Feds, Bexar deputies raid 4 San Antonio sites, seize luxury autos

Officials raid MGM Auto in the 5700 block of Industry Park during a money laundering investigation on Thursday, Jan. 31, 2019. Officials raid MGM Auto in the 5700 block of Industry Park during a money laundering investigation on Thursday, Jan. 31, 2019. Photo: Guillermo Contreras Photo: Guillermo Contreras Image 1 of / 29 Caption Close Feds, Bexar deputies raid 4 San Antonio sites, seize luxury autos 1 / 29 Back to Gallery

Authorities raided four locations in San Antonio on Thursday, seizing dozens of high-end cars and arresting two auto dealers as part of a lengthy money-laundering investigation.

The raids targeted MGM Auto near Rittiman Road and Interstate 35 and Odida Auto off of Stahl Road, both of which sell used cars.

FIND OUT FIRST: Get San Antonio breaking news directly to your inbox

Law enforcement officers also raided a rental home in the 4000 block of Barrington and a large home worth $460,000 in the gated Champions Run subdivision in the Stone Oak area, where a man named Karen Mgerian, 40, who owns MGM, was arrested.

Jose Luis Magallon Jr., 28, also was arrested. Authorities have accused him of laundering money for a drug trafficking organization in Michoacán, Mexico. He was caught in a secret sting allegedly laundering money for undercover agents. Magallon appeared in federal court Thursday on a money-laundering conspiracy charge and faces up to 20 years in prison if convicted. He's due in federal court again Tuesday for a bond hearing.

Magallon is the owner of Magallon Enterprises LLC, an exotic and luxury used auto dealership in San Antonio, according to a 10-page court affidavit filed against him. The business was not among those raided Thursday.

Magallon allegedly dealt with an undercover agent who posed as a transporter of large amounts of drug cash, and flashed several high-end cars that were part of Magallon's money laundering operation, the affidavit said. The affidavit also alleges that other people helped Magallon disguise his money laundering under layers of fronts. None have been charged.

Law enforcement sources said Magallon also used photos of himself with a who's who of current or former public officials, posted to his Facebook page, to present a facade of legitimacy and significance. Among them are former San Antonio mayor and HUD secretary Henry Cisneros ; Bexar County Sheriff Javier Salazar; state Sen. Jose Menendez; and former Bexar County Democratic Party chairman (and San Antonio mayoral candidate) Manuel Medina.

None of the officials knew about nor were involved in Magallon's alleged scheme, according to the law enforcement sources.

"He used them (the photos) to make himself look important," one of the sources said.

Find out first: Get San Antonio Express-News breaking news directly to your inbox

About 100 vehicles were seized in the early-morning raids, including Ferraris, Lamborghinis, Audis, BMWs, Mercedes, a Bentley and other luxury brands, officials said. Several were towed away from MGM Auto.

"All told, it was about $3 million to $4 million in assets," Salazar said Thursday morning outside MGM Auto.

The sheriff's office provided an undercover deputy during the investigation and also helped with SWAT teams that simultaneously swarmed the four locations Thursday, Salazar said.

The case was developed by the Internal Revenue Service's Criminal Investigation Division and the U.S. Drug Enforcement Administration, which used an undercover business in the sting operation, according to the affidavit.

RELATED: Items seized from San Antonio oil and gas businessman Brian Alfaro's home

The affidavit said that Magallon laundered $204,000 in a series of undercover sting transactions involving federal agents. The operation began in June 2017.

According to the affidavit, Magallon told one of the undercover agents that he could "invest" in Magallon's car business. Magallon would take the undercover agent's bulk U.S. currency and purchase high-end vehicles of the agent's choice from an auto auction using Magallon's auto dealer license. That would help the agent avoid having the agent's undercover name and other identifying information on official U.S. government documents, and dodge having transactions of more than $10,000 be reported to the IRS, the affidavit said.

"Magallon stated he could even ship luxury automobiles to the UCA (undercover agent) outside the U.S.," the affidavit said. "Magallon does this for members of the DTO he works with in Michoacán. Another arrangement Magallon does with DTO members in Michoacán and offered to the UCA is laundering bulk U.S. currency through a financial institution Magallon does business with."

Magallon and the agent made a series of deals; the first involved $20,000 that the feds provided and Magallon gave the undercover agent the title to a luxury vehicle as collateral, the affidavit said. He then converted the $20,000 into two $8,500 checks he later gave back to the agent, and took a 15 percent cut as his money-laundering fee, the affidavit said. At least two other operations were conducted in similar fashion. Some of the deals were cut at San Antonio resorts, the affidavit said.

During negotiations with the agent, Magallon allegedly said he would have his accountant provide him with false sale invoices to make it seem the "drug money" the agent was providing was for something legitimate, like auto parts. Magallon also said his accountant could create a false lien for the agent if the agent chose to buy a luxury vehicle in cash, the affidavit said. The accountant is not identified.

The affidavit also said Magallon sold a 2011 Maserati Gran Turismo to undercover agents for $54,000 in cash and prepared the sales documents in the name of a straw person to hide the buyer's identity and did not prepare documents showing the receipt of more than $10,000 for the sale.

Magallon also told the agent that he had a Russian friend who sells high-end vehicles and takes large cash payments and won't report the large transactions to the IRS. Magallon introduced them to Mgerian because he was able to launder larger amounts of money than Magallon could handle, according to the affidavit.

The affidavit said Mgerian laundered $575,000 for the agents in four separate sting transactions. He is expected in federal court Friday for an initial hearing on a money laundering conspiracy charge.

gcontreras@express-news.net | Twitter: @gmaninfedland

Guillermo Contreras covers federal court and immigration news in the San Antonio and Bexar County area. Read him on our free site, mySA.com, and on our subscriber site, ExpressNews.com. | gcontreras@express-news.net | Twitter: @gmaninfedland