INDIANAPOLIS – Executives with a central Indiana biofuels company and conspirators in Evansville and New Jersey allegedly ran a biofuels scam that cost the government and investors more than $100 million – money federal authorities said Wednesday some of the defendants used to buy luxury cars, jewelry and casino trips.
Six people were arrested Wednesday morning following their indictments on conspiracy, wire fraud and other charges alleging they were involved in the sale of more than 35 million gallons of fuel as 100 percent biofuel when it actually contained some petroleum diesel.
U.S. Attorney Joe Hogsett said the scam allowed the participants to charge truck stops and service stations more for the fuel than it was worth while the government paid out renewable energy tax credits and other benefits that should not have been paid because the fuel was not pure.
He called the alleged scam the largest tax and securities fraud scheme in Indiana history.
E-Biofuels, based in Middletown in Henry County, allegedly began the scam when three of its executives arranged to buy fuel known as B99 – or biofuel blended with a small amount of petroleum diesel – from two New Jersey companies and resold it with fake documentation as B100, or pure biofuel made from animal fats and vegetable oils.
Although E-Biofuels Middletown plant was capable of producing pure biofuel, Hogsett said that plant was rarely in operation during the scam that allegedly ran from July 2009 to May 2012.
"The entire facility was used simply as a prop as the defendants purchased more and more fuel to fraudulently sell to more customers," he said.
Customers who bought the fuel were defrauded of more than $55 million, Hogsett said, while the Internal Revenue Service suffered $35 million in losses from tax breaks and renewable energy credits that arose from the scam.
Three of E-Biofuels executives – brothers Craig, Chad and Chris Ducey – were named in one of the two indictments, along with Joseph Furando and Evelyn Katirina Pattison. Furando and Pattison own New Jersey-based CIMA Green and Caravan Trading Co., the companies the fuel was bought from.
Furando and Pattison appeared Wednesday in a federal court in New Jersey. Furando was released on home detention on $2 million bond, and Pattison was released on a $250,000 bond, said U.S. Attorneys office spokesman Tim Horty.
The Ducey brothers appeared before a federal judge Wednesday for an initial hearing Wednesday in Indianapolis and were released, as was Jeffrey Wilson, the president and CEO of Evansville-based Imperial Petroleum, Horty said.
Imperial Petroleum acquired E-Biofuels in May 2010. Hogsett said Wilson is first CEO of a publicly traded company his office has indicted.
The Securities and Exchange Commission filed a civil complaint Wednesday charging the company with taking part in a securities fraud and alleging that the scam cost company investors up to $60 million when Imperial Petroleums stock price plunged after the scheme collapsed last year.
Bob Burson of the SEC said Wilson eventually learned that truth about the plant but decided to continue the deception that caused the companys stock price to crash 90 percent as the scheme unraveled.
Burson said the SEC seeks the surrender of ill-gotten gains and to impose civil penalties.