Three Charged With RIN Fraud

Owners of Lehigh Valley Co., Engineer Charged With RIN Fraud

OAKHURST, N.J. (DTN) -- The U.S. Attorney's Office in Eastern District of Pennsylvania announced David Dunham of Bethlehem, Pennsylvania, and Ralph Tommaso, of Warren, New Jersey, were charged by indictment Monday, Dec. 21, with engaging in a multi-million dollar conspiracy to defraud individuals and the United States in a green energy scam involving used cooking oil.

The defendants were charged with conspiracy, providing false statements to the government, wire fraud, tax fraud and obstruction of an Internal Revenue Service audit and a U.S. Department of Agriculture examination.

From 2010 through 2012, in Wind Gap, Allentown, Bethlehem and elsewhere, Dunham and Tommaso operated, respectively, the companies Smarter Fuel, Inc., and Environmental Energy Recycling Corporation, LLC, coordinating the activities of these companies, and then formally merging under the umbrella of Greenworks Holdings, LLC.

According to the 101-count indictment, the defendants claimed to have produced and sold renewable fuel for which they misappropriated approximately $50 million in payments, subsidies and other benefits. Dunham and Tommaso allegedly defrauded government programs intended to encourage the production of renewable fuel as an alternative to traditional fossil fuel.

By claiming credits for renewable fuel they never produced and that otherwise did not qualify, Dunham and Tommaso stole tens of millions of dollars from the U.S. government. It is further alleged that they stole millions more by fraudulently claiming and generating tradable credits that the sold to unsuspecting purchasers who believed these credits satisfied their legal obligation to introduce a certain quantity of renewable fuel per year.

The defendants, through their companies, collected used cooking oil from restaurants and other food service locations, sometimes processing it to remove hard particles, water and other waste. They then sold this cleaned cooking oil primarily to renewable fuel producers that used it as a "feedstock" ingredient in their production process.

Dunham and Tommaso did not sell their cleaned used cooking oil as a final fuel, but allegedly fraudulently claimed otherwise, applying for and receiving government subsidies for every gallon of cleaned used cooking oil that they produced, plus more. Their claims vastly exceeded their actual production. In 2010, Dunham and Tommaso allegedly claimed subsidies and other payments on more than 17.5 million gallons of product, when they produced less than 6 million gallons. In 2011, they allegedly claimed subsidies and other payments on more than 18 million gallons when they only produced about 7.5 million gallons. Of the cleaned used cooking oil they did produce, the vast majority did not qualify for credit or subsidy.

The defendants' allegedly fraudulent claims included more than 1 million gallons of the wastewater that was the byproduct of their processes to clean debris and pollutants from used cooking oil, the non-fuel sales of their product as a feedstock ingredient to be used by biofuel producers in buyers' production of biofuel, and transactions that existed on paper only, where the defendants did not produce or even possess the product for which they generated subsidies.

The indictment alleges that Dunham and Tommaso provided false information and altered and forged documents and records to government and private auditors in an effort to conceal their fraud. They allegedly directed employees to alter the documentation of obviously unqualified sales and change them to show sales that qualified for subsidies and other payments.

Dunham is also charged with underreporting his taxable income for the tax years 2009 and 2010. In his filings for those years, Dunham allegedly altered the dates on sales invoices and delayed generating invoices on other sales, in order to avoid paying taxes on these sales until a subsequent tax year. He also allegedly obstructed an IRS audit of Smarter Fuel.

In a related matter, William Barnes, a professional engineer, was charged by information, unsealed Monday, with two counts of conspiring to provide false statements to the U.S. Environmental Protection Agency. Barnes was allegedly hired to help the companies in Wind Gap and in Allentown register for the EPA's program as renewable fuel producers and allegedly conspired with the company owners to provide false engineering reports to the EPA.

If convicted, Dunham and Tommaso each face a substantial prison term, supervised release, a possible fine and potential criminal forfeiture of up to $50 million. Dunham faces an $8,700 special assessment; Tommaso faces an $8,400 special assessment. Barnes faces a statutory maximum possible sentence of 10 years in prison, supervised release, a possible fine and a $200 special assessment.