The $100 Million Biofuels Scam
The US has charged four men operating E-Biofuels of Middletown, Ind., and two individuals from New Jersey-based Caravan Trading and CIMA Green with defrauding investors and consumers of more than $100 million after falsely claiming they used chicken fat and vegetable oils to make biofuels.
The alleged scam, which operated from July 2009 to May 2012, saw the defendants fraudulently selling more than 35 million gallons of a biofuel they claimed to be a pure biodiesel called “B100.” In fact the product was “B99,” a product that has been mixed with petroleum and is less valuable, DOJ says.
B100 qualifies for a dollar-per-gallon tax credit known as a renewable identification number or RIN. A RIN is available only to the first organization to blend the B100 with petroleum diesel.
The Justice Department alleges that Craig Ducey, Chad Ducey, Chris Ducey and Brian Carmichael of E Biofuels portrayed the company as as a producer of biodiesel from “feedstocks” such as animal fat and vegetable oils. The government alleges that these defendants conspired with Joseph Furando and Evelyn Katirina Pattison — of Caravan Trading and CIMA Green — to purchase RIN-stripped B99 from third parties, pretend that E-Biofuels had produced that fuel at its Middletown facility and fraudulently resell that fuel to customers as B100 with RINs and an available tax credit.
While the E-Biofuels facility was capable of producing B100, at times during the conspiracy it was producing no fuel of its own, but instead was acting as a pass-through facility for fuel purchased elsewhere, the DOJ says.
All told, customers were allegedly defrauded of more than $55 million as a result of these activities and the Internal Revenue Service was exposed to as much as $35 million in false claims. Loses to victims allegedly total more than $100 million, the DOJ says.
This is not the first time that biofuel RINs have been exploited for financial gain. In December 2012, it emerged that Canadian rail company CN shipped the same load of biodiesel back and forth over the US-Canada border 12 times, at a cost of $2.6 million, to exploit a loophole in the EPA’s renewable fuel standard.
The shipments took place over the Sarnia-Port Huron border in 2010. The train criss-crossed the national boundary 12 times without even unloading its cargo, CBC reported.
Bioversal Trading of Toronto organized the deliveries-that-never-were to rack up RINs. Once imported, Bioversal transferred the biodiesel RINs to its US-based partner company Verdeo.
Under the program, once biofuel is exported, an equivalent number of RINs must be retired by the company. However Bioversal says that Verdeo collected the imports as biodiesel RINs and retired the corresponding number of far less valuable ethanol RINs. The operation is all completely legal according to Bioversal, CBC reported.
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