Dean Daniels, 52, Richard Smith, 57, Brenda Daniels, 45 and William Bradley, 58, all of Florida, pleaded guilty and were sentenced today in U.S. district court for charges related to a scheme involving the false production of biodiesel.
Dean Daniels was sentenced to 63 months incarceration, Bradley was sentenced to 51 months incarceration, Smith was sentenced to 41 months incarceration and Brenda Daniels was sentenced to 366 days incarceration. In addition, the court sentenced the defendants to pay $23 million in restitution.
Assistant Attorney General John C. Cruden for the Department of Justice’s Environment and Natural Resources Division, U.S. Attorney Carter M. Stewart for the Southern District of Ohio, Acting Special Agent in Charge Troy N. Stemen for the Internal Revenue Service Criminal Investigation (IRS) and Acting Special Agent in Charge Jeffrey Martinez of the Environmental Protection Agency’s (EPA) Criminal Enforcement Program in Ohio and Regional Special Agent in Charge Max D. Smith of the Department of Transportation’s Office of Inspector General announced the sentences handed down today by Senior U.S. District Court Judge James L. Graham.
According to court documents, the defendants profited by unjustly generating and selling biodiesel credits (RINs) and unjustly claiming biodiesel tax credits for the production and blending of fuel that was not actually biodiesel.
“Congress enacted incentives for the production of biofuels to make the United States stronger and more energy independent and to move our energy economy into the 21st century,” said Assistant Attorney General Cruden. “The fraud perpetrated by the defendants threatens these important public policies. The Justice Department will vigorously prosecute those seeking to line their pockets using scams like this one.”
The defendants were all employees and officers of New Energy Fuels LLC, a business in Waller, Texas, that claimed to process animal fats and vegetable oils into biodiesel. The defendants subsequently relocated, operating a similar scheme at Chieftain Biofuels LLC in Logan, Ohio.
The defendants would purchase low-grade feedstock and perform minimal processing to produce a low-grade fuel. The fuel was not biodiesel, however, the defendants would represent to the EPA that they had produced biodiesel. They would generate fraudulent biodiesel RINs and sell them to various third parties. Biodiesel RINs cannot be generated unless the biodiesel produced meets industry standards. In total, the defendants sold over $15 million worth of fraudulent biodiesel RINs.
The defendants also made false claims to the IRS in order to obtain the biodiesel tax credit that they were not eligible to receive. Throughout 2009, 2010 and 2011, refundable tax credits were available for renewable fuel producers. If companies complied with IRS regulations, they could earn one dollar per gallon of biodiesel. It was illegal to claim this tax credit unless the biodiesel was produced, blended and sold in compliance with rules and regulations. Among other requirements, the biodiesel had to meet industry standards, which the defendant’s fuel did not. In total, the defendants claimed over $7 million in false biodiesel tax credits.
In addition, New Energy Fuels’ production process generated substantial hazardous by-products. Defendant Dean Daniels arranged for an employee of New Energy Fuels to transport the wastes off-site at night. That employee, Lonnie Perkins, previously pleaded no-contest in Texas to several charges related to the dumping of hazardous waste in and around the city of Houston.
“The Renewable Fuel Standard helps reduce the climate impact of transportation fuel sold in this country,” said Acting Special Agent in Charge Martinez. “The criminal activity by these defendants has real consequences. The defendants manipulated and utilized federal governmental programs to line their pockets by fraud. These guilty pleas demonstrate EPA’s commitment, working closely with our partners at the Department of Justice, to pursue these criminal cases vigorously. Companies and their managers need to understand there are serious consequences to skirting the rules and undermining the integrity of an EPA program.”
“Today’s sentencings mark the successful end of an investigation that uncovered a complicated fraudulent scheme that generated millions of dollars through false biodiesel tax credits,” said Acting Special Agent in Charge Stemen. “We want everyone to take advantage of the deductions and credits to which they are entitled by law; however, no one is entitled to defraud the government.”
“The Office of Inspector General is committed to investigating and seeking prosecution of those who choose to endanger the public by illegally transporting, distributing, or disposing of hazardous materials,” said Regional Special Agent in Charge Smith. “Today’s sentencing should send a clear warning that these fraudulent actions and illegal hazmat violations will not be tolerated.”
Each of the defendants pleaded guilty to conspiracy to commit wire fraud and to defraud the United States. Dean Daniels also pleaded guilty to offering a hazardous material for transport without providing or affixing proper placards.
Assistant Attorney General Cruden and U.S. Attorney Stewart commended the cooperative investigation by law enforcement, including the Houston Police Department, as well as Department of Justice Trial Attorney Adam Cullman and Assistant U.S. Attorney J. Michael Marous, who represented the United States in this case.