Bill Lonn Jr. Sentenced in $1.3M Wood Shavings Fraud

WILLIS D. “BILL” LONN, JR., 68, of Aberdeen, Washington, was sentenced today to three years in federal prison and three years of supervised release after a brutal fall from grace as the longtime manager of Long Beach Shavings Company (LBS). LONN was convicted in October 2016 on thirteen federal felony counts — nine for mail fraud, two for income tax evasion, one for money laundering conspiracy, and one for interstate transportation of stolen property — tied to a years-long theft of $1.3 million from the family-owned business.

The Hoquiam wood shavings plant, operated under California ownership by LONN’s uncle and cousins, became the epicenter of a calculated fraud scheme that ran unchecked for nearly a decade. LONN, who managed the Washington facility, began selling company wood shavings directly to customers in Washington and Oregon, pocketing the proceeds without ever reporting the sales. The stolen goods, used in farming, horse shows, and pet bedding, were funneled into a private slush fund that bankrolled LONN’s greed and, ultimately, a competing business.

The scam escalated when LONN arranged to receive free wood chips from a Montesano lumber mill. He then fabricated a shell entity — M & R Lumber — and sent fake invoices to LBS, billing the company for materials it never paid for. LONN collected the payments, laundering the stolen money through a web of deceit. Over time, the double-dip fraud bled $1.3 million from the business. The scheme unraveled in 2011, when company executives uncovered the full extent of the theft and fired LONN on the spot.

Even as he looted the company, LONN dodged his tax obligations. Federal prosecutors proved at trial he failed to report any income from the illicit gains in 2009 and 2010. Had he paid his dues, his tax bill would have surged by over $80,000. His refusal to file honest returns turned a theft into a broader assault on the federal tax system, drawing the full force of IRS Criminal Investigation.

At sentencing, U.S. District Judge Benjamin H. Settle didn’t mince words. “LONN profoundly abused the trust of his employer,” the judge said. “He callously betrayed family members and took what belonged to the company.” U.S. Attorney Annette L. Hayes hammered home the betrayal: “This defendant did not commit just a single act of embezzlement — over the course of years, he stole from the company almost every day.” Hayes added that LONN used the stolen fortune to launch a rival venture, deepening the wound.

Law enforcement agencies vowed no corner of corruption goes unchecked. “Anyone who uses the U.S. Mail to operate a fraud scheme will be held accountable,” said Anthony Galetti, Inspector in Charge of the U.S. Postal Inspection Service in Seattle. IRS Criminal Investigation’s Special Agent in Charge Darrell Waldon echoed the sentiment: “IRS Special Agents stand ready to defend our nation’s tax system by bringing scofflaws to justice.” The case was investigated by USPIS and IRS-CI, and prosecuted by Assistant U.S. Attorneys Brian D. Werner and Nicholas Manheim.