Hard labor for Labor Day – Biofuel fraud criminals behind bars

September 2, 2018 |

While Labor Day in the U.S. started in the late 19th century to honor the American labor movement, today we are dealing with biofuel fraud cases that might lead to hard labor in prison. Biofuel fraud is making it to mainstream media with Friday night’s CBS News airing a segment featuring biofuels fraud whistleblower, Alex “Sasha” Chepurko on the season finale of Whistleblower. Chepurko, a young 21-year-old Caravan employee, talked about what happened while working for Caravan which sold finished biodiesel to another company that pretended it made biodiesel and then applied for biofuel government incentives and tax breaks.

Laborers have made huge contributions to our society, globally, to make progress possible, and  whistleblowers have helped bring wrongs to light and learn from past mistakes. So as we honor them this Labor Day, we talk about fraud because it’s important to be aware of these situations and to hopefully help prevent them in the future.

The Chepurko Caravan case was the “first known whistleblower case filed under three different qui tam whistleblower laws: the IRS whistleblower statute, the SEC whistleblower award program and the False Claims Act,” according to Whistleblower Protection Blog. “The nationwide fraud scheme disclosed by Chepurko involved tax fraud, securities fraud and fraud on the EPA’s renewable fuels program.”

Just a week ago, Gregory Schnabel was sentenced to 63 months in prison followed with a three year term of supervised release and over $26 million in restitution for “his role in a conspiracy that generated over $47 million in fraudulent EPA renewable fuels credits and over $12 million in fraudulent tax credits connected to the purported production of renewable fuel.”

What exactly did Schnabel do? As owner of GRC Fuels in New York, he “engaged in a scheme with other co-conspirators to fraudulently claim EPA renewable fuels credits (also known as “RIN” credits) and tax credits on fuel that did not qualify for the credits, on fuel that had already been used to generate credits, and on fuel that was exported or otherwise used contrary to EPA and IRS regulations.”

According to the DOJ, Schnabel bought and sold fuel and RINs from several individuals who have already pleaded guilty for their roles in the scheme, including:

  • Fred Witmer and Gary Jury, formerly of Triton Energy, who pleaded guilty in the Northern District of Indiana to conspiracy, fraud, and false statements and were sentenced to 57 months’ and 30 months’ incarceration, respectively;
  • Malek Jalal, formerly of Unity Fuels, who pleaded guilty in the Southern District of Ohio to conspiracy and obstruction of justice and was sentenced to 60 months’ incarceration; and
  • Dean Daniels, William Bradley, Ricky Smith, and Brenda Daniels, of New Energy Fuels and Chieftain Biofuels, who pleaded guilty in the Southern District of Ohio to conspiracy and were sentenced to terms of incarceration ranging from 12 months to 63 months.

Let it be a warning

So are these cases being made examples of to deter others from acting in similar fraudulent ways? Pretty much everyone involved thinks so.

Acting Assistant Attorney General Wood had this to say in the DOJ press release about the Schnabel case, “Today’s sentencing shows that the Department of Justice will continue to vigorously prosecute those who seek to defraud the federal government and the public through unlawful renewable fuel credit schemes. This sentencing serves as a powerful deterrent to those who would consider participating in similar schemes in the future.”

“Vigorously prosecuting cases like this one not only protect the public fisc, but are also crucial to safeguarding the integrity of national programs that benefit the environment,” said U.S. Attorney Glassman. “We will continue to investigate and prosecute those who defraud government programs, including environmental programs.”

“Today’s sentencing reinforces the message that there are serious consequences for those who manipulate the system for their own financial gain and defraud taxpayers and the United States government in doing so,” said FBI Indianapolis Special Agent in Charge Grant Mendenhall. “The FBI will continue to work with our law enforcement partners to uncover fraudulent schemes such as this.”

“This investigation uncovered a complicated fraudulent fuel tax credit scheme that generated millions of dollars through a tangled web of financial lies,” said Ryan L. Korner, Special Agent in Charge, IRS Criminal Investigation, Cincinnati Field Office. “We hope that today’s sentencing deters others who might be tempted to engage in similar illegal activity, which not only defrauded the U.S. Government and the American taxpayers, but also created an unfair competitive advantage over businesses that play by the rules. Investigations of this magnitude would not be successful without the collaborative efforts of the prosecutors and agents who investigated this case.”

Getting the message loud and clear?

Indictment for Washakie Renewable Energy

Just days before the Schnabel sentencing a week ago, the DOJ published notice that a federal grand jury in the District of Utah returned an indictment for Washakie Renewable Energy’s CEO and CFO, brothers Jacob Kingston and Isaiah Kingston who are part of the polygamous Kingston group, and California-based NOIL Energy Group’s Lev Aslan Dermen, for their alleged scheme to file false claims for renewable fuel tax credits. The IRS issued over $511 million to WRE for the company’s renewable fuel that was based on false production records. The indictment doesn’t mean they are guilty…it just means they are accused of doing this and the defendants are presumed innocent until proven guilty.

According to the DOJ press release, “If convicted, the defendants each face a maximum of 10 years in prison for each money laundering count and Jacob Kingston faces a maximum of 3 years in prison for each false tax return count. They also face a period of supervised release, monetary penalties, and restitution.” Not good news for any of them to be facing right now.

Just days ago, U.S. Magistrate Judge Brooke Wells denied an effort to release defendant Isaiah Kingston over fears that he would flee to Turkey if released. Jacob Kingston is also still in jail and has a detention hearing this week to see if he will be released until the trial. Federal prosecutors are trying to keep them in prison, however, due to their access to a private jet, business dealings in Turkey, and past tip notifying them of a federal agent raid on their business before it actually happened.

More lawsuits are coming in the biofuels arena, most recently with ethanol groups Renewable Fuels Association and Growth Energy suing the EPA and DOE for denying agency records related to RFS compliance obligations exemptions that were requested under the Freedom of Information Act. But that’s a whole other story…

Bottom Line

Whether these recent sentences serve as a warning to anyone involved in biofuel fraud schemes or not, one thing is clear. If you are on the wrong side of the law, you’ll eventually get caught and get some hard labor and while Elvis Presley makes jail sound pretty cool and upbeat with “Jailhouse Rock,” we hear that isn’t so.

So just do the right thing, follow the law, run a solid business, and maintain your ethics. That will not only help individuals, but the industry overall because every time a biofuel company or executive commits fraud or screws with taxpayers money, it just makes everyone look bad.

This Labor Day, remember the laborers, the hard workers, the honest employees that make your business successful and progress possible. Thank them, be honest with them, and maintain solid work ethics so you all succeed.

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