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Businessman, former Mountain Laurel warehouse manager admit paying kickbacks

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Two more men involved in the kickback scheme at Arch Coal's Mountain Laurel mining complex in Logan County have pleaded guilty to structuring transactions to avoid federal reporting requirements.

U.S. Attorney Booth Goodwin said Stephen B. Herndon, 37, and Scott Ellis, 44, both of Holden, West Virginia, each face up to five years in prison after pleading guilty to the structuring violations. They also admitted to U.S. District Judge Thomas E. Johnston that they’d paid hundreds of thousands of dollars in kickbacks to the mine's general manager.

Sentencing is set for Oct. 27 in U.S. District Court in Charleston.

Ellis owned Tri-State Mine Service, Inc., a vendor company that performed rebuilds at Mountain Laurel. Ellis gave Herndon a half interest in Tri-State around March 2011 after Herndon left his position as warehouse manager at Mountain Laurel. To ensure that Tri-State received rebuild work from Mountain Laurel, Ellis, later joined by Herndon, participated in a bid-rigging scheme where, in exchange for a guaranteed winning bid on certain jobs, vendors had to pay cash kickbacks to a person Goodwin said has been identified in other court documents as David Runyon.

Herndon admitted that from roughly 2006 through March 2011, while he was the warehouse manager at Mountain Laurel, he facilitated kickback payments by vendors at Mountain Laurel to Runyon. Early on, Ellis said he delivered the cash to Herndon or Runyon himself.

To generate the funds to pay the kickbacks, Ellis, later joined by Herndon, structured cash withdrawals from various personal and business accounts in amounts of $10,000 or less. They conducted the cash withdrawals in that manner to avoid triggering the bank's obligation to file a currency transaction report with the Internal Revenue Service, which kicks in when $10,000 or more is withdrawn.

Ellis structured more than $163,000 in cash transactions from early 2009 through March 2011, and said he paid about $187,000 in cash kickbacks during that period.

Between April 2011 and September 2013, Herndon and Ellis together structured almost $184,000 in withdrawals, Goodwin said. The pair estimates they used almost all of that money to pay kickbacks to Runyon, which they said totaled about $237,000 over that same period.

Ellis has agreed to forfeit $215,355.85 and Herndon, $132,000 to the government, representing a portion of the funds involved in and traceable to structuring.

The case was investigated by the FBI, IRS Criminal Investigation, U.S. Postal Inspection Service, and West Virginia State Police. Assistant U.S. Attorney Meredith George Thomas is handling the prosecutions.