David John Magana, 47, of Newcastle, was sentenced 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, United States Attorney Benjamin B. Wagner announced.
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.
“Mr. Magana, along with his co-conspirators, carefully crafted a scheme to take control of millions of dollars of company money for personal gain,” said IRS-Criminal Investigation Acting Special Agent in Charge Shannon Hodges. “Not only did he defraud his employer, but the everyday customer. Those who line their pockets with profits from these schemes should know they will not go undetected and will be held accountable.”
“In this particular case, Magana intentionally abused his trusted position without concern for the potentially catastrophic impact of his actions on the company, its employees, and customers,” said Special Agent in Charge Monica M. Miller of the Sacramento Division of the FBI. “Our agents continue to identify and investigate greed‑based crimes like these to ensure that those who take advantage of their positions and the public will face justice.”
“Raley’s is deeply rooted in family. For years, David Magana was a member of that family,” said Kevin Konkel, Raley’s senior vice president, operations. “The criminal actions he took against Raley’s, at the same time our company battled a harsh economic reality, deeply hurt us. Simply put, David wasn’t there for his Raley’s family. Instead, he was taking advantage of us.”
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.
*Dept of Justice