Owner of central California smoke shops pleads guilty to fraud related to the sale of synthetic drugs

FRESNO, Calif. — The owner of a chain of smoke shops in California's Central Valley pleaded guilty Thursday to federal charges related to the manufacture and sale of synthetic smokable cannabinoids (SSC), which are typically marketed as incense, spice and potpourri.

Victor Anthony Nottoli, 51, of Hillsborough, Calif., pleaded guilty Thursday to one count of conspiracy to defraud the United States and one count of causing at least 24 tons of misbranded SSC to be introduced into interstate commerce. Additionally, four other defendants arrested last week for manufacturing and distributing SSC were indicted Thursday.

The charges against Nottoli are the product of a multi-agency probe involving Drug Enforcement Administration (DEA); Internal Revenue Service-Criminal Investigation; and U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI). The U.S. Attorney's Office for the Eastern District of California is prosecuting the cases.

According to court documents, between April 1, 2011, and June 26, 2013, Nottoli generated more than $20 million by distributing the SSC products commonly known as K2 or spice in retail outlets throughout the U.S. and from his six Central Valley smoke shops doing business under the name "The Stuffed Pipe." The shops are located Fresno, Visalia and Bakersfield. In 2012, Nottoli bought a Florida company that manufactured and distributed SSC products and brought the production and distribution operations to a warehouse in Millbrae, Calif. Then in January 2013, Nottoli leased a warehouse in Stockton and began manufacturing and distributing SSC products from that location.

According to court documents, Nottoli and his co-conspirators manufactured and distributed SSC products containing hallucinogenic chemical compounds AM‑2201 and XLR11. They referred to the SSC products as herbal incense, spice, botanicals, and potpourri and marketed them under names such as "Bizarro," "Posh," "Sonic Zero," "Headhunter," "Neutronium," and "Orgazmo." The products were labeled, "Not for Human Consumption."

Nottoli pleaded guilty to causing misbranded SSC products or drugs to be introduced into interstate commerce. According to court documents, between Aug. 1, 2012, and June 26, 2013, 24 tons of misbranded drugs intended for human consumption were packaged and sold without the labeling required by law and necessary to protect the user such as: the place of business of the manufacturer, packer, or distributor; an accurate statement of the contents; adequate directions for use; warnings against use by children or where its use may be dangerous to health; warning against unsafe dosage; or methods or duration of administration or application.

In pleading guilty, Nottoli specifically agreed to the forfeiture of more than $6.6 million of drug proceeds: $6,488,000 in cash and $191,000 in other assets, including a truck and an Airstream Trailer.

Also Thursday, a federal grand jury indicted four other individuals for their alleged involvement in Nottoli's synthetic drug enterprise - Douglas Jason Way, 41, of Evanston, Illinois; Timothy Ortiz, 43, of Waukegan, Illinois; Timothy New, 31, of Pensacola, Florida; and Natalie Middleton, 28, of Clovis, California. The indictment charges Way, Ortiz, and New with conspiring to manufacture and distribute synthetic cannabinoids and with manufacturing, distributing, and attempting to possess with intent to distribute SSC products. Middleton, along with Way, Ortiz, and New, are also charged with causing the introduction of misbranded drugs into interstate commerce. Middleton individually was charged with engaging in a monetary transaction in property derived from drug trafficking to buy a time share in Lake Tahoe, Nevada.

"The use of synthetic or designer drugs has increased dramatically among teenagers and young adults. Although synthetic cannabinoids are marketed as 'legal' alternatives to marijuana, they are not only illegal but can be extremely harmful," U.S. Attorney Benjamin B. Wagner said. "We are committed to working with our law enforcement partners to shut down the manufacturers and distributors who reap tremendous profits without regard for the law or public safety."

If convicted of the drug charges, Way, Ortiz, New, and Middleton face a maximum penalty of 20 years in prison and a $1 million fine or twice the gain. The maximum penalty for money laundering is 10 years in prison and a $250,000 fine. The mislabeling charge carries a maximum penalty of three years in prison and a $10,000 fine or twice the gross gain.

Way, Ortiz, and Middleton are scheduled for arraignment May 21 in Fresno. New was ordered detained by a U.S. Magistrate Judge in Dallas, and is awaiting transportation to federal court in Fresno.

Thursday's guilty plea and indictments follow on the heels of last week's nationwide synthetic drug takedown in connection with Project Synergy Phase II. Project Synergy is a law enforcement initiative coordinated by the DEA that brings together federal, state, local, and international law enforcement resources to target the dangerous global synthetic designer drug industry.

This case is the product of an Organized Crime Drug Enforcement Task Force (OCDETF) investigation by the DEA, IRS-CI and HSI, with assistance from the Office of Criminal Investigations of the Food and Drug Administration (FDA) and the Fresno County Sheriff's Office. Assistant U.S. Attorney Karen A. Escobar is prosecuting the case and Assistant United States Attorney Heather Mardel Jones is handling the forfeiture of assets.