Biodiesel Fraud Suit Nets $70 Million for Whistleblower, Feds

(Bloomberg Law) Scheme to defraud EPA renewable fuel program; Criminal cases made damages easy to calculate
e-Biofuels LLC and other defendants face a $70 million liability for violating the False Claims Act by engaging in a scheme to defraud the EPA’s renewable fuel program, an Indiana federal court said.

Alexander Chepurko’s whistleblowing efforts allowed the government to criminally prosecute some defendants in this case for their roles in a multi-state scheme to defraud biodiesel buyers and taxpayers by fraudulently selling biodiesel incentives, Judge Tanya Walton Pratt said in a decision released Thursday.

The damages in this case were “easily ascertainable” given findings in prior criminal proceedings against defendants, the court said. READ MORE

Excerpt from Kohn, Kohn and Colapinto, LLC: On April 30, 2020 U.S. District Court Judge Tanya Walton Pratt issued a $69.6 million judgment against the defendants in the high-profile qui tam False Claims Act case U.S. ex rel. Chepurko v. e-biofuels, LLP, et al.

The qui tam case was triggered by whistleblower disclosures of the then 21-year old Alexander Chepurko regarding fraudulent transactions in the renewable energy biofuels industry. Chepurko’s case developed into the largest environmental and securities fraud cases in Indiana history, was highlighted in the CBS tv show “Whistleblower,” and resulted in successful fraud and securities prosecutions by the government.

Despite this legal victory, Chepurko must still await the conclusion of collection efforts by the government in multiple cases before he can obtain a whistleblower award.

Chepurko’s testimony and whistleblower disclosures landed six members of the fraud scheme in prison, including the main mastermind who was sentenced to 20-years in jail. The securities fraud prosecutions resulted in the main defendant, the former CEO of a publicly traded company, being sentenced to 10 years in jail, and it is one of the first successful prosecutions for securities fraud alleging violations of the Sarbanes-Oxley Act.

As explained by Judge Pratt, Mr. Chepurko “blew the whistle on the Defendants for false claims” and “because of Chepurko’s whistleblowing efforts, the Government was able to criminally prosecute” various wrongdoers “for their roles in a multi-state scheme to defraud biodiesel buyers and U.S. taxpayers by fraudulently selling biodiesel incentives.”

Under the False Claims Act, Mr. Chepurko was permitted to file a qui tam action in order to seek damages on behalf of the United States. The $69.6 million judgment is paid to the government. Mr. Chepurko is entitled to a whistleblower reward of between 25-30% of what the government collects. Taxpayers do not pay any of the rewards, and all proceeds come directly from the fines and penalties obtained from the wrongdoers.

In ruling in favor of Mr. Chepurko’s motion for judgment, the Court noted that:

“he voluntarily contacted the Government to disclose information about false claims” and provided the government with “extensive information.” Chepurko provided evidence of the crimes to the U.S. Attorney’s Office, the Internal Revenue Service (“IRS”), the EPA, the Department of Justice, the Federal Bureau of Investigation, and the Securities and Exchange Commission. The judge found that his “disclosures provided information that allowed the Government to conduct criminal and civil investigations,” permitted the EPA to issue “notices of violation,” and permitted the government to successfully prosecute “at least one civil action, one administrative action, and two criminal actions.”

In addition to obtaining a judgment on behalf of the United States for over $69 million in his False Claims Act case, Mr. Chepurko’s evidence resulted in the government obtaining guilty verdicts against seven individuals on numerous charges.

For example, the main king pin behind the frauds, Joseph Furando “pled guilty to charges of wire fraud, false statements to federal investigators, engaging in prohibited financial transactions with criminal proceeds, and conspiracy.” He was sentenced to 20-years in prison. Another defendant, Craig Ducey, “pled guilty to charges of wire fraud, false statements under the Clean Air Act, false claims against the IRS, obstruction of justice, engaging in prohibited financial transactions with criminal proceeds, and conspiracy.” He was sentenced to 6 years in jail. A third defendant, Chad Ducey, “pled guilty to charges of wire fraud, false statements to the EPA and IRS, false claims against the IRS, engaging in prohibited financial transactions with criminal proceeds, and conspiracy.” He was sentenced to 7 years behind bars.

In the securities fraud case defendant, Jeffrey Wilson was indicted for criminal violations of the Sarbanes-Oxley Act and was “tried by a jury.” The jury “found him guilty of nineteen counts of criminal violations, including securities fraud and making false statements to the Securities and Exchange Commission.” Wilson was sentenced to 10 years in jail.

Both Mr. Chepurko and his whistleblower attorney, David K. Colapinto, testified at the Wilson trial.

The government asked Mr. Colapinto to explain to the jury the importance of the whistleblower reward laws. At the time the Wilson case went to trial Mr. Chepurko had filed three qui tam reward cases, under the False Claims Act and the IRS and SEC whistleblower laws. The government felt it was important for Mr. Colapinto, and expert in qui tam,” to insure that the jury understood the role of these laws in helping law enforcement. At the trial Colapinto explained that the False Claims Act was also known as “Lincoln’s Law,” as it was fully supported by President Lincoln, who signed it into law on March 2, 1863. He explained how the law “dates back to Abraham Lincoln,” and that it empowers “any citizen” to file a lawsuit “in the name of the United States” in order to bring those who have “defrauded the United States” to justice.

The government also asked Mr. Colapinto at trial whether the IRS and SEC whistleblower reward laws were a “good thing.” Colapinto answered with an unequivocal “yes,” and informed the jury how these laws work: The “express purpose” of these whistleblower reward laws are to “encourage people to come forward to report” crimes, as happened in the Chepurko case. READ MORE