Federal prosecutors have charged six individuals from three different companies with cheating the federal government and customers out of more than $100 million in tax credits and biodiesel credits valuable to fuel-producing companies.
In a case U.S. Attorney Joseph Hogsett called the “largest tax and securities fraud scheme in Indiana history,” defendants allegedly bought pure biodiesel from third parties, pretended they had produced it and sold the diesel to customers for an inflated price while illegally claiming a renewable fuels tax of $1 per gallon.
According to a news release from the U.S. Department of Justice, defendants Craig Ducey, Chad Ducey, Chris Ducey and Brian Carmichael operated Middletown, Ind.-based E-Biofuels. E-Biofuels claimed its biodiesel was produced from feed stocks including animal fat and vegetable oils. Prosecutors say the Duceys and Carmichael conspired with Joseph Furando and Evelyn Pattison, executives of New Jersey-based Caravan Trading Co. and CIMA Green to mislabel the fuel to business victims.
The scheme included three types of mislabeling, the release states. In the first scenario, the companies transported biodiesel to the E-Biofuels facility for unloading into a holding tank to be loaded into tanker trucks and delivered to customers along with false documentation showing the fuel’s manufacture at E-Biofuels. Other times, truck drivers would drive the fuel the Middletown, Ind., plant and obtain paperwork showing B100 biodiesel fuel originating from E-Biofuels, in what some truck drivers called “flipping a load,” the release states.
In the third type of fraud, truck drivers working for the companies took “ghost loads” or “phantom loads” of the third-party biodiesel directly to customers and obtained fake paperwork by fax or e-mail from defendants.
In 2010, publicly traded Imperial Petroleum bought E-Biofuels, which then accounted for at least 97 percent of Imperial Petroleum’s income. Prosecutors say Jeffrey Wilson, president and CEO of Imperial Petroleum, knew of the third-party biodiesel scheme and together with Ducey lied about producing fuels from chicken fat and other feed stocks in the company’s quarterly and annual filings with the Securities and Exchange Commission. Wilson is also a defendant in the case.
The defendants face a host of charges, including conspiracy, wire fraud, false tax claims, false statements under the Clean Air Act, obstruction of justice, money laundering and securities fraud.
Prosecutors say the scheme cost customers $55 million, and the Internal Revenue Service another $35 million.
B100, which fuel producers typically blend with one percent diesel to create B99, can be worth up to $2.50 more per gallon than B99, prosecutors stated. B100 is particularly valuable because it is paired with renewable identification numbers that are used by oil producers as credits in the regulatory process.
“Congress enacted incentives for the production of biofuels to make the United States stronger and more energy independent,” said Robert Dreher, acting assistant attorney general for the Justice Department’s Environment and Natural Resources Division, according to a DOJ news release. “Fraud by parties claiming such incentives threatens these important public policies.”
The EPA agreed.
“The Renewable Fuel Standard Program was designed to achieve greenhouse gas emission reductions, promote energy independence and expand our nation’s renewable fuels sector,” said Cynthia Giles, assistant administrator for the Environmental Protection Agency’s Enforcement and Compliance Assurance, according to the release.
“Today’s action supports these goals by protecting the integrity of the biofuel market. Those that cheat the system are breaking the law, and undermine our commitment to protect the public health and the environment,” Giles said.
The six defendants face up to 20 years in federal prison and fines on some of the counts, as well as other fines and “regulatory action.
The investigation was conducted by the EPA’s Criminal Investigation Division, the Internal Revenue Service Criminal investigation, the FBI, the Securities and Exchange Commission, the U.S. Department of Agriculture and the Indiana Department of Environmental management.
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