A federal grand jury indicted 10 Baltimore business owners or operators on charges of stealing nearly $7 million from food assistance programs by agreeing to debit cash for beneficiaries without selling food — then keeping a cut of the proceeds.
The owner of a corner grocery in West Baltimore called "Second Obama Express" is accused of obtaining more than $2 million in payments for food sales that never occurred, a practice that authorities call "food stamp trafficking." Eight others are accused of taking between $348,000 and $1.4 million.
"Taxpayers fund the food stamp program to put food on the tables of needy recipients, not to put money in the pockets of greedy criminals," U.S. Attorney Rod J. Rosenstein said. "Food producers and distributors benefit when food stamp funds are used to buy food, and honest storeowners work hard to earn a profit by actually selling food."
Incidents of food stamp fraud have risen over the past several years as federal assistance increased during rocky economic times. Congressional Republicans have cited such fraud cases as they push for significant cuts from nutrition programs in an agricultural bill now under consideration.
The largest of the programs is the Supplemental Nutrition Assistance Program, known as SNAP. What once consisted of actual "stamps" now involves debit cards that can be used to purchase approved food items like breads, cereals, fruits, vegetables, meats, fish and poultry.
The indictment alleges that the store operators instead allowed customers to convert the cards into cash, typically splitting the proceeds. To avoid detection, prosecutors say, the owners debited the funds from the cards in multiple transactions over a period of hours or days.
The amount of trafficked benefits has more than doubled in recent years, reflecting explosive growth in the program. SNAP benefits grew from $36 billion in 2008 to $73 billion in 2011, according to the Department of Agriculture. During the same period, stolen benefits rose from $330 million to $858 million, with the rate of fraud inching up from 1 percent to 1.3 percent.
"Twice as many food stamps benefits are out there, but we still have the same enforcement resources," Rosenstein said.
Small grocery or convenience stores account for 15 percent of all redemptions, but 85 percent of all trafficking, the Agriculture Department said last month in a report, and violations are more likely in higher-poverty neighborhoods.
Among those charged in this week's Maryland case was Abdullah Aljaradi, 51, who prosecutors say owns the Second Obama Express in the 900 block of Harlem Ave. and siphoned $2 million in benefits over a three-year period.
Despite a fluorescent "open" sign blinking in the window, its security gate was pulled down tight Tuesday as a handful of people stood around the corner. No one answered the phone for the store, and an attorney was not listed in court records.
Like the "Obama" store, others closed as a result of the charges were located in downtrodden neighborhoods surrounded by vacant buildings. Their windows and shelves appeared stocked with junk food and sodas. Supermarkets are rare in such "food deserts."
According to affidavits unsealed in the case, FBI agents observed the Obama store and watched dozens of customers leave after conducting SNAP transactions with either no items or a small item such as a soda, even as records showed that about half the transactions had been for more than $40.
The FBI had cooperating witnesses go into the stores, wearing "recording and monitoring devices," who asked if they could "sell stamps."
"I got stamps to sell," a cooperating witness told a store employee during a March visit. "I got two hundred."
"You want one hundred?" a store employee said, according to an affidavit, and kept the other hundred.
William G. Squires Jr., of the Department of Agriculture's Office of Inspector General, said the debit card transactions are tracked electronically, and officials look for unusual activity and purchases that appear out of step with other stores in similar areas.
"In addition to that, we have informants that give us information, and we get information from concerned citizens," he said.
Rob Santoni, chairman of the Maryland Food Dealers Council, said that the cases represent the "tip of the iceberg."
Santoni, whose family operates Santoni's supermarket in East Baltimore, said he has complained about fraud to the inspector general's office for years, "and this is the first time I have heard of anything ever being done about it."
Santoni said many smaller stores don't have systems that track what items are food-stamp eligible. He said store owners who commit fraud "deserve whatever is coming to them."
None of the food-stamp beneficiaries were charged in the federal case, and Rosenstein said that was because the store owners took the bulk of the proceeds and are supposed to be acting as an "agent of the USDA, making sure the recipients get food."
Dae Cho, 66, and Hyung Cho, 40, of Catonsville are charged with obtaining more $1.4 million in payments at the K&S Food Market in the 3900 block of W. Belvedere Ave. According to court records, authorities say Dae Cho was ordered to voluntarily leave the United States in 2008 and never left, and Hyung Cho "lacks legal status to be present in the United States."
No lawyer was listed in court records with the indictment.
Prosecutors say those charged face a maximum sentence of 20 years in prison for each count of wire fraud, and others face additional charges of food stamp fraud.Copyright © 2015, The Baltimore Sun