TRENTON – Attorney General Gurbir S. Grewal today announced that the owner of a now-shuttered go-go bar in Roxbury, N.J., his wife, and seven associates have been indicted on charges that they conspired in an elaborate scheme in which they used stolen credit card information – and illegally acquired gift cards – to steal more than $12 million. The defendants were charged in an investigation called “Operation Smiles” led by the Division of Criminal Justice and the Roxbury Police Department.
The Division of Criminal Justice Gangs & Organized Crime Bureau yesterday obtained a 19-count state grand jury indictment charging each of the following nine defendants with racketeering (1st degree), conspiracy (1st degree), and three counts of money laundering (all 1st degree). Two of the defendants, Patel and Ferguson, were arrested this morning. The other defendants were arrested previously.
“Credit card fraud of the type alleged in this case is becoming a major source of illicit revenue for organized criminal groups in the cyber age and a costly drain on the financial service and retail industries,” said Attorney General Grewal. “These ring members allegedly were prolific in purchasing stolen credit card information on the dark web, turning it into plastic, and ultimately converting the plastic into millions of dollars in cash. I commend the members of my office and the Roxbury Police Department who skillfully investigated this high-tech scheme.”
“Because they are anonymous and hard to trace, gift cards are a favorite currency of alleged con artists like Kevin Lipka and his associates, who are charged with using them to generate millions of dollars in illicit proceeds from stolen credit card information,” said Director Veronica Allende of the Division of Criminal Justice. “We shut down this alleged fraudulent plastic mill, and through the diligent work of our team of attorneys and detectives in the Division of Criminal Justice and Roxbury Police Department, we built a strong racketeering and money laundering case against the defendants.”
Roxbury Police Chief Marc Palanchi thanked the Division of Criminal Justice for assisting in the investigation: “It is because of the cooperation and efforts of these two agencies that we were able to build such a detailed case,” said Chief Palanchi. “I commend my officers and all officers involved for the successful culmination of this investigation and for dismantling such a sophisticated criminal organization. These arrests were a direct result of good, solid police work.”
The Roxbury Police initiated the investigation in 2015 and enlisted the Attorney General’s Office. Most of the defendants were arrested in July 2016, when search warrants were executed for Smiles II, Kevin Lipka’s home, his vehicle, and other locations. Thousands of gift cards were seized as well as documents related to the alleged schemes. The Livingston Police assisted in the arrests and searches.
In addition to the racketeering, money laundering and conspiracy charges, all of the defendants, with the exception of Ferguson, face one or two counts of receiving stolen property (2nd degree). Kevin Lipka, Bae, Rodriguez and Turner are each charged with one or two counts of theft by deception (2nd degree). Kevin Lipka faces an additional count of first-degree money laundering, and he and Shelly Lipka are charged with misconduct by a corporate official (2nd degree), two counts of filing a fraudulent tax return (3rd degree), and two counts of failure to file a tax return (3rd degree). Bae also is charged with failure to file a tax return (3rd degree). Turner faces additional counts of receiving stolen property (3rd degree) and credit card theft (4th degree), while Olsen faces a charge of hindering prosecution (3rd degree).
The investigation revealed that from April 2014 to July 2016, the defendants allegedly conspired to steal over $12 million by defrauding retailers, banks, credit card processing companies and credit card holders. The scheme involved using stolen credit card information and fraudulently obtained gift cards. Stolen credit card information was purchased on the “dark web” and “cloned” onto blank plastic cards with magnetic strips using a machine that produces useable cards. The cloned cards were printed to look like legitimate cards. They were used to buy pre-paid gift cards issued by credit companies such as Master Card, Visa and American Express at retail stores, including Target and Home Depot. The defendants allegedly obtained gift cards from crews of “runners” who used the cloned credit cards to buy gift cards at stores across the regions where they operated, including Southeast Pennsylvania and Brooklyn, N.Y.
The gift cards allegedly were converted to cash through phony transactions at Smiles II, and the proceeds were divided between the individuals who supplied the cards – including Rodriguez, Turner, Patel, Ferguson, and the other runners – and Kevin Lipka, Bae and the other partners at Smiles II. It is alleged that Kevin Lipka and his partners at Smiles II typically took 20 percent of the proceeds, with 80 percent going to the individuals who supplied the gift cards. The defendants allegedly swiped the cards through card processing devices to generate proceeds that went into the business accounts of She-Kev Inc. In some instances, defendants allegedly purchased liquor for Smiles II using stolen credit cards or illegally acquired gift cards.
The investigation further revealed that the defendants allegedly acquired gift cards through various other criminal schemes. In one scheme, vehicles were fraudulently offered for sale through eBay and Craigslist. Unsuspecting purchasers would be directed to pay for the vehicle with pre-paid gift cards from credit companies, and those gift cards also were allegedly processed through Smiles II. The vehicles were never shipped to the victims. In other instances, the defendants allegedly obtained gift cards through variations on the common “grandparent” scam, in which an elderly victim is contacted by someone posing as the grandchild or nephew of the victim and claiming to need bail money to be released from jail. The victim would be told to pay the bail by purchasing gift cards and providing the gift card information by phone to a “police officer’ involved in the arrest.
It is further alleged that Kevin Lipka and certain associates, including Bae and Rodriguez, would fraudulently return expensive merchandise, particularly high-end power drills, to The Home Depot that had been stolen from the retail chain. The returns were made without a receipt for store credit. The defendants then allegedly would sell the store credit on a website that engages in gift card buybacks, or Kevin Lipka would use the credit for items related to the construction of a luxury home he was building in Livingston. It is alleged that Kevin Lipka was involved in approximately $368,000 in illegal returns to The Home Depot.
The investigation began when an out-of-state law enforcement agency contacted the Roxbury Police Department with information that they had tracked gift cards purchased with stolen credit card information to Smiles II, where they had been processed and “cashed out.” The Roxbury Police began investigating the bar and brought in the Division of Criminal Justice Gangs & Organized Crime Bureau.
Deputy Attorney General Amy Sieminski presented the indictment to the state grand jury for the Division of Criminal Justice Gangs & Organized Crime Bureau. The case was investigated for the Roxbury Police Department by Detective Jack Sylvester and Lt. Dean Adone. Detective Chris Schell, Detective Patrick Sole, Lt. Brian Bruton, Detective Maria Duran, Deputy Attorney General Sieminski, and former Deputy Attorney General Shontae Gray conducted and coordinated the investigation for the Division of Criminal Justice Gangs & Organized Crime Bureau, under the supervision of Bureau Chief Lauren Scarpa Yfantis. Attorney General Grewal also thanked the Livingston Police Department, Woodbridge Police Department, Millburn Police Department, Cumru Township (Pa.) Police Department, Home Depot Corporate Security and Target Corporate Security for their valuable assistance in the investigation.
In connection with the racketeering case, the Division of Criminal Justice has placed liens on the bar in Roxbury, two homes owned by the Lipkas in Livingston worth a total of about $4 million, two homes owned by Kevin Lipka in Essex Fells and Belvedere, a vehicle, and multiple bank accounts.
The first-degree charges carry a sentence of 10 to 20 years in prison and a fine of up to $200,000. The racketeering charge includes a mandatory period of parole ineligibility equal to 85% of the sentence imposed. The money laundering charges include parole ineligibility equal to one-third to one-half of the sentence imposed. They carry a fine of up to $500,000 and an added money laundering penalty of up to $500,000. Second-degree charges carry a sentence of five to 10 years in prison and a fine of up to $150,000, while third-degree charges carry a sentence of three to five years in prison and a $15,000 fine.
The indictment is merely an accusation and the defendants are presumed innocent until proven guilty.
The indictment was handed up to Superior Court Judge Mary C. Jacobson in Mercer County, who assigned the case to Morris County, where the defendants will be ordered to appear in court at a later date for arraignment.
For Kevin Lipka: Howard W. Bailey, Esq., Newark, N.J.
For Shelly Lipka: Julian Wilsey, Esq., Franzblau Dratch, PC, Livingston, N.J.
For Kevin Bae: William D. Ware, Esq., Chester, N.J.
For Eric Olsen: Marcy McMann, Esq., Stephen S. Weinstein, PC, Morristown, N.J.
For Peter Vasilopoulos: Undetermined.
For Kevin Rodriguez: Joseph Benedict Esq., Benedict and Altman, New Brunswick, N.J.
For Jordan Turner: Joel Harris, Esq., Morristown, N.J.
For Chinton Patel: Undetermined.
For Adam Ferguson: Undetermined.
Follow the New Jersey Attorney General’s Office online at Twitter, Facebook, Instagram, Flicker & YouTube. The social media links provided are for reference only. The New Jersey Attorney General’s Office does not endorse any non-governmental websites, companies or applications.