Federal authorities have charged two executives of a pair of Park Ridge alternative energy companies with participating in a biofuels scheme that defrauded taxpayers, consumers and investors of more than $100 million, and with spending the proceeds on real estate, jewelry, artworks and a Ferrari.
Joseph Furando, 47, and Katirina Tracy, 27, were indicted in U.S. District Court in Indianapolis for their alleged roles in a massive scheme involving the sale of more than 35 million gallons of fraudulently mislabeled alternative fuels to truck stops and service stations at prices inflated by false claims that they were government-certified top-quality biodiesel.
Furando also was charged with obstruction of justice, for allegedly making false statements to the FBI.
Authorities charged the two companies, Cima Green LLC and Caravan Trading Company LLC, that Furando owns with his wife, Christina, with conspiracy to commit criminal offenses and wire fraud. Christina Furando was not charged.
Furando, arrested at his home in Saddle River on Wednesday morning, was released to house arrest after appearing in federal court and posting a $2 million bond, authorities said.
Tracy, who is also known as Evelyn Katirina Pattison, was arrested at her Ridgewood home and was released on $250,000 bail. She was director of Caravan and chief operating officer of Cima Green, according to the indictment, which was filed Wednesday.
Attorneys for the pair did not return a request for comment.
The federal investigation of Cima Green first became public in May 2012, when FBI agents raided the company's Park Ridge offices, their guns drawn, and spent the day removing boxes of documents and a computer. Furando said at the time that the raid was part of a probe into one of his company's clients.
He and Tracy subsequently identified the company as E-Biofuels, but denied they or the Park Ridge companies had done anything wrong, saying they had merely supplied E-Biofuels with fuel.
U.S. Attorney Joseph H. Hogsett, announcing the indictment, called it "the largest tax and securities fraud scheme in Indiana history."
"This case represents a collaborative effort on the part of law enforcement to hold fully accountable those who seek personal profit at the taxpayer's expense," he said.
Prosecutors filed a list of items allegedly purchased with money obtained in the scheme that will be forfeited by the defendants if the case results in convictions.
The alleged purchases by Furando include homes in Saddle River and Montvale valued at more than $3.8 million, a Ferrari, a Harley-Davidson motorcycle, artworks by Picasso, Dali and Renoir, and nearly two dozen pieces of jewelry.
The alleged fraud centered on a federal program designed to encourage companies to make and use pure biodiesel fuel by offering a tax credit _ known as a renewable identification number, or RIN _ of $1 per gallon to the manufacturer of the fuel.
The certification pushed up the price of the fuel on the market because the federal government requires some companies to use a certain amount of certified, pure biodiesel renewable fuel. Companies could also meet their obligation by purchasing RINs from producers like E-Biofuels.
The credit could be used only once, however. And once the credit had been claimed, the biodiesel could be blended with petroleum to create a lower-quality fuel, which was also cheaper because the credit had been used, or stripped.
Authorities allege that between July 2009 and May 2012, Furando, Tracy and five others carried out a scheme to sell the lower-quality biodiesel as pure biodiesel, and fraudulently claim the benefits of the credits.
Caravan and Cima Green bought cheaper biodiesel, which had no tax credit attached, and sold it at inflated prices to E-Biofuels, of Middletown, Ind. E-Biofuels then fraudulently certified the fuel as carrying the tax credit _ also selling it at inflated prices, according to the indictment. E-Biofuels also sought to reduce its taxes with the fraudulent credits, authorities allege.
The indictment, and a civil suit filed by the U.S. Securities and Exchange Commission depicts Furando and Tracey at the heart of the scheme, fully aware of how it worked.
The suit says that in 2010, Furando "suspected that [E-Biofuels] was illegally recertifying" the cheaper fuel to obtain RINs.
In response, the suit says, Furando "demanded a share of the profits from [E-Biofuels'] recertification scheme."
From June 2010 to May 2012, Furando and Tracy "threatened" several people involved in the scheme "to maintain discipline within the conspiracy and collect money," the indictment says.
Early on, E-Biofuels, where four of the defendants worked, made biodiesel from feedstocks such as animal fat and vegetable oils, but with little success, the SEC suit says. So the company then simply relabeled fuel supplied by the Park Ridge companies from which the tax credit had been stripped, authorities said.
The fraud continued even after publicly traded Imperial Petroleum Inc. bought E-Biofuels in 2010, the indictment says. At first Jeffrey Wilson, president and CEO of Imperial, was unaware of E-Biofuels' fraudulent business model, the SEC civil suit says.
Once he learned of the fraud, however, Wilson continued it _ raising Imperial's revenue from $1 million to $110 million, almost entirely based on fraudulent sales, the suit says. Yet he didn't tell investors, shareholders or auditors, and filed numerous false reports with the SEC, according to the indictment.
In addition to Wilson, the criminal defendants in the case include the president, chief operating officer and logistics manager of E-Biofuels before it was sold _ brothers Craig, Chris and Chad Ducey, respectively. All also face allegations in the SEC civil suit.
In a separate action, Brian Carmichael, director of sales at E-Biofuels, agreed to plead guilty to conspiring to defraud the United States in connection with the case.
Last October, Tracy told The Record:
"In no way, shape or form did we have any hard knowledge of any sort of fraud that was going on."
