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.