The owner of a fraudulent renewable fuels company is facing a stiff sentence for selling $9 million worth of renewable fuel credits from a facility that doesn't exist.
Rodney Hailey, owner of Maryland-based Clean Green Fuel, LLC has been sentenced to 12.5 years in prison, to be followed by three years of supervised release.
After learning that Hailey concealed and sold assets that were protected by court order, U.S. District Judge William Quarles, Jr. also ordered Hailey to pay restitution of $42.2 million to over 20 companies and forfeit the $9.1 million in proceeds from the fraud, including cars, jewelry, his home and bank accounts, which have been seized by the government.
The $42 million in restitution was based, in part, on claims made by oil companies that bought credits from Hailey and then had to buy replacements at a higher price.
In June 2012, Hailey was convicted of eight counts of wire fraud, 32 counts of money laundering, and two counts of violating the Clean Air Act. He has been detained since the guilty verdict.
How it Happened
In 2009, Hailey registered Clean Green Fuel LLC with the US EPA under the Renewable Fuel Standard program as a producer of biodiesel fuel.
The US Renewable Fuel Standard requires gasoline and diesel producers to blend 36 billion gallons of biofuel a year into their products by 2022. If they don't use that much, they must buy credits to fulfill the requirement. Every gallon produced by a biofuels maker is worth one credit, which is intended to bolster the fledgling industry, while weaning the US off petroleum.
Traders can buy and sell the credits to petroleum companies that need to fulfill their renewable fuel obligations.
Over the next year, Hailey sold over 35 million credits - representing 23 million gallons of biodiesel - to brokers and oil companies.
US EPA investigators visited Clean Green's headquarters in 2010 after receiving a tip that he was selling fake credits. Those headquarter were actually a rented garage, and no biodiesel at all was produced there.
Instead, Hailey spent the $9 million windfall to buy his $645,000 home, and also on lots of luxury vehicles, including BMWs, Mercedes Benz, a Rolls Royce, a Lamborghini, Ferrari, Maserati and others, as well $80,000 in diamond jewelry.
And all the while, Hailey collected unemployment insurance!
Hailey couldn't even provide the EPA with even an address for the biodiesel facility or any recoreds that proved the company ever produced biofuels. He falsely claimed that paid employees and contractors recovered waste vegetable oil from 2,700 restaurants in the "Delmarva" area, which was delivered to a production plant and converted to biodiesel. Hailey couldn't even provide the names of his employees or which restaurants they collected waste oil from.
"When invalid renewable fuel credits are ‘produced' and sold, it undermines the integrity of an important program designed by Congress to reduce the nation's dependence on foreign oil and to grow the nation's renewable energy industry," says Cynthia Giles, assistant administrator for EPA's Office of Enforcement and Compliance Assurance. "Today's sentence shows that there are serious consequences, including jail time, for defrauding the renewable fuels program for personal gain."
"The only thing Rodney Hailey's ‘Clean Green Fuel' business produced was the dirty money he used to fund his lavish lifestyle," states U.S. Attorney Rod Rosenstein.
The biggest loss in the case is to the biodiesel industry, whose reputation has been tarnished. Since this occurred many biofuels companies have been forced out of business because they can't sell their credits.
Two other companies, both in Texas, are under investigation for selling counterfeit fuel credits - a total of about 140 million fake credits. That's about 10% of all credits issued each year.
The National Biodiesel board is implementing a voluntary auditing and qualifying procedure, and regulators are overseeing the industry with stricter oversight.