Klamath County deputies and federal agents simultaneously served warrants at six sites Thursday morning, as part of a massive operation targeting a local fraud ring. By afternoon, at least 30 suspects were in custody and two businesses were shut down.
At least 32 more suspects were being sought Thursday night, with arrest warrants issued throughout the day. The three suspects allegedly in charge of the fraud ring were arrested Thursday.
Klamath County Sheriff Frank Skrah said his deputies, approximately 20 federal agents and police officers from nearby counties started serving warrants Thursday after a long-running investigation.
“This is the culmination of well over a year’s worth of investigation,” Skrah said during a press conference. “This is not a local or a state venture, this is darn near national.”
Termed Operation Gold Card, the investigation started last year during the events of another large, inter-agency venture, Operation Trojan Horse.
According to KCSO detective Eric Shepherd, one of the initial suspects in that operation was able to point him toward a Klamath Falls meat market where people were trading their Oregon Trail Card benefits for cash, drugs and other goods.
Trojan Horse saw about 50 suspects involved in methamphetamine distribution arrested throughout the county last spring.
Shepherd said the meat market, Carniceria Mi Pueblo, at 333 E. Main St. — located across the street from Mills Elementary School — became the focus of the investigation. He contacted the U.S. Department of Agriculture, Office of the Inspector General (USDA OIG), to help pursue undercover work at the market.
Undercover police officers were able to use Oregon Trail Cards specially made by the USDA to buy several items, including methamphetamine. The investigation began to make headway by November, Shepherd confirmed.
50 cents on the dollar
The fraud, allegedly perpetuated at Carniceria Mi Pueblo, worked on an exchange of state benefits for cash.
Shepherd explained during the press conference that recipients of state benefits via an Oregon Trail Card would go into the market and spend their full balance on nothing, in exchange for cash.
“You go into the Mi Pueblo market down there. You swipe your card, they swipe for $200, they give you $100 back, so they instantly double their money. So they get the full $200 deposited into their account electronically.”
The meat market was estimated to be taking in anywhere from $12,000 to $20,000 a month, according to Shepherd.
Another business, the Taqueria Mi Pueblo at Oregon Avenue and Biehn Street, was found to be allegedly involved. Shepherd said the proceeds from the meat market scam were used to buy food for the taco stand, which operated as a cash-only business.
No paper trail
Sheriff Skrah noted the stand could have been used to launder money without leaving a paper trail.
No fake Oregon Trail Cards were apparently used during the past three years the scam was allegedly up and running.
“It was all legitimate cardholders, funded by legitimate taxpayers,” Shepherd said.
The Oregon Trail Card users were allegedly trading in their benefits so they could buy any items they wanted, according to USDA OIG Special Agent John Sherman. He said some of the benefits put in the cards were equivalent to food stamps, so they could have been used only on food items.
“People are only allowed to buy food items,” Sherman said. “The USDA OIG does take that very seriously.”
The owners of the market and taco stand were identified as Severo Toro-Castellon, 52, and Rafael Ortega-Vargas, 45. Both were booked into the Klamath County Jail on 10 counts of first-degree aggravated theft, criminal conspiracy and other charges. Both were held on initial bail bond amounts of $170,000.
The third primary suspect was identified as Jose Morena Hernandez, 33, also in custody.
“We’re trying to send a clear message: Do not bring your criminal activity and do not bring your dope to Klamath County. We will throw your ass in jail. Period,” Skrah declared.
“These dollars were designed for folks in need, they were not meant to help drug cartels or help individuals make a profit or line their pockets. These people are parasites taking advantage of those folks that are in need. Shame on them,” he added.
The Sheriff’s Office would not confirm direct cartel connections to the meat market scam. Connections outside of Klamath Falls and Klamath County were hinted at, but not directly confirmed. Skrah noted the investigation is ongoing.
“We’re not just going to open a door, grab these people and close the door. No, we’re going to continue to look.”
Klamath County District Attorney Rob Patridge, who was present at the press conference, said his staff is going to have to conduct more than 60 interviews to determine the charges they want to pursue against the various suspects.
“We have to have a balance, and we want to be compassionate with what we’re doing, but we want to stop what’s going on here, and that’s what’s critical. We need to send a message to the community that this has got to stop.”
According to Patridge, federal assistance should be present throughout forfeiture proceedings on the East Main Street market.
“We have substantial support of the U.S. Attorney’s Office to do the seizure of the building, of the meat market,” he said.
The suspects who are currently in custody and who do not make bail by Friday should have their initial court appearance at 1:30 p.m. Patridge said he expects to take many of the cases to a grand jury on Monday, and those suspects out of custody should have their first court dates Friday, May 16 at 1:30 p.m.
H&N reporter Dave Martinez contributed to this report.