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Biofuels fraud cheated victims of $100M, feds say

Dan Human , IBJ Staff
September 18, 2013
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Federal prosecutors announced charges Wednesday connected to a Henry County biofuel refinery as part of a massive tax and securities fraud investigation, saying the operation cheated victims out of more than $100 million.

The fraud is alleged to be the biggest instance of tax and securities fraud in state history.

The U.S. Securities and Exchange Commission launched an investigation last year into E-biofuels LLC in Middletown. E-biofuels filed for bankruptcy in April 2012. Its parent company, Evansville-based Imperial Petroleum Inc., received subpoenas from the SEC and a grand jury that May, according to a regulatory filing.

Imperial had to hand over an array of documents relating to E-biofuels’ accounting, purchases and sales of biodiesel, and tax credits and other incentives received from government agencies, the filing said.

“The purpose of the subpoena is to determine whether any federal laws have been violated,” the filing said.

Charging documents released Wednesday afternoon cited 88 counts against seven people and three corporations. Charges included allegations of conspiracy, wire fraud, false tax claims, false statements under the Clean Air Act, obstruction of justice, money laundering and securities fraud.

Prosecutors allege that E-biofuels actually wasn’t producing biofuel. Instead, it was purchasing fuel and selling it to customers as its own product for a profit.

E-biofuels also fraudulently collected on about $35 million in federal tax breaks reserved for biofuel producers, according to charging documents.

Brothers Chad and Craig Ducey launched E-biofuels in 2007. The plant was supposed to produce 10 million gallons of biodiesel per year. Lawsuits against the company indicate that it did not reach that mark.

Chad Ducey is a Fishers resident and Craig Ducey lives in Fortville, according to a bankruptcy filing. Both are named as defendants in the fraud case. They, along with co-defendants Chris Ducey and Brian Carmichael, were the primary operators of E-biofuels, according to charging documents.

The four men conspired with co-defendants Joseph Furando and Evelyn Katirina Pattison—two executives with a pair of related New Jersey-based companies—to purchase lower-grade fuel from third parties and then pretend that it was high-grade fuel from the E-biofuels plant.

The government alleges that the defendants sold more than 35 million gallons of the inferior fuel between July 2009 and May 2012. Unwitting customers paid an inflated price. All told, they were defrauded of more than $55 million.

Imperial bought E-biofuels in 2010 for $3.75 million in Imperial’s thinly traded stock and $15 million in debt. In a regulatory filing from April 30, 2012, Imperial said that 99.6 percent of its revenue stemmed from E-biofuels.

The government alleges that Jeffrey Wilson, the president and CEO of Imperial, knew that E-biofuels was purchasing biodiesel from third parties instead of making its own. He hid this fact from investors, sharholders and outside auditors. He also made false statements in Imperial's annual and quarterly reports filed with the SEC.

Imperial’s accounting firm resigned in August 2012, citing concerns its auditors could not rely on the company’s financial reporting for E-biofuels, according to an SEC filing. The filing did not specify what the problems were.

Carmichael reportedly has offered to plead guilty to a charge of conspiracy to defraud the United States. If convicted, he faces up to five years in federal prison.

The six other defendants face up to 20 years in federal prisoon on some counts, as well as significant fines. The three companies indicted Wednesday also face significant fines and other regulatory action.

Story originally published at IBJ.com.
 

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  1. I just wanted to point out that Congressman Jim Sensenbrenner, Senator Feinstein, former Senate majority leader Bill Frist, and former attorney general John Ashcroft are responsible for this rubbish. We need to keep a eye on these corrupt, arrogant, and incompetent fools.

  2. Well I guess our politicians have decided to give these idiot federal prosecutors unlimited power. Now if I guy bounces a fifty-dollar check, the U.S. attorney can intentionally wait for twenty-five years or so and have the check swabbed for DNA and file charges. These power hungry federal prosecutors now have unlimited power to mess with people. we can thank Wisconsin's Jim Sensenbrenner and Diane Feinstein, John Achcroft and Bill Frist for this one. Way to go, idiots.

  3. I wonder if the USSR had electronic voting machines that changed the ballot after it was cast? Oh well, at least we have a free media serving as vicious watchdog and exposing all of the rot in the system! (Insert rimshot)

  4. Jose, you are assuming those in power do not wish to be totalitarian. My experience has convinced me otherwise. Constitutionalists are nearly as rare as hens teeth among the powerbrokers "managing" us for The Glorious State. Oh, and your point is dead on, el correcta mundo. Keep the Founders’ (1791 & 1851) vision alive, my friend, even if most all others, and especially the ruling junta, chase only power and money (i.e. mammon)

  5. Hypocrisy in high places, absolute immunity handed out like Halloween treats (it is the stuff of which tyranny is made) and the belief that government agents are above the constitutions and cannot be held responsible for mere citizen is killing, perhaps has killed, The Republic. And yet those same power drunk statists just reel on down the hallway toward bureaucratic fascism.

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