Happy Gas investigation spotlights EBT trafficking

MAGNOLIA — Nothing added up when comparing reported sales to inventory seen inside the store.

So said agents investigating the Happy Gas store.

According to investigators, EBT cards were being misused during transactions at Happy Gas, bringing two misdemeanor charges against the owner last week and perhaps sending a strong enforcement message to anyone involved in similar alleged schemes.

“Our hope is that with these types of investigations and arrests that it sends a message around the state that EBT (sometimes called food stamp) fraud is illegal and will be addressed,” said John Yeomans, director of the Delaware Division of Alcohol and Tobacco Enforcement.

“Essentially the arrest could also serve as a preventative measure.”

A Division of Alcohol and Tobacco Enforcement agent stands outside Happy Gas in Magnolia as a search warrant is executed on Oct. 23. (Submitted)

A Division of Alcohol and Tobacco Enforcement agent stands outside Happy Gas in Magnolia as a search warrant is executed on Oct. 23. (Submitted)

More scrutiny is being placed on using Electronic Benefit Transfer cards properly — the state investigated 222 trafficking cases in Fiscal Year 2015, and 157 in FY 2014.

In the Magnolia case, the cost of cigarettes, gas and cash allegedly were being charged to EBT cards and identified as authorized food items, DATE claimed.

Authorities alleged that Happy Gas owner Jayesh U. Desai, a 47-year-old Magnolia resident who is presumed innocent unless proven guilty, allowed the transactions and took a “surcharge” profit from the deal. He was arrested on Oct. 23 and charged with two counts of unauthorized trade of food stamps and released on $1,000 unsecured bond.

DATE noted in a news release that investigators determined that Happy Gas conducted thousands of dollars of EBT transactions each month as part of the federally funded Supplemental Nutritional Assistance Program.

State officials reported that more than $336,798 in food benefits were used fraudulently in Fiscal Year 2013, and annual trafficking in the First State is believed to involve millions of dollars.

According to the Delaware Department of Health and Social Services, the state issued an average of just more than $19 million a month in federal funds in Fiscal Year 2015. In September 2015, 148,172 Delaware residents in 71,158 households received food benefits.

The case unfolds

According to DATE, the DHSS first registered concerns about possible fraudulent use of EBT cards at Happy Gas in early August.

A visit to the business on West Birdie Street, determined that the amount of food in the store could not possibly match the number of reported EBT transactions, authorities alleged in an affidavit of probable cause.

“(Name redacted) took photographs during the visit that showed empty shelves and very few authorized foods,” a DATE agent wrote in court papers, noting that the photos were available in the case file.

A sign inside Happy Gas in Magnolia warns that fraudulent use of EBT cards is a federal crime. (Submitted)

A sign inside Happy Gas in Magnolia warns that fraudulent use of EBT cards is a federal crime. (Submitted)

“The store was unsanitary and the interior lighting was not in use.”

Working with the United States Department of Agriculture office of Inspector General, DATE organized undercover visits to Happy Gas, authorities said in papers.

During the first contact on Sept. 24, a controlled EBT card allegedly was used for gas, DATE said. While the card was swiped for $26, $20 worth of unleaded gas was dispensed, authorities claimed in papers.

On Oct. 8, an undercover DATE officer in plainclothes entered Happy Gas and “observed the floors were dirty and dust and dirt was apparent on the shelves,” court documents read.

“Several display shelves were completely bare. I observed several cartons of cigarettes on a shelf along the left as I entered. The cartons were accessible to customers and appeared to be sealed and displayed for sale. …”

What was not apparent, the investigator alleged, were “fruits or vegetables, bread, cereals, meats, fish, or poultry” that were authorized for purchase with EBT cards. A wide array of candy and soft drinks were displayed and available for authorized purchase by EBT, papers said.

“However, the inventory was sparse and many spaces on the racks were empty.”

On Oct. 9, DATE and Inspector General agents orchestrated another undercover operation where an EBT card was swiped for $60.90, papers said. Some perishable items and a pack of Marlboro Filter cigarettes had been picked to purchase, according to documents, and a request was made for $15 in gasoline and $20 cash back on the EBT card.

The cashier allegedly handed over $40 in cash and the undercover agent asked, “What about the gas?,” according to papers. The person was told that gas on the EBT card needed to be transacted the next day, authorities alleged.
On Oct. 16, DATE acquired logs that showed transactions on Sept. 24 and Oct. 9, the dates of the undercover operations, authorities said in papers.

Records, receipts, cash

A search warrant was obtained for the Happy Gas business on Oct. 21, and it was executed on Oct. 23, according to DATE. Business records and receipts were seized by agents, along with $1,977.81 in currency, an EBT terminal, electronics and video surveillance equipment.

The Department of Public Health arrived at Happy Gas and issued a cease letter to the business in response to the unsanitary conditions, papers said.

According to DATE, a March investigation into cigarette sales at a New Castle business provided multiple EBT cards and led agents to signs of possible fraudulent use elsewhere.

Two other EBT-related cases were reported in Sussex County:

• On April 17, a 66-year-old Georgetown man was charged with unauthorized possession of an EBT card after his home was raided during investigation into alleged alcoholic beverage sales there. He was released on $3,000 unsecured bond.

• On July 2, a 38-year-old Selbyville woman was accused of selling her EBT card for cash, and was arrested inside a grocery store. She was released on $500 unsecured bail.

Pictured is a sign outside a Delaware business promoting the use of EBT cards to buy food in the store. (Submitted)

Pictured is a sign outside a Delaware business promoting the use of EBT cards to buy food in the store. (Submitted)

So far, EBT-related investigations have been quite laborious, DATE Statewide Operations Supervisor Lt. James Diana said. JPMorgan Chase serves as fiduciary for all transactions.

“We make sure every possible aspect of the case is covered (meticulously),” Lt. Diana said. “We want to have an investigation where we’re able to answer every question of a defense attorney. This cases are handled slowly and methodically …”

Asked whether EBT-related cases are hard to prove, DATE Deputy Director Rob Kracyla said, “We don’t know because we haven’t had any of them go to trial yet.”

After contacting the Delaware Department of Justice regarding administering enforcement of Delaware Code laws associated with EBTs, officials determined that the issue needed further examination.

On April 16 in Dover, AG’s office and DHSS’ Audit and Recovery Management Services unit representatives made a Power Point presentation to DATE agents regarding EBT fraud and trafficking.

Lots of venues

There’s plenty of territory for DATE to cover, since 10 case agents on rotating shifts are responsible for regulating and enforcing alcohol and tobacco activity at approximately 293 package stores (1,200 liquor licensees overall) and 1,164 tobacco locations.

DATE also has seven other agents who are sworn police officers, including Director Yeomans and Deputy Director Kracyla, two lieutenants and three on special assignment duty including full -ime server training specialist, gaming enforcement and violent crimes reduction team (gun unit).

DATE recently received accreditation by the Delaware Police Chiefs Council on Accreditation.

Pictured is an Electronic Benefit Transfer card used by federal Supplemental Nutrition Assistance Program recipients to purchase food supplies in Delaware. (Submitted)

Pictured is an Electronic Benefit Transfer card used by federal Supplemental Nutrition Assistance Program recipients to purchase food supplies in Delaware. (Submitted)

ARMS Unit Director of Management Services Kevin Kelley said state oversight is increasing due to more scrutiny flowing down from the federal level, not necessarily because more fraud is being perpetrated. Federally, food benefits trafficking instances are now more tightly defined and a change from paper to EBT card for food stamps in 2004 brought potential opportunities technological schemes.

“I don’t know that there’s any more (illegal activity) than before, but the Feds have taken a stronger approach to enforcement and that has trickled down to the state level,” he said.

The ARMS Unit focuses on investigation after federal and DATE probes are completed, putting together a list of clients who spent EBT funds at a business in question.

“We look to see if anything is possibly irregular with purchases,” ARMS Unit Social Services Administrator Michelle Twilley said.

Progressive penalties are used for intentional program violations. A first-time offender can lose benefits for a year, a second-timer for two years and a third offense brings a permanent disqualification. Children are protected through a representative of the family using an EBT card on their behalf.

Also, ARMS will attempt to recover any of the fraudulently used funds.

Proactive enforcement, messaging

Curbing criminal activity and misbehavior reaching illegality comes through “enforcement and messaging that gets out there,“ Mr. Yeomans said.

Working with other state agencies, DATE officials are considering creating a campaign to raise public awareness of EBT issues; recent pushes to counter providing alcohol to minors and crashing beach parties, among others, were enhanced by statewide billboards, press conferences, videos and brochures.

Currently DATE agents are visiting tobacco stores, gas stations and convenience stores, delivering packets regarding any overall changes in the law and updates on matters related to their businesses.

DATE officials suspect misused EBT cards may generate proceeds for other illegal activities such as drug trade.

“It’s illegal and it undermines the program in that funds are not being spent appropriately,” Mr. Yeomans said.
“The funds are supposed to go to food/nutrition to support families and children.”

Needing to know more regarding a new element of law enforcement, Mr. Yeomans met with Ohio Investigative Unit Director Harold Torrens, whose state is significantly engaged in EBT enforcement. After first contact at a late September law enforcement conference in Denver, the directors have continued to communicate.

Mr. Torrens believes that 5 percent to 10 percent of all EBT accounts in Ohio involve some sort of fraudulent activity, and the problem is ongoing in every state nationwide.

“There is definitely a need for more investigations and a need for better oversight by the federal government,” he said.

When cases are identified, enforced and prosecuted, Mr. Torrens said the resolution is typically in law enforcement’s favor, which is a win for the taxpayer. Ohio approaches the food in two phases, he said.

“We’ve been successful in prosecuting not only the retailer, but the recipient,” he said, noting that possible suspension or disqualification of benefits are possible.

A current case in Ohio involves 16 people charged with $2 million food stamp fraud in an alleged scheme covering 18 months, Mr. Torrens said. Ohio has full-time food stamp enforcement agents who work with the USDA Inspector General office, with half their salaries subsidized by the federal government.

With underground operations, first identifying potential illegal activity is challenging, Mr. Torrens said.

“It’s a secretive fraud that goes on through individuals who cover it up through sales and merchandise,” he said.

“They hide it well; the investigations are time consuming and involved digging into the finances and following the money.”

There are practically no limits regarding what will be traded for EBT cards, including cars, cash and drugs, Mr. Torrens said.

During undercover buys, Mr. Torrens said, “We’ve purchased everything but a human being for food cards. Any tangible item can be involved, especially if they are lucrative items.”

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