• Global – Asia News: Biofuel equipment sold from company accused of historic fraud scheme

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    Herald bulletin: Former town official says he does not believe company planned to defraud anyone…

    MIDDLETOWN — this week buyers removed truckloads of alternative fuel processing equipment from a former biodiesel plant.

    The equipment was sold during a live webcast with more than 100 bidders, said DelGuidice. Maynards, an industrial asset auction, appraisal and liquidation company, purchased the equipment after E-Biofuels, LLC filed for bankruptcy in 2012.

    When E-Biofuels began production of biodiesel in 2007, officials were eager to welcome the cutting edge fuel plant to the close-knit community. Today, those former officials and many residents are wondering what went so wrong in what is now being called the largest tax and security fraud scheme in Indiana’s history.

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    In September, the U.S. Attorney brought charges against Craig Ducey, Chad Ducey, Chris Ducey, and Brian Carmichael, who operated E-Biofuels, a company which claimed to produce biodiesel from “feedstocks” including animal fat and vegetable oils. Joseph Furando and Evelyn Katirina Pattison — executives of a related New Jersey-based company — are being charged with assisting the officials at E-Biofuels in passing off fuel which had been purchased at other facilities as its own. There are 88 counts against the defendants, including allegations of conspiracy, wire fraud, false tax claims, false statements under the Clean Air Act, obstruction of justice, money laundering and securities fraud. The allegations claim that customers were defrauded of more than $55 million and the Internal Revenue Service was exposed to as much as $35 million in false claims.

    The charges allege that in July 2009, E-Biofuels sold more than 35 million gallons that had been stripped of renewal identification numbers (RINs). In order to encourage the production of renewable fuel, the RINs, which are special tax incentives, are attached to the sale of each gallon of biodiesel produced. Prosecutors say that in May of 2010, the value of the RINs being sold by the Middletown plant added approximately $0.42 to each gallon of biodiesel. The RIN prices peaked in September 2011, adding $2.95 to each gallon the company sold.

    In the summer of 2007, E-Biofuels reported a production of biodiesel fuel with an annual capacity of 5 million gallons and said they planned to increase their production to 25 million gallons within six months. Jake Smith was the Middletown Town Council president when E-Biofuels originally pitched its business proposal to town officials.

    Chad Ducey, CEO, and his brother, E-Biofuels president Craig Ducey, presented the business plan to Smith and the town council. The brothers were former civil engineers who were purchasing “choice white grease” from animal processors and separating the product in a process called “transesterification,” turning the grease into a biodiesel which can then be mixed in various blends of standard diesel fuel. As part of its package to bring the biofuel company to Henry County, local government officials brought the company a $40,000 grant to go along with a $10,000 grant of its own to finance infrastructure. Seven months after receiving the county grant, Chad Ducey said the money disappeared. In a story in The Herald Bulletin, Ducey said, "It was a miscommunication between Henry County, the town of Middletown and E-Biofuels. That is all that I would like to say about this situation. I think the town will still benefit from this program."

    U.S. Attorney Senior Litigation Counsel Steven DeBrota said there are two categories of alleged criminal activity the company officials are facing. He said the first category involves fraud from the company mislabeling and selling biodiesel that already had received tax incentives. He alleges the company bought fuel from another company that had already had RINs removed and sold this fuel to a third company with new RINs that were generated by E-Biofuels.

    This also means that at some point, companies that made purchases from E-Biofuels will have to address the issue of receiving tax funding for a product that had been stripped of RIN funding. The second category, DeBrota said, focuses on securities fraud and the filing of false information to shareholders and investors of a publicly traded company.

    Craig Ducey is charged in both the conspiracy to sell fraudulent biodiesel and the securities fraud cases. Attempts to contact the defendants for this story were unsuccessful. DeBrota said the market loss for the securities fraud is $60 million. Middletown resident Steve Solomon said he is upset that taxpayers lost money and he hates to see people lose their jobs. Although an exact number of employees at the Middletown plant could not be confirmed, town officials estimate the company employed less than 10 people.

    Hanson said he had no idea anything was amiss until people wearing FBI jackets showed up in Henry County. Middletown Clerk Treasurer Drew Cooper said E-Biofuels owes the town $26,735 in utility bills. He said the last bill was generated in December 2011. Middletown Town Council president Betty Riley said she was shocked by the news.

    How RINs work The December 2007 Energy Independence and Security Act set mandated levels for 2008 through 2022 for various types of renewable fuels that are to be blended with U.S. gasoline and diesel fuel. Mandated levels of biofuels blending are scheduled to increase progressively each year until 2022. By that year, 35 billion gallons of ethanol and a billion gallons of biodiesel fuel are to be blended with U.S. motor fuel. At the current consumption rate, that would be equivalent to about 25 percent of U.S. gasoline use in volumetric terms. It is one thing to mandate how much biofuel should be blended in gasoline and diesel fuel, but quite another challenge to develop a mechanism for insuring that the desired level of blending will be achieved. Renewable Identification Numbers (RINs) are the mechanism for insuring that the prescribed levels of blending are reached. The U.S. Environmental Protection Agency (EPA) is responsible for overseeing and enforcing blending mandates and developing regulations for RINs. RINs can take on a value of their own at certain times, thus reflecting developments in the economics of blending biofuels with gasoline and diesel fuel. RINs are a complex mechanism for implementing the mandates. It is the method used to insure that the mandated amount of biofuels is actually blended into motor fuel. They are issued at the point of biofuels production or import. Source: global-asia

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