Owners of a biodiesel producer firm based in Middletown conspired against investors and consumers and earning millions of dollars by selling fraudulent biofuels, U.S. Attorney Joe Hogsett charged Wednesday.
About 35 million gallons of biofuels were fraudulently sold, creating more than $50 million in profits for owners of Imperial Petroleum, based in Evansville, and E-Biofuels of Middletown, Hogsett said.
"The numbers, frankly, are staggering," Hogsett said.
Hogsett announced the case by the U.S. Securities and Exchange Commission following a nearly one-year investigation. The 13-count indictment alleges that Imperial Petroleum through its subsidiary, E-Biofuels, falsely claimed it produced more than 28 million gallons of biodiesel from May 2010 through January 2012. By obtaining incentives and tax credits, the owners could sell fuel for more than $100 million.
The federal counts include making falsifying records, securities fraud, obstruction of justice and filing false statements under the Clean Air Act.
Six individuals were charged and had initial appearances before a federal magistrate Wednesday. Three companies were indicted.
In a complex case, Imperial acquired "Ebio" in May 2010. Ebio would use middlemen to buy already finished biodiesel and fake invoices to describe the biodiesel as "feedstock." Ebio was to use feedstock and chicken fat to produce biodiesel. The company then claimed it had produced biodiesel from such raw materials and sought government incentives and tax credits, Hogsett said.
After the company acquisition, Imperial's annual revenue soared from $1 million to $110 million; 99 percent of that was due to the Ebio.
Biodiesel is a renewable fuel manufactured from vegetable oils, animal fats or recycled restaurant greases. It can be used as a diesel fuel or mixed with regular diesel to be used in diesel vehicles. Indiana has biodiesel plants in Kosciusko, Lake, LaPorte and Shelby counties, that together are capable of producing more than 100 million gallons of the fuel annually.
Pure biodiesel is designated as B100, which certifies that it is 100 percent biodiesel. Biodiesel that has been blended with petroleum-based diesel fuel is designated as "Bxx," with the "xx" representing the percentage of biodiesel fuel in the blend. For example, B100 that has been blended with 0.1 percent petroleum-based diesel fuel is B99.9.
One source of tax credits allowed for the blending of biodiesel with at least 0.1 percent of petroleum-based diesel fuel. Ebio could, the government alleges, buy B99 at near market prices and then falsely certify to the Environmental Protection Agency that it had produced B100.
It is likely that customers purchased some of the fuel, said Steven DeBrota of the U.S. Attorney's Office in Indianapolis.
Named in the suit by the U.S. Securities and Exchange Commission are Craig Ducey, Chad Ducey, Chris Ducey and Brian Carmichael, all of E-Biofuels, and Joseph Furando and Katirina Pattison, who are executives with New Jersey-based Caravan Trading Company and CIMA Green. They allegedly conspired to purchased a form of B99 from third parties and pretend that E-Biofuels had produced it.
E-Biofuels, which began operating in 2007, reportedly had the capacity to produce 10 million gallons of biodiesel per year, according to the Indiana Department of Agriculture.
The company filed for Chapter 7 bankruptcy in April citing $17 million in debts. The company listed $11.4 million in assets consisting of equipment and property. Listed as a liability were loans in the amount of $7.4 million from First Merchants Bank in Muncie, $3 million from Ultra Green Energy Services in Chicago and $1.5 million from Ciena Capital LLC in Greenville, S.C.
In June 2012, the US Securities and Exchange Commission and a federal grand jury subpoenaed E-Biofuels and its parent company, Imperial Petroleum. Imperial disclosed the investigation in an SEC filing at the time. It said that if E-Biofuels received improper tax credits for the sale of biodiesel, the results could have a material impact on the company.
At the time, the U.S. biodiesel industry was facing the loss of a production tax credit and the emergence of fraud in the market for federal biodiesel credits.