By Carey Gillam
(Reuters) - Six people and three companies, including an Indiana operation claiming to make biofuel from chicken fat and vegetable oils, were charged with defrauding investors and consumers out of more than $100 million, prosecutors in Indianapolis said on Wednesday.
The indictment alleged four men operating E-Biofuels of Middletown, Indiana and two others with New Jersey-based Caravan Trading Co and CIMA Green conspired to exploit a government incentive program that offers tax credits for biofuel use.
The U.S. Attorney for the Southern District Indiana, Joseph Hogsett, said the case was "largest tax and securities fraud scheme in Indiana history."
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 35 million gallons of biofuel they claimed to be pure biodiesel, called 'B100,' but actually selling a version 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 more per gallon than B99.
A RIN is a 38-digit number created for each gallon of renewable fuel produced. Refiners and others who produce or import gasoline and diesel are required to present a certain number of RINs to the U.S. Environmental Protection Agency as proof of compliance with the mandate to blend biofuels into the nation's fuel supply. The policy is aimed at reducing the nation's reliance on oil.
But in the case of the Indiana company, the government said the defendants mislabeled fuel that they did not produce, but had only purchased, and for which RINs had already been claimed. They then delivered the fuel to unsuspecting customers along with paperwork that misidentified it as having been produced by E-Biofuels and carrying the RINs.
Prosecutors said among those who lost money were customers who were cheated out of more than $55 million, and the Internal Revenue Service was exposed to as much as $35 million in false claims.
The Indiana defendants were identified as: Craig Ducey, 42 years old, Chad Ducey, 38, Chris Ducey 46, and Brian Carmichael, 36, all operators of E-Biofuels. The Ducey brothers appeared in court on Wednesday and entered not guilty pleas, according to Tim Horty, a spokesman for the U.S. Attorney's office said. Carmichael has filed a petition indicating he will plead guilty, the prosecutor's office said.
The government is also charging Jeff Wilson, president and chief executive of Imperial Petroleum, which bought E-Biofuels in 2010 with two counts of securities fraud. Prosecutors said he was aware of the fraud and hid it from Imperial investors, shareholders and auditors. Wilson also pled not guilty in a court appearance on Wednesday.
The defendants from New Jersey are Joseph Furando, 47, and Evelyn Katirina Pattison, 27. They entered not guilty pleas.
If found guilty, the six individuals face up to 20 years in federal prison; the companies face fines and regulatory action.
"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 at the Environmental Protection Agency in a statement.
The cases are United States of America vs Craig Ducey, Chad Ducey, Chris Ducey, Joseph Furando, Evelyn Katirina Pattison a/k/a Katirina Tracy, E-Biofuels, LLC, Caravan Trading Company, LLC, Cima Green, LLC Case 1:13-cr-00189-SEB-TAB United States District Court Southern District of Indiana Indianapolis Division and United States of America vs Jeffrey Wilson and Craig Ducey Case No. 1:13-cr-00190-SEB-TAB United States District Court Southern District of Indiana Indianapolis Division.
(Reporting by Carey Gillam; Editing by Leslie Gevirtz)