CBS Whistleblower program to feature $145 million nationwide biofuels fraud

CBS News will air a segment featuring biofuels fraud whistleblower, Alex Chepurko on August 31 at 9 pm EST 8 Central on its  Whistleblower Program. It overviews Chepurko’s  blowing the whistle on a nationwide biofuels scam.

While working for Caravan, Chepurko a nationwide scam as the company was selling finished biodiesel to another company that pretended it made biodiesel and then applied for the government incentives and tax breaks for making green energy products. Chepurko’s disclosures resulted in several individuals going to jail and the United States recouping millions of dollars for taxpayers from Caravan, and others involved in the scam, to resolve claims of fraud brought by Chepurko and pursued by Colapinto.

Chepurko is represented by the qui tam whistleblower firm of Kohn, Kohn & Colapinto, LLP Chepurko went up against Caravan Trading, a New Jersey-based company that made $50 million a year buying and selling the raw materials for making biofuel.  Biofuel is a type of diesel derived from products like soybean, corn and recycled cooking oil.

Chepuko was  21 years old when he blew the whistle on its $100 million biofuels fraud. His disclosures resulted in several individuals going to jail and the United States recouping millions of dollars of taxpayer’s money. This is 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. The nationwide fraud scheme disclosed by Chepurko involved tax fraud, securities fraud, and fraud on the EPA’s renewable fuels program.

Although Caravan was making $50 million a year, Chepurko was puzzled by the fact that 90% of its business came from one customer: e-Biofuels, an Indiana-based company that Chepurko was told turned Caravan Trading’s raw materials into biodiesel. What’s more, e-Biofuels was overpaying the market rate per gallon, making it difficult for him to find new customers willing to pay the same.

Chepurko was shocked when, out of the blue, Furando admitted to him that it was a scam. Instead of buying raw materials for making biodiesel and selling it to e-Biofuels, Caravan was buying and selling the finished biodiesel to e-Biofuels. e-Biofuels then pretended it made the biodiesel by faking paperwork. It simply resold the same biodiesel it bought from Caravan. Both companies pocketed lucrative government incentives and tax breaks for making green energy products.

Chad Ducey, 39, of Fishers, Indiana, pleaded guilty in 2015  for his role in a multi-state scheme to defraud biodiesel buyers and U.S. taxpayers by fraudulently selling biodiesel incentives.  His two brothers, Chris Ducey, 48, of North Webster, Indiana, and Craig Ducey, 44, of Fishers, pleaded guilty last week for their roles in the same scheme.  The Ducey brothers operated E-biofuels LLC, 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 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 victimized over 625 investors and shareholders of Imperial Petroleum, a publicly-traded company and the parent company of E-biofuels, announced Assistant Attorney General John C. Cruden of the Justice Department’s Environment and Natural Resources Division and U.S. Attorney Josh J. Minkler of the Southern District of Indiana.

From 2007 through 2012, E‑biofuels had a biodiesel manufacturing plant in Middletown.  Biodiesel is a fuel that can be used in diesel engines and that is made from renewable resources, including soybean oil and waste grease from restaurants.  Under the Energy Independence and Security Act, properly manufactured biodiesel was eligible for a one dollar per gallon tax credit as well as another valuable credit called a Renewable Identification Number (RIN) 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.  They realized huge per gallon profits 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 realized more than $55 million in gross profits, at the expense of their customers and U.S. 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 New Jersey co-conspirators, Joseph Furando and Katirina Pattison, have already pleaded guilty for their involvement in the scheme, along with the companies they operated, CIMA Green and Caravan Trading Company, both previously located in Park Ridge, New Jersey.

T fraud case is similar to cases in Texas and Maryland, where two other biofuel company executives also fraudulently collected on tax incentives. The CEO of Lubbock, Texas-based Absolute Fuels was sentenced to 15 years in federal prison while the head of Maryland-based Clean Green Fuel was sentenced to more than 12 years.