Three Brothers Plead Guilty to $145 Million Biofuels Fraud Scheme in Indiana

(Department of Justice) Chad Ducey, 39, of Fishers, Indiana, pleaded guilty yesterday 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.

“There are opportunities in Indiana for innovators in agriculture and biofuels,” said U.S. Attorney Minkler. “The Duceys and their co-conspirators in New Jersey undercut those opportunities by exchanging greed and fraud for innovation. These criminal prosecutions send the message that a prison sentence waits at the end of that exchange.”

“This wide ranging criminal conspiracy sought to undermine the biofuels program and its positive benefits to our nation’s economy and environment,” said Assistant Attorney General Cruden. “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.”

“This kind of criminal activity has real consequences, including undermining a law that reduces our impact on climate change,” said Assistant Administrator Cynthia Giles for Enforcement and Compliance Assurance for the Environmental Protection Agency (EPA). “These guilty pleas demonstrate EPA’s commitment, working closely with our partners at the Department of Justice, to pursue criminal cases vigorously and protect companies that play by the rules.”

“This investigation resulted in the disruption of one of the largest tax and securities fraud schemes in Indiana history,” said FBI Special Agent in Charge W. Jay Abbott. “The FBI, with federal partners, identified and investigated a group who manipulated and utilized federal governmental programs to line their pockets by fraud. They deceived customers, shareholders, and the American public. This type of fraudulent activity is not a victimless crime – it harms the American people and the economy.”

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 object of this interstate scheme created by the Ducey brothers and their co-conspirators was to defraud the government and the taxpaying public,” said Special Agent in Charge Stephen Boyd of IRS Criminal Investigation. “IRS Criminal Investigation is vigilant in our investigations of this scheme and other schemes that defraud honest, hardworking, Americans. We will continue to work with the United States Attorney’s Office to prosecute all those involved.”

The Ducey brothers 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 the victims of this crime, which include U.S. taxpayers, truck stop companies, fuel traders and others. Craig Ducey will also have to pay restitution to the victims of the securities fraud. The co-conspirators will also have to forfeit $7.5 million in seized funds, jewelry, artwork, cars and homes they purchased with the funds obtained through the scheme.

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.

The case is being prosecuted by Senior Litigation Counsel Steven D. DeBrota and of the U.S. Attorney’s Office of the Southern District of Indiana, Assistant Chief Thomas T. Ballantine of the Environmental Crimes Section of the Department of Justice’s Environment and Natural Resources Division and Special Assistant U.S. Attorney Jake Schmidt of the Southern District of Indiana and Senior Attorney for the Securities and Exchange Commission.

The collaborative investigation that brought this case to fruition is the result of work by EPA’s Criminal Investigation Division, IRS- Criminal Investigation, the FBI and the Securities and Exchange Commission, with assistance during the investigation by the U.S. Secret Service and the U.S. Department of Agriculture’s Office of Inspector General-Investigations. READ MORE and MORE (The Star Press) and MORE (Lucianne.com re: sentencing) and MORE (U.S. Department of Justice)