ROXBURY, NJ – The owner of the Smiles II go-go bar in Ledgewood and a Succasunna man who works there, face serious criminal charges, including racketeering, money laundering, conspiracy, theft and credit card theft, according to authorities.
The owner, Kevin Lipka, 61, of Livingston, and the Succasunna resident, manager Eric Olsen, 47, were charged Wednesday by Roxbury Police Detective Jack Sylvester based on an investigation that took nearly a year.
In a press release issued today, the state Attorney General's Office said the accused "used stolen credit cards – as well as gift cards that they purchased with the stolen credit cards or acquired through other criminal schemes – to steal more than $9 million." Authorities said Lipka's 60-year-old wife, Shelly Lipka, who co-owns the establishment, was charged with misconduct by a corporate official and failure to file a tax return.
They said that, over a period of four years, the accused "conspired to steal more than $9 million by defrauding retailers, banks, credit card processing companies and credit card holders."
The attorney general's office said the stolen or otherwise fraudulently obtained credit cards "were used to purchase pre-paid gift cards issued by credit companies such as Master Card and Visa at various retail stores, including Target and Home Depot."
The gift cards were subsequently “cashed in” at Smiles II in what officials characterized as "phony transactions," with the money then split among the defendants, said authorities.
"At times, the credit cards were used directly for transactions at the go-go bar," said the attorney general's office. "The cards were swiped through credit card processing devices to conduct fraudulent transactions which generated proceeds that went into the business accounts of She-Kev Inc." the corporate name of Smiles II.
Investigators also contend people involved in the scheme used stolen credit cards to buy expensive items at stores including Home Depot. They subsequently brought the items back for store credit or for store gift cards, said the attorney general's office, noting those cards could be then exchanged for cash on the Internet.
"In other cases, the defendants allegedly purchased liquor for Smiles II using stolen credit cards or illegally acquired gift cards," said the press release.
But that wasn't all. Authorities contend those arrested found other illicit ways to get gift cards, such as by fraudulently offering vehicles for sale on eBay and Craigslist. "Unsuspecting purchasers would be directed to pay for the vehicle with pre-paid gift cards from credit companies such as Master Card and Visa, and those gift cards also were allegedly processed through Smiles II," said the attorney general's office.
Authorities said the vehicles were never delivered 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," said the attorney general's office. "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."
The arrests are the culmination of a 10-month investigation called “Operation Smiles” that was led by the state Division of Criminal Justice Gangs & Organized Crime Bureau and the Roxbury Police Department, said the AG's office, noting it was Roxbury police that initiated the probe.
The attorney general's press release included a comment from Roxbury Police Chief Marc Palanchi, who thanked the state 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 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.”
Livingston Police assisted in the arrests and execution of search warrants at Smiles II and other locations, said the attorney general.
“These defendants allegedly racked up millions of dollars in illicit proceeds in the back room of a go-go bar, where they spent hours swiping stolen credit cards and ill-gotten gift cards,” said Acting Attorney General Porrino in a statement. “With these arrests, we have frozen their bogus credit and put a stop payment on their criminal schemes.”
Lipka, Olsen and three other people charged in the case appeared Thursday before Superior Court Judge Thomas Critchley in Morristown for a bail review hearing. The Lipka’s initial bail amount of $350,000 was reduced to $250,000 by the judge, according to court records.
Among the other men charged were Kevin Bae, 28, of Edgewater; Smiles II manager Peter Vasilopoulos, 71, of Elizabeth, Jordan Turner, 23, of Montclair and Kevin Rodriguez, 23, of Whitehall, Pa.
“Most people think of gift cards as the perfect present when they don’t know what to give, but criminals think of them as a perfect way to launder money anonymously,” said state Division of Criminal Justice (DCJ) Director Elie Honig in a statement. “Working with the Roxbury Police, we showed these alleged con artists that their perfect fraud scheme was not so perfect after all. They face the most serious financial charges provided for under state law.”
The complaint against Lipka asserts he transported or possessed more than $500,000 “which was derived from a pattern of racketeering,” a first-degree crime. It also says he operated “a corporation for the furtherance or promotion of criminal object, specifically by owning/operating Smiles II to further a pattern of racketeering to obtain a benefit of $75,000 or more.”
Lipka failed to file tax returns “with intent to defraud the state or to evade, avoid or … not make timely payment” of taxes, fees, penalties and interest, says the complaint signed by Sylvester. Additionally, it accuses Lipka of conducting illegal credit card transactions and conspiring with the other defendants “to commit a pattern of racketeering with the purpose of promoting or facilitating” the crimes.
Smiles II has been operating this summer without the ability to sell alcohol, due to the suspension earlier this year of its liquor license. The doors on the club were locked today and a sign said "Closed Down." The club, on Route 46, was the scene of a reported robbery on Jan. 25.
According to the attorney general, Roxbury Police Lt. Dean Adone assisted Sylvester in the investigation. Additionally, Detective Chris Schell, Detective Patrick Sole, Lt. Brian Bruton and Deputy Attorney General Shontae Gray conducted and coordinated the investigation for the DCJ's Gangs & Organized Crime Bureau.
Acting Attorney General Porrino 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 assistance.