 1986, 14.
[15] Ibid.
[16] Tracy Wood, “Man Sentenced in Gasoline Sales Tax Fraud,” The Los Angeles Times, March 16, 1988, 3.
[17] David Hall, “Gas tax cheaters get four years,” News-Pilot, June 25, 1988, A5; Jant Rae-Dupree, “Gas Station Owner Given 3-Year Term for Tax Fraud,” The Los Angeles Times, September 17, 1989, 9.
[18] County Court of the State of New York, County of Suffolk, The Application of Detective Investigator Peter M. Calabrese for warrants authorizing the search of…, Application and Affidavit for Search Warrants, February 11th, 1986, 46.
[19] Selwyn Raab, “A.K.A Trial Is a Study In Evasion Of Gas Tax,” The New York Times, February 20, 1989, B2.
[20] Robert E. Kessler, “Bootleg-Gas Ring Probed in NY,” Newsday (Nassau Edition), February 27, 1986, 1 and 27.
[21] Tom Renner and Joshua Quittner, “7 Indicted in Scheme To Sell Untaxed Gas,” Newsday (Suffolk Edition). July 24, 1986, 2 and 25.
[22] Ransdell Pierson and Paul Tharp, “Mob Gas ‘Timebomb’ Poses Threat To Update Village,” The New York Post, July 18, 1986.
[23] U.S. v. Uccio, 940 F.2d 753 (2d Cir. 1991).
[24] Department of Justice, “Press Release: Jury Convicts Two Men and a Women in Gasoline Tax Evasion Conspiracy,” November 23, 1993.
[25] Lori Schweitzer, “IRS agents raid fuel facilities,” News-Pilot, March 4, 1993, A3.
[26] Jim Herron Zamora, “Gasoline Dealer Gets 10 Years in Scam,” The Los Angeles Times, November 9, 1991, B5.
[27] Robert E. Kessler, “6 Convicted of Transporting Scheme,” Newsday (Suffolk Edition), July 26, 1991, 33.
[28] “Compilation of New York Fuel Terminal Book Transfer Records Used To Evade Federal Gasoline Excise Taxes”
[29] Jim Herron Zamora, “Gasoline Dealer Gets 10 Years in Scam,” The Los Angeles Times, November 9, 1991, B5.
[30] Robert E. Kessler, “6 Convicted of Transporting Scheme,” Newsday (Suffolk Edition), July 26, 1991, 33.
[31] United States of America v. Abram Egyazarov, Eugene Slusker, Mark Sertich, and Samuel Lehtzer: Indictment, October 29, 1991.
[32] U.S. v. Sertich, 95 F.3d 520 (7th Cir. 1996); “Man pleads guilty in fuel conspiracy,” The Lima News, October 2, 1994, B3; Peralte Paul, “Grand jury indicts oil operator over failure to pay diesel tax,” The Jersey Journal, February 7, 1995, 2; Robert Ruth, “Federal Case Possibly Tied to Organized Crime,” Columbus Dispatch, January 2, 1995, 2B.
[33] Evgenia Pismennaya and Irinia Reznik, “Tax fraud, jail terms no barrier to riches in Crimea,” The Salt Lake Tribune, April 9, 2016.
[34] Robert Ruth, “Federal Case Possibly Tied to Organized Crime,” Columbus Dispatch, January 2, 1995, 2B.
[35] Robert E. Kessler, “10 Charged in Stock Swindle,” Newsday (Nassau Edition), February 7, 2003, A22.
[36] Evgenia Pismennaya and Irinia Reznik, “Tax fraud, jail terms no barrier to riches in Crimea,” The Salt Lake Tribune, April 9, 2016.
[37] U.S. v. Sertich, 95 F.3d 520 (7th Cir. 1996).
[38] United States of America v. Abram Egyazarov, Eugene Slusker, Mark Sertich, and Samuel Lehtzer: Arrest Affidavit, October 15, 1991.
[39] U.S. v. Sertich, 95 F.3d 520 (7th Cir. 1996).
[40] United States of America v. Abram Egyazarov, Eugene Slusker, Mark Sertich, and Samuel Lehtzer: Arrest Affidavit, October 15, 1991.
[41] Aldrin Brown, “2 county men among group arrested in fuel-tax scam,” The San Bernardino County Sun, September 13, 1995, 1 and 2.
[42] United States of America v. Abram Egyazarov, Eugene Slusker, Mark Sertich, and Samuel Lehtzer: Arrest Affidavit, October 15, 1991.
[43] Ibid.
[44] U.S. v. Slusker, 97 F.3d 1453 (6th Cir. 1996).
[45] Robert Ruth, “Claims by Bootlegger in Dispute; Russian Mafia Case,” Columbus Dispatch, August 15, 1995, 4C.
[46] Mathis Chazanov, “IRS Agents Arrest Four in Fuel Tax Fraud Ring,” The Los Angeles Times, March 4, 1993, B3.
[47] For an account of diesel fuel bootlegging in Western Pennsylvania please see: Mike Bucsko, “IRS raids Coraopolis firm in fuel-switch probe,” Pittsburgh Post-Gazette, March 29, 1993, A-1 and A-8.
[48] Mathis Chazanov, “IRS Agents Arrest Four in Fuel Tax Fraud Ring,” The Los Angeles Times, March 4, 1993, B3.
[49] “IRS probe leads to arrest of 4 in fuel tax fraud investigation,” The Sacramento Bee (reprint of The Associated Press), March 4, 1993, Page B8.
[50] U.S. Senate, Permanent Subcommittee on Investigations, Russian Organized Crime in the United States: Hearing (Washington, D.C.: Government Printing Office, 1996). Page 87; Department of The Treasury United States Customs Service, “Russian/Eurasian Criminal Network Threat Analysis: Organizatsiya/New York,” Undated.
[51] Department of The Treasury United States Customs Service, “Russian/Eurasian Criminal Network Threat Analysis: Organizatsiya/New York,” Undated; Greg B. Smith, “Russians fight over U.S. tuf,” Daily News, October 17, 1993, 34.
[52] Michelle McPhee, “Bleeding the Beast: Crooked Cops, an Armenian Mob Boss, a $500M Scam and an Unlikely Love Story,” Los Angeles Magazine, October 18, 2022; Matthew Ormseth, “Man is indicted in biofuel scam,” The Los Angeles Times, May 8, 2023, B1 and B5.
[53] U.S. Senate, Permanent Subcommittee on Investigations, Russian Organized Crime in the United States: Hearing (Washington, D.C.: Government Printing Office, 1996). Page 148.
[54] U.S. v. Mikaelian, 168 F.3d 380 (9th Cir. 1999).
[55] Matt Krasnowski, “San Pedran pleads guilty in ‘Gas Gangster’ sting,” News-Pilot, December 14, 1995, A1.
[56] Paul Lieberman and Frank B. Williams, “FBI Arrests 11 in Black Market Diesel Fuel Network,” The Los Angeles Times, September 13, 1995, B3 and B7; “Russian crime ring busted,” UPI Archives, September 12, 1995.
[57] Efrain Hernandez Jr., “Jury Convicts Glendale Man in Fuel Tax Fraud,” The Los Angeles Times, August 15, 1996. B4.
[58] Thomas J. Lewis, “Money laundering charges expected,” News-Pilot, September 18, 1995, A1 and A12.
[59] Matt Krasnowski, “San Pedran pleads guilty in ‘Gas Gangster’ sting,” News-Pilot, December 14, 1995, A1.
[60] Pam Kragen, “Sentencing closes case involving Poway man,” North County Times, January 15, 1997, D-1.
[61] Matt Krasnowski, “San Pedran pleads guilty in ‘Gas Gangster’ sting,” News-Pilot, December 14, 1995, A1.
[62] Paul Lieberman and Frank B. Williams, “FBI Arrests 11 in Black Market Diesel Fuel Network,” The Los Angeles Times, September 13, 1995, B3 and B7.
[63] “2 Men Sentenced for Roles in Fuel Excise Tax Fraud,” The Los Angeles Times, December 10, 1996, B4.
[64] Efrain Hernandez Jr., “Jury Convicts Glendale Man in Fuel Tax Fraud,” The Los Angeles Times, August 15, 1996. B4.
[65] “2 Men Sentenced for Roles in Fuel Excise Tax Fraud,” The Los Angeles Times, December 10, 1996, B4.
[66] Paul Lieberman and Frank B. Williams, “FBI Arrests 11 in Black Market Diesel Fuel Network,” The Los Angeles Times, September 13, 1995, B3 and B7.
[67] Ibid; U.S. v. Mikaelian, 168 F.3d 380 (9th Cir. 1999); Reuters, “Feds Arrest 11 in ‘Russian-Armenian Mafia’,” Newsday (Nassau Edition), September 14, 1995, A17.
[68] Jeff Meyer, “Soviet mafia runs out of gas,” Santa Maria Times, September 13, 1995, D-2.
[69] Steve Ryfle, “Three Plead Guilty in Scam to Avoid Fuel Excise Tax,” The Los Angeles Times, December 15, 1995, B12.
[70] U.S. v. Mikaelian, 168 F.3d 380 (9th Cir. 1999).
[71] Aldrin Brown, “2 county men among group arrested in fuel-tax scam,” The San Bernardino County Sun, September 13, 1995, A1 and A2.
[72] U.S. House of Representatives, Committee on International Relations, The Threat from Russian Organized Crime: Hearing (Washington, D.C.: Government Printing Office, 1996). Page 99-101.
[73] Paul Lieberman and Frank B. Williams, “FBI Arrests 11 in Black Market Diesel Fuel Network,” The Los Angeles Times, September 13, 1995, B3 and B7.
[74] [74] Aldrin Brown, “2 county men among group arrested in fuel-tax scam,” The San Bernardino County Sun, September 13, 1995, A2.
[75] Michael Baker, “Convictions Numerous for Illegal Mixing of Fuel,” The Los Angeles Times, July 5, 1998, B3.
[76] Michael Parrish, “Couple Face Prison, Huge Fines in Gas Station Fraud,” The Los Angeles Times, February 10, 1995, B7.
[77] Dan Weikel, “Executive is charged with cutting octane of gasoline,” The Daily Breeze, March 4, 1983, A3.
[78] Patrick Lee, “Independent Refiners Pumping Up Gas Prices,” The Los Angeles Times, June 15, 1990, D2.
[79] “O.C. Couple Arrested in Hazardous Material Case,” The Los Angeles Times, May 22, 1992, A3.
[80] Michael Parrish, “Couple Gets 8 Years, $162-Million Fine in Fuel Fraud Case,” The Los Angeles Times, February 23, 1995, B6.
[81] Bill Wallace, “The Next Red Menace,” The San Francisco Examiner, March 19, 1995,4.
[82] Michael Baker, “Convictions Numerous for Illegal Mixing of Fuel,” The Los Angeles Times, July 5, 1998, B3.