US charges 6 people, 3 firms with $100m biofuels fraud

19 September 2013 14:01  [Source: ICIS news]

MEDELLIN, Colombia (ICIS)--Six people and three companies were charged with defrauding investors and consumers of more than $100m (€74m), Federal Bureau of Investigation (FBI) prosecutors in Indiana said late on Wednesday.

The indictment alleges that four men operating E-Biofuels of Indiana and two others with New Jersey-based Caravan Trading and CIMA Green conspired to exploit a government incentive programme that offers tax credits for biofuel use.

The defendants face 88 counts including securities fraud, wire fraud, filing false tax claims, money laundering and conspiracy.

The scheme began in July 2009 and continued until May 2012, the prosecutor's office said, with the defendants fraudulently selling more than 35m gal of biofuel they claimed to be pure B100 biodiesel but was blended with petroleum, known as B99, that had less value.

B100 comes with Renewable Identification Numbers (RINs) that can be used to claim tax credits and is worth roughly $2/gal more than B99.

Congress passed a law in 2007 that required refineries to blend biodiesel with petroleum-based diesel.

In 2013, that Renable Fuel Standard (RFS2) mandate required 1.28bn gal of biodiesel to be used. To keep track of how the mandate is being completed, producers use a 38-character RIN.

Buyers like refineries can use the RIN to show the EPA that they have met their share of the annual mandate, and they can sell credits above their share to other buyers, giving flexibility to buyers who are not close to biodiesel fuel producers.

The Indiana defendants were identified as Craig Ducey, Chad Ducey, Chris Ducey and Brian Carmichael, all operators of E-Biofuels.

The government is also charging Jeff Wilson, chief executive of Imperial Petroleum, which bought E-Biofuels in 2010, with two counts of securities fraud.

The defendants from New Jersey are Joseph Furando and Evelyn Katirina Pattison.

Since November 2011, EPA has identified some 140m invalid or fraudulently created RINs associated with biodiesel fuel.

The biodiesel industry has started using private, voluntary verification services for RIN buyers so they can prove their credits are legitimate and reduce risk.

The US biodiesel industry in May 2012, in a move towards stabilising the RIN market, launched of the Genscape RIN Integrity Network dashboard.

The RIN Integrity Network dashboard allows obligated parties who subscribe to the Genscape service to do due diligence with real-time information on participating biodiesel producers.

American Fuel and Petrochemical Manufacturers (AFPM) President Charles Drevna has said the EPA’s current "buyer beware" approach to enforcement is a major problem for the industry.

Under EPA’s current structure, obligated parties who unknowingly purchased fraudulent RINs are required to replace the RINs, incurring high costs that ultimately get passed down to the consumer.

($1 = €0.74)

By: Leela Landress
+1 713 525 2653

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