Ind. biodiesel firm, executives charged in tax and securities fraud scheme

Source: Amanda Peterka, E&E reporter • Posted: Thursday, September 19, 2013

An Indiana-based biodiesel company and its subsidiary cost investors $60 million and generated 52 million fake renewable fuel credits in an illegal scheme to sell biodiesel they hadn’t produced, securities regulators said today in a complaint filed in a federal court.

Imperial Petroleum and subsidiary E-Biofuels LLC purchased finished biodiesel from middlemen and portrayed those purchases in invoices as raw feedstocks for their own renewable fuel production, according to the Securities and Exchange Commission. Between fiscal 2010 and 2011, according to the accusations, the company sold the finished biodiesel for double its purchase price and collected illegal tax benefits for the fuel.

When the scheme crumbled, Imperial’s stock plummeted and investors lost $60 million, the SEC said. Indiana officials today called it the largest tax and securities fraud scheme in their state’s history.

“Imperial Petroleum and its executives outright lied to investors about how their company turned a profit,” said Robert Burson, associate director of SEC’s Chicago regional office. “When their illegal scheme collapsed, investors paid the price.”

Imperial Petroleum purchased Middletown, Ind.-based E-Biofuels in 2010. Federal regulators said E-Biofuels executives lied to Imperial at the time of purchase and told the company it was producing biodiesel from soybean oil and chicken fat.

According to the complaint filed in Indianapolis, when Imperial CEO Jeffrey Wilson found out about the scheme in June 2010, he allowed it to continue, signing off on federal filings that misrepresented the company as producing biodiesel from raw materials. Imperial’s yearly revenue increased from $1 million to more than $100 million, and its stock price skyrocketed.

According to the SEC, Imperial falsely stated in annual reports to the SEC that it sold more than 28 million gallons of biodiesel between its purchase of E-Biofuels in May 2010 and July 31, 2011. But the vast majority — more than 99 percent — of its revenue during that period came from biodiesel produced not by Imperial but by companies in New Jersey, the SEC said.

The government alleges that Imperial and E-Biofuels delivered the fraudulent fuel to customers in three ways. In some cases, the fuel was transported to the E-Biofuels facility in Indiana, where it was unloaded into a holding tank and then reloaded into tanker trucks to be delivered to unsuspecting customers.

In other cases, truck drivers didn’t unload the fuel from New Jersey at the E-Biofuels facility but merely picked up fraudulent paperwork and continued on their way to deliver the fuel, a practice that drivers call “flipping a load.” Other times, drivers didn’t even stop at the E-Biofuels facility and delivered “ghost loads” to customers; E-Biofuels faxed or mailed the false paperwork to the drivers along their route, the government said.

In all, E-Biofuels is accused of creating more than 52 million fake fuel credits through U.S. EPA’s renewable fuel standard program and generating $35 million in false tax credits between November 2009 and January 2012.


The SEC filed its complaint against Imperial; Wilson; and three former owners of E-Biofuels, Craig and Chad Ducey of Fisher, Ind., and Brian Carmichael of Bend, Ore. It also implicates New Jersey companies — Caravan Trading LLC, Cima Green LLC and CIMA Energy Group — and their operators, accused of providing false information to attract investors.

The U.S. Attorney’s Office for the Southern District of Indiana today also filed criminal charges against individuals and companies suspected in the scheme.

“This morning, federal agents brought into custody individuals who allegedly operated the largest tax and securities fraud scheme in Indiana history,” U.S. Attorney Joseph Hogsett said. “This case represents a collaborative effort on the part of law enforcement to hold fully accountable those who seek personal profit at the taxpayer’s expense.”

If found guilty in the criminal case, the individuals could face up to 20 years in federal prison.

EPA, which helped investigate the company, applauded today’s announcement. The agency has struggled to rein in fraud in the biodiesel credit market over the past couple of years and has proposed a quality assurance program to verify that renewable fuel credits are legitimate. The program would also provide refiners with an affirmative defense should they purchase those credits to show compliance with the federal biofuels mandate.

“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 enforcement and compliance assurance at EPA. “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 public health and the environment.”

The FBI, Internal Revenue Service, Department of Agriculture and Department of Justice’s Environmental Crimes Division also cooperated with the investigation that led to today’s charges.