Park Ridge green fuels company feels squeezed by probe [The Record (Hackensack, N.J.)]By Hugh R. Morley, The Record (Hackensack, N.J.)McClatchy-Tribune Information Services
Oct. 14----Cima Green, a Park Ridge alternative energy provider, has struggled since the biofuels industry came under fire.
With guns drawn, FBI agents descended on the Park Ridge office of Cima Green, an alternative energy company early one Thursday.
An agent toting an automatic weapon forced company founder Joseph Furando to raise his hands in the air as other agents filed into the cramped office suite, and later swarmed over his Montvale home 2 miles away.
Until 1 a.m. the next day, FBI and Environmental Protection Agency officers questioned company employees about their business, clients and daily routine, and left carrying documents and a computer hard drive.
At the time of the May raid, Furando said only that the agency was investigating a Cima Green customer for possible fraud in the biodiesel fuel industry, and that his company was not a target.
Five months later, however, information has emerged that more strongly connects Cima Green to that customer -- the now-bankrupt e-Biofuels LLC of Indiana -- and offers a closer look at a sweeping federal investigation of the fraud allegations, in which companies have falsely claimed to create quantities of the environmentally friendly fuel to gain credits they can sell. So far, that investigation has led to the conviction of one industry executive and the indictment of another.
At Cima Green, officials say the company's biofuels business has plummeted about 20 percent this year, in part due to clients scared off by the raid. The company's staff of 20 has shrunk to about half that as employees "traumatized" by the raid leave, and replacement candidates lose interest when they learn about it, the company said.
"In no way, shape or form did we have any hard knowledge of any sort of fraud that was going on," said Katirina Tracy, chief operating officer. "At the end of the day, we really just hope that the right people are prosecuted here and brought to justice."
Cima Green officials say they had done business with e-Biofuels for about four years and were the biggest supplier for its renewable fuel production operation.
Cima Green and its principals were also among e-Biofuels' biggest backers. When the company filed for bankruptcy liquidation in March, it said it owed $593,984 to Cima Green and $1 million to JAK Financial LLC, a company formed by Furando and his wife that loaned e-Biofuels that money, a Cima Green executive said.
On the same day as the raids in Bergen County, Cima Green was subpoenaed by the Securities and Exchange Commission seeking documents related to a dozen companies, according to the Oil Price Information Service, an energy news agency.
Also on that day, e-Biofuels and its parent company, Imperial Petroleum, received subpoenas and authorities executed search warrants in connection with a federal grand jury investigation, according to documents filed by Imperial Petroleum with the SEC.
And an Indiana lawsuit contends that Furando and his company, Caravan Trading, the parent of Cima Green, ran a "fraudulent and illegal" biofuel trading business with e-Biofuels.
Cima Green officials said their company did nothing to warrant the raid, and merely supplied e-Biofuels with biofuel, which was sold to customers, and feedstock, such as soya bean oil and recycled cooking grease, which the Indiana company turned into environmentally friendly diesel. Company officials, who said they are "cooperating fully with the investigation," believe the FBI raided Furando's home because he ran the business from there for a time.
"What you have here is a situation where you have some people in Indiana who were caught doing some really bad things," said Furando. "And they are kind of trying to reach out and trying to drag other people into their situation." Furando also took exception to the manner in which the raid was conducted.
"If they had just asked us, through a court-ordered subpoena of documents, we would have given them to them," he said. "We were told they didn't trust us enough to hand over all the documents. They treated us like we were animals. It was completely uncalled for."
Sued by former exec
In a letter filed with the SEC, Imperial Petroleum's auditor said the probe of the company is focused on "alleged fraudulent activities of e-Biofuels," Imperial's subsidiary, according to an SEC filing. Another filing warns investors that the publicly traded company could be hurt "if it is determined" that e-Biofuels "received improper tax credits for the sale of biodiesel."
The Indiana suit contends that as part of a "double dipping scheme," Caravan Trading obtained biodiesel that had already received a fuel credit from the EPA, and then sold the fuel to e-Biofuels to register for credits a second time -- a violation of EPA rules. The scheme generated profits of $20 million for Caravan Trading in 2011 alone, the suit alleges.
The lawsuit was filed in May by a Utah man, William Stratton, who contends that hours after he was hired as CEO by Imperial Petroleum in November 2011 he withdrew from the position after threats from Furando. Stratton's suit, in which he seeks damages for losing the job, alleges that Furando feared Stratton would expose "a business model that is fraudulent and illegal."
Furando denies the claim. Tracy, the Cima Green chief operating officer, said Stratton is just trying to "extort" money from Caravan Trading by tarnishing its name.
"He wanted a payout," said Tracy, adding that before filing the suit Stratton threatened to make "bogus claims" about Cima Green if it did not pay him between $1 million and $2 million.
Ryan B. Bell, a Salt Lake City attorney representing Stratton, denied Tracy's claim, and said: "Mr. Stratton's actions in this dispute have been ethical and appropriate."
Jeffrey T. Wilson, CEO of Imperial Petroleum, declined to comment.
Bogus fuel credits
Meanwhile, federal authorities continue to probe the sale of bogus biodiesel fuel credits -- known as Renewable Identification Numbers, or RINs -- under the government fuel credits program.
The program was created by Congress in 2007 to reduce America's reliance on foreign fossil fuels by promoting use of cleaner biofuels, which are either used in concentrated form or as additives to regular fuel.
A RIN is created each time a gallon of biodiesel is produced, and the credits can be bought and sold, similar to the way carbon credits are traded. Fossil fuel producers, who are required by law to make a certain amount of renewable fuel, can fulfill their quota by purchasing RINs if they don't make enough renewable fuel.
In June a Baltimore jury convicted Rodney R. Hailey, the owner of Clean Green Fuel LLC, for selling $9 million in fraudulent fuel credits, falsely claiming his company had produced 35 million RINs when in fact it "had produced no fuel at all and Hailey did not have a facility capable of producing biodiesel fuel."
The EPA has identified two Texas companies that each generated more than 45 million RINs "without generating the requisite volume of renewable fuel," in violation of federal law. In August, the CEO of one of them was indicted on a charge of falsely representing his business as a biodiesel producer.
In addition, the EPA has reached settlements totaling more than $4 million with 32 companies who allegedly bought 51 million allegedly fraudulent RINs, holding the companies responsible for failing to ensure that the fuel credits were legitimate. The settlements are with such energy giants as Exxon Mobil, Citgo, Shell and BP.
In July, the congressional Committee on Energy and Commerce held a hearing on the issue and concluded that "over the course of the past year, the production of and trade in fraudulent or invalid RINs has emerged as a significant problem."
The allegations have shaken the biofuels industry as buyers struggle to determine whether the RINs are legitimate, said Ben Evans, spokesman for National Biodiesel Board, a Missouri-based trade organization.
"It's fraud just like you would see on Wall Street or anywhere else," Evans said. "This just involves a handful of bad actors that came in and found a way to take advantage of the system." The EPA is now being pressured by the industry to retool the program.
Cima Green officials say the fallout from the raid, the collapse of e-Biofuels and the industrywide concern over RIN fraud has hurt the company.
Caravan Trading entered the then-fledgling biofuels industry in 2008, and created Cima Green as a separate arm for the business in 2010, as the use of biofuels spread. Although another Caravan Trading subsidiary bought and sold RINs, it was not registered to generate them, and neither it nor Cima Green did, the principals said.
Cima Green boosted its profile this year when it teamed up with Orange County Choppers, a Newburgh, N.Y., custom motorcycle builder that appears in the television show "American Chopper." The two built a bike that would run on biofuel, and Cima Green principals appeared in two episodes, most recently in March.
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