LAWRENCE — Two store owners and four others were arrested Wednesday morning following a three-year federal investigation into separate alleged food stamp fraud schemes that prosecutors say netted the owners of four small stores more than $2.5 million.
Prosecutors said the four small stores caught the eye of the U.S. Department of Agriculture, which oversees the federal food stamp program, because the stores posted a large majority of their transactions in individual sums greater than $100.
"These are small convenience stores with no (grocery) carriages and a small checkout area," said Assistant District Attorney Philip Mallard. "It's hard to get to $100 in groceries without a carriage."
Martin Santiago, 47, 252 Washington St., Haverhill, who owns three small convenience stores in Lawrence, stands accused along with two clerks of allowing food stamp customers to withdraw cash from electronic benefits cards while the stores kept a substantial fee.
Santiago was charged with trafficking in EBT benefits, money laundering, larceny over $250 and conspiracy to commit larceny, according to the Essex District Attorney's office. He was ordered held on $500,000 cash bail Wednesday afternoon in Lawrence District Court.
His two clerks, Eleazar Gonzalez, 22, 252 Washington St., Haverhill, and Jose Vargas, 40, 72 Belmont St., Lawrence, both were charged with trafficking in EBT benefits and larceny over $250. They were released after their arraignment Wednesday.
Their next court date is scheduled for July 9.
Another store owner, Cristian Pena, 44, 32 Saratoga St., Lawrence, also was charged with trafficking in EBT benefits, money laundering, larceny over $250 and conspiracy to commit larceny. He also faces additional charges of unlicensed possession of a firearm and improper storage of a firearm after investigators said they found a pistol in his convenience store during a raid Wednesday morning.
He was ordered held on $250,000 cash bail.
Pena's father, Ramon Pena, 66, same address, faces the same charges and was ordered held on $50,000 cash bail. Ramon Pena's longtime girlfriend, Esperanza Ortiz, 47, same address, was charged with the larceny and EBT benefit trafficking and was ordered held on $25,000 cash bail.
Their next court hearing is scheduled for July 8.
Prosecutors said the two cases will likely be sent to a grand jury for indictment.
“This is not a victimless crime. We all pay the price when the greedy few defraud the taxpayers out of scarce public resources that are meant to feed, house and clothe our most needy residents,” Essex District Attorney Jonathan Blodgett said in a statement. “Working with our federal partners, we will continue to investigate and prosecute this type of fraud.”
Santiago owns Noelia Market at 71 E. Haverhill St., Santiago Convenience at 393 Lowell St. and El Leon Rojo at 352 Hampshire St. Prosecutors and investigators allege that Santiago and his clerks allowed food stamp recipients to withdraw, for example, $100 in cash by charging an odd amount, such as $140.10, to the cards. Authorities said Santiago or his clerks would give the customer $100 in cash, keeping the remainder for the store.
Starting in July 2012, the USDA sent undercover investigators to the stores and reviewed Santiago's business transactions, according to court documents. They found that during the three-year investigation, Santiago's businesses brought in $2.19 million in food stamp revenue but spent only $300,000 in inventory costs, Mallard said.
"It's an astronomical rate of return for a convenience store," he said.
Additionally, much of the stores' inventories comprised products ineligible for purchase with food stamps.
Defense attorneys countered in court Wednesday that small businesses typically conduct more transactions in cash, meaning inventory and other spending could be higher than prosecutors allege.
The investigation into Cristian Pena's store, Bonao Supermarket at 169 Newbury St., followed much the Santiago investigation. Assistant District Attorney Christina Ronan said that while the store collected $1.53 million in food stamp revenue over the course of the investigation, Pena's store spent only about $260,000 on inventory.
Defense attorney James Klotz said Ramon Pena, whom he was appointed to represent, only served as a counter clerk to help out his son and was not involved in the ownership of the store. Defense attorney Don Bongiovi, who was appointed to represent Ortiz, said she was not deeply involved with the business of the store.
The USDA worked with Massachusetts State Police and Blodgett's office on the investigation.
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