The founder and CEO of a Maryland-based biodiesel producer has been charged in federal court with wire fraud, money laundering and a violation of the Clean Air Act in connection with a scheme in which he allegedly sold $9 million in biodiesel-related renewable identification number (RIN) credits purportedly produced by his company, Clean Green Fuel, when the company did not produce any fuel.
Sources familiar with the issue believe this is the first federal case to address allegedly fraudulent RIN trades, but don't anticipate it to be the last.
According to the charges, filed on Oct. 3 in the U.S. District Court for the District of Maryland, Clean Green Fuel CEO Rodney Hailey allegedly sold more than 32 million RINs (representing 22 million gal of biodiesel) between March 2009-December 2010 for at least $9 million, when in fact the company produced no fuel at all.
According to its website, Clean Green Fuel says it "offers a unique blend of biodiesel that is a result of an innovative eight step filtration, transesterification and refinement process of vegetable oil that meets the strict industry specifications (ASTM D6751) for fuel-grade biodiesel."
Attempts to reach Clean Green Fuel officials were not successful by presstime, as the company's main phone number was disconnected.
Under RFS2, companies are required to have a RIN for every gallon of gasoline or diesel they sell -- in effect, they must either create an E10 or buy RINs to cover their fuel production from others in the marketplace that have more RINs than they need.
According to the charges, Clean Green Fuel claimed it operated a biodiesel plant in White Marsh, Md., near Baltimore, and received more than $9 million from the sale of the allegedly fraudulent RINs from:
--MudSkippers Investments (RIN broker) for $34,980
--OceanConnect.com Inc. (RIN broker) for $6.52 million
--International Exchange Services (RIN broker) for $158,760
--ConocoPhillips for $1.68 million
--Green Diesel for $687,830.
According to the charges, Hailey allegedly used the proceeds of the wire fraud scheme to purchase luxury vehicles, including BMWs, Mercedes Benz's, a Rolls Royce Phantom, a Lamborghini, Ferrari, Maserati and others, as well as real estate and jewelry. According to the information, during the investigation Hailey made numerous false statements to EPA investigators, including that he produced the fuel from waste vegetable oil collected from 2,700 restaurants in the Delmarva region.
Specifically, two civil inspectors from EPA's Air Division in Washington, D.C. visited Clean Green Fuel's headquarters on July 22, 2010, in response to a complaint alleging the company had been selling false RINs. Hailey told investigators that his plant was located in Curtis Bay, Md., and that his production records were also located at the facility, the complaint noted. On
July 28, EPA civil inspectors returned to the company's headquarters for a follow-up meeting. At that time, Hailey said his plant was actually in Baltimore, the complaint alleged.
"It was further part of the scheme and artifice to defraud that when asked about the absence of any of the necessary equipment at that location, Hailey falsely explained that he had recently removed all of the equipment and sold it," the complaint explained. "Hailey provided photographs which he claimed showed the facility when it had been in operation. The inspectors observed that the photographs were of a different location. When asked to whom he sold the equipment, Hailey falsely responded that he had sold the equipment but could not remember to whom," the complaint noted.
On Jan. 18, 2011, Hailey provided an 11-page response to EPA inquiries, stating that the company never created or transferred an invalid RIN during the requested time period (May 1, 2007-Jan. 18, 2011). He then signed the document as being "true, accurate and complete," when, according to EPA, that was not the case.
Hailey faces a maximum sentence of 20 years in prison for wire fraud; 10 years in prison for money laundering and two years in prison for violating the Clean Air Act. An initial appearance and arraignment are scheduled for Oct. 13 at 1:00 p.m. EDT before U.S. District Judge William D. Quarles, Jr.