Cory Johnson pleaded guilty to charges for his role in Mixitform
By Paul Grimaldi
Friday, August 01, 2008 2:52 PM
PROVIDENCE -- A federal judge yesterday ordered a man who admitted to Internet fraud to pay more than $2.2 million in restitution and complete 1,200 hours of community service -- the most time the judge said he has ever required anyone to serve -- as part of a sentence handed down for actions that bilked more than $15 million from people and businesses around the country.
Cory Johnson, 30, formerly of 272 Pierce Ave., Warwick, pleaded guilty in January to charges of conspiracy to commit wire fraud and money laundering for his role in Mixitforme.com, a Providence Internet retailer of consumer electronics.
Johnson ran the company with a partner, David Whitaker, who is in federal custody awaiting trial.
A third man involved in the case, David Carpenter, of Cranston, was also sentenced yesterday.
Johnson admitted to signing documents claiming Mixitforme's gross receipts totaled about $2.3 million during 2003 and 2004, years in which the company wasn't registered to do business, and that his federal tax returns for those years didn't reflect any business income from Mixitforme.
He also admitted to improperly transferring $27,000 in December 2005 from Mixitforme's business account at Bank Rhode Island to his personal account at the bank.
Johnson, who now lives in Morrisville, Pa., faced up to 15 years in prison and fines totaling $500,000 for his part in a 2005 scam that left electronics distributors and others out millions of dollars, according to federal court documents.
But authorities said Johnson has cooperated with them as they try to unravel the doings of his former partner, who has a long criminal history, thus reducing the potential prison time for Johnson's actions to two years or less.
Rather then sentence Johnson to jail, U.S. District Court Judge William E. Smith ordered him to serve five years' supervised release -- including home confinement for nine months -- plus the lengthy community service. The judge also ordered him to pay more than $2.2 million in restitution to Nova Information Systems Inc., a credit- card processing company that was forced to reimburse customers who never received goods they ordered from Mixitforme.
"I'm giving you a significant break," Smith told Johnson in court yesterday. "I hope you don't prove me wrong."
A number of factors played into his decision, Smith said. Among them are Johnson's lack of a previous criminal history, his remorseful attitude and cooperation, and his potential to earn a significant income.
Johnson works as a quality assurance auditor in New Jersey and is taking classes toward a master's degree in chemical engineering at Drexel University in Philadelphia.
"It's not inconceivable to me that you could be making six figures if you stay on the right track," Smith said.
Still, the judge said, "I don't know how you're ever going to pay back $2 million."
After the hearing, Johnson's lawyer, William Delaney, of Reavis Cianciolo, said his client was happy with the sentence.
"We're very pleased with the outcome and we're very grateful to Judge Smith," Delaney said.
Carpenter, 34, a former branch manager for Bank Rhode Island, appeared before the judge earlier in the day for sentencing.
Carpenter pleaded guilty in March to accepting a bribe in exchange for helping Johnson and Whitaker defraud the bank of nearly $1 million -- the amount the bank lost before the fraud was discovered.
He was ordered to serve one day in federal custody, followed by six months of home confinement during five years of supervised release. Also, Carpenter was ordered to pay $945,605 in restitution, split between Bank Rhode Island and Progressive Insurance, which covered part of the bank's loss in the scheme. Progressive will receive $830,000 and Bank RI will receive $115,605.
His lawyer, Jeffrey Pine, said Carpenter holds an unspecified sales job.
Whitaker, 33, is in federal custody awaiting trial. He faces 10 federal fraud charges in the case, each of which carries a maximum prison sentence of 20 years and a $250,000 fine.
He was arrested at Los Angeles International Airport by U.S. Secret Service agents and other federal authorities in March after he disembarked from a flight originating in Mexico. He had been living in Acapulco until Mexican authorities expelled him.
Whitaker fled Rhode Island two years ago after Mixitforme imploded amid complaints that it hadn't delivered thousands of iPods, video-game systems, cell phones and other consumer electronics ordered over the Internet by people around the country.
The charges against the three men arose after agents from the Secret Service, the FBI, the U.S. Postal Service, the Internal Revenue Service, state and Providence police seized business records and computer equipment in March 2006 from the company's office at 275 Westminster St.
The records seizure at Mixitforme followed a move by Bank Rhode Island to push the company into state receivership in an attempt to collect at least $900,000 the bank was owed by the online electronics retailer. State receivership is a form of bankruptcy in which a court appoints a fiduciary to either sell a company or liquidate it to pay accumulated debt.
A court-appointed receiver shut down Biggles Toy Store, a business related to Mixitforme that was run out of the same Westminster Street building.
Whitaker and Johnson, who lived together for a time in Providence, ran both companies.
In phone conversations Whitaker initiated late last year with a Journal reporter, he said he started the business to sell iPods, preloaded with music, to customers found over the Internet. He then sold the business to Johnson and they ran it together.
Johnson was listed as the company owner in a business registration statement filed with the state.
Whitaker went by the titles of "presidential advisor," "counsel to the president" and "chief operating officer" while Mixitforme operated in Rhode Island, first out of a house in Cranston and then on Westminster Street.
According to federal documents, Whitaker "spent millions of dollars of Mixitforme funds on lavish personal expenses, including ... the purchase of four luxury automobiles, the rental of a mansion in Miami at about $200,000 per month, the repeated use of private airplanes, repeated stays at luxury hotels, regular use of limousine drivers, a team of security personnel and the rental of a yacht."
In April, the state Supreme Court rejected an appeal by Johnson, who challenged a portion of an American Express bill totaling nearly $1 million.
The account was opened in August 2005 in the names of Johnson and Mixitforme.
According to court records, the credit card statements include a $12,325 charge for a purchase from Luxury Yacht Charter in North Miami Beach, an $11,603 charge for an "exotic car rental" from Auto Boutique in Miami, and a $5,076 charge for clothing from Dolce & Gabbana in Beverly Hills.
In May 2006, American Express sued Johnson in state Superior Court, alleging breach of contract and unjust enrichment. A Superior Court judge ruled Johnson must pay American Express $928,028. pgrimald /at\ projo.com / (401) 277-7356