Jeffrey Wilson, CEO of Imperial Petroleum Inc., signed an annual report in 2011 showing revenue for the Evansville-based company had exploded to $110 million from $5.7 million a year earlier.
That growth, the regulatory filing said, resulted from Imperial's buyout of E-Biofuels LLC in Middletown near Muncie. E-Biofuels suddenly accounted for 99.6 percent of Imperial’s revenue. The new subsidiary reportedly was producing millions of gallons of alternative fuel wholly from rendered chicken fat and vegetable oil.
The last point was a deception that cost investors and taxpayers tens of millions of dollars, according to federal prosecutors and the U.S. Securities and Exchange Commission.
Wilson was among six people and three corporations indicted Wednesday—a seventh person has pleaded guilty—in one of the largest fraud cases in Indiana history, prosecutors say.
Wilson is also the first CEO of a publicly traded company indicted by U.S. Attorney Joseph Hogsett’s district office, which covers 60 Indiana counties, Hogsett said.
Wilson was not directly involved with the alleged scheme, according to one of two indictments filed Wednesday, but he knowingly allowed it to continue and signed legal documents he knew were falsified. The 21 counts against Wilson include fraud, making false statements in SEC filings, and wrongfully certifying quarterly and annual reports.
The indictments surround an elaborate scam involving E-Biofuels and two New Jersey energy firms—Caravan Trading Co. and CIMA Green LLC. In all, prosecutors believe the group caused more than $100 million in financial damage for victims.
Three Indiana brothers—Craig, Chad and Chris Ducey—and business partner Brian Carmichael launched E-Biofuels in 2007.
The plant was supposed to make pure biodiesel. Companies that make 100-percent biodiesel are eligible for federal tax credits that effectively double the fuel’s market value compared to biofuel mixed with petroleum.
Instead of making the fuel, the U.S. attorney’s office says, the group bought it from Joseph Furando and Evelyn Katirina Pattison in New Jersey.
The New Jersey duo bought biofuel mixed with petroleum and provided the cheaper fuel to E-Biofuels. The Middletown firm then marketed the lower-grade fuel as the premium type and fabricated documents claiming the company made it.
E-Biofuels claimed the federal tax credit for producers—even though the original producer had already done so.
The company sold the impure biofuel as pure, with an accompanying premium price, and funneled profits to the New Jersey companies, the indictments allege.
Prosecutors believe E-Biofuels served almost entirely as a pass-through for the scheme. The New Jersey group did not have a plant, so it needed one to partner with, said Steve DeBrota, an assistant U.S. attorney.
Prosecutors believe the E-Biofuels plant remained idle for most of its existence before the company filed Chapter 7 bankruptcy in April 2012.
The alleged scheme began in July 2009, almost a year before Imperial bought E-Biofuels. Prosecutors believe Wilson and the rest of Imperial’s executives had no idea that E-Biofuels was running a scam. E-Biofuels gave Imperial falsified documents.
Wilson learned about it a few months after the acquisition closed in May 2010.
“But given the choice, he decided to continue the deception,” Kevin Lyons, the FBI’s special agent in charge of the case, said during a press conference Wednesday.
Wilson repeatedly signed quarterly and annual financial reports knowing the information was misleading or untrue, the indictment says.
Imperial shares trade over the counter thinly. It peaked at about $1.65 per share in July 2011. When the alleged fraud fell apart in 2012, the stock plummeted to a few cents per share.
Prosecutors estimate the loss to investors—due to inflated share values resulting from illicit activities and false financial reports—totaled “tens of millions of dollars.”
The indictment estimates defendants inappropriately claimed $35 million in tax credits. They also defrauded customers of an estimated $55 million by selling impure biofuel as the more expensive pure type, the indictment says.
Wilson, if convicted in the securities fraud case, faces debarment from ever again serving as an officer or director for a publicly traded company. The court could also order repayments and civil penalties.
Wilson has pleaded not guilty, according to Bloomberg News. "We deny the government's allegations and we expect to be exonerated," said Wilson's attorney, Thomas Farlow.
The U.S. Attorney’s office is handling a separate criminal case against the Duceys, Furando and Pattison.
In all, the group faces 88 charges that could result in decades in prison if convicted.
Carmichael, the Duceys’ former partner, who now lives in Oregon, already pleaded guilty to fraud. He faces a maximum sentence of five years.