Brothers plead guilty to $145m biofuels fraud scheme

In Indiana, US, Chad Ducey has pleaded guilty for his role in a multi-state scheme to defraud biodiesel buyers and US taxpayers by fraudulently selling biodiesel incentives. His two brothers, Chris and Craig Ducey, have also pleaded guilty for their roles in the same scheme.

The three brothers operated E-biofuels from a facility in Middletown, Indiana. As part of the scheme, they sold over 35 million gallons of biodiesel to customers for more than $145 million (€130 million) by falsely claiming that the fuel was eligible for federal renewable energy incentives, when they knew it was not.

In addition, Craig Ducey pleaded guilty to a related $58.9 million securities fraud, which victimised over 625 investors and shareholders of Imperial Petroleum, a publicly-traded company and the parent company of E-biofuels,

Assisstant attorney general John Cruden of the Justice Department's Environemtnal and Natural Resouces Division, said: 'This wide ranging criminal conspiracy sought to undermine the biofuels programme and its positive benefits to our nation's economy and environment. This case should send a strong message that we are watching this market very closely and we won't allow lawbreakers to pursue profits at the expense of our nation's interests.'

From 2007 through 2012, E biofuels had a biodiesel manufacturing plant in Middletown. Under the Energy Independence and Security Act, properly manufactured biodiesel was eligible for a $1 per gallon tax credit as well as Renewable Identification Numbers (RINs) that petroleum refiners and importers must comply with to satisfy their federal renewable fuel obligations.

The Ducey brothers admitted that they knew that E-biofuels was fraudulently reselling biodiesel that they obtained from co-conspirators in New Jersey, which had already been used to claim biodiesel incentives. By falsely claiming to have made it themselves in Middletown, the Ducey brothers and their co-conspirators created a second set of invalid incentives, which they passed on to their customers.

Huge per gallon profits were realised through this scheme, sometimes in excess of $12,000 per truckload. Over the course of approximately two years, the co-conspirators fraudulently sold more than 35 million gallons of fuel for a total cost of over $145 million. The co-conspirators and their companies realised more than $55 million in gross profits, at the expense of their customers and US taxpayers.

The Ducey brothers pleaded guilty to conspiracy, false claims against the Internal Revenue Service (IRS), wire fraud and lying to the EPA and the IRS. In particular, Chad Ducey, an engineer by training, caused a third-party engineer to submit false reports to justify the production at E-biofuels. Those reports claimed that E-biofuels was using the chemical process of transesterification to produce biodiesel, when in fact, the company simply re-sold biodiesel that had been made by others and had already been used to claim biodiesel incentives.

The three now face up to 20 years of imprisonment on some of the charges, as well as large fines and the requirement that they provide full restitution to their victims, which include US taxpayers, truck stop companies, fuel traders and others.