Feds: Covington store's food stamp fraud funded drug abuse

A woman who ran a Covington convenience store and defrauded the food stamp program out of nearly half a million dollars has been sentenced to 5½ years in prison.

Phyllis Tyler – who initially claimed to The Enquirer she was being harassed by police – was found guilty earlier this year in federal court of food stamp fraud and money laundering charges.

The 49-year-old Edgewood, Kentucky woman managed and operated A&E Beauty Supply, a small store not far from the Madison Theater. It sold items including wigs, makeup, T-shirts, beer and snacks. 

Testimony revealed that Tyler or an employee bought electronic benefit cards for half the value. She then redeemed the full benefits through transactions at her store, triggering a direct reimbursement to her business bank account. She also took cards to retailers like Kroger and Sam’s Club and purchased food stamp-eligible items.

Prosecutors said she unjustly profited “from the federal government’s coffers" and undermined the welfare program “by depriving adults and children of nutritional assistance.”

Investigators began noticing suspicious transactions in 2012. The number and frequency of the transactions increased during 2013 and 2014, prosecutors said, reaching an apex in the summer of 2014.

Tyler continued to conduct fraudulent transactions through mid-2015, prosecutors said, even after she had been arrested and the store was disqualified as an authorized food stamp retailer.

A task force officer testified that the total amount of the fraud was more than $408,000.

In a sentencing memorandum, prosecutors said many who sold Tyler their cards wanted the cash to fund drug habits, “a fact they testified (Tyler) knew.”

“The Defendant, who has personal knowledge of the devastation of drug addiction, used taxpayer dollars to fund drug abuse,” prosecutors said.

Prosecutors also said Tyler lied to investigators, threatened witnesses and tried to bribe them.

Her attorney, Hal Arenstein, focused in his own sentencing memorandum on Tyler’s charitable work. She started a youth outreach ministry at her church and won a humanitarian award. She also began a “Kids for Coats” program that ran from 2004 until 2016. Every Thanksgiving, she arranged for the purchase of turkeys to be distributed to those who did not have one for the holiday.

When the business began to fail, “her gambling addiction blossomed," Arenstein said. "She and her husband did not live a lavish life style. The money went right back into the business.”