October 12, 2016 / 3:46 PM / a year ago

U.S. biodiesel executives plead guilty to over $60 million fraud scheme

NEW YORK (Reuters) - Two men pleaded guilty in a U.S. court on Wednesday to conspiracy, fraud and making false statements related to the U.S. government’s controversial policy designed to boost use of renewable fuels, according to court documents.

The case comes in the last four weeks of a contentious U.S. presidential election campaign as the petroleum industry presses for reform or repeal of a program that has drawn criticism from Big Oil and environmentalists alike. The U.S. government is due to finalize next year’s biofuel mandates by end-November.

Fred Witmer, 46, and Gary Jury, 58, co-owners of Indiana biodiesel plant Triton Energy LLC, pleaded guilty in an Indiana court on Wednesday to defrauding the U.S. government’s renewable fuel support program and a tax credit program, the U.S. Department of Justice said on Wednesday.

Witmer and Jury together owe more than $64 million for wire fraud and conspiracy in a scheme to fraudulently produce biofuels credits used to comply with the U.S. Renewable Fuel Standard (RFS) from 2012 to 2015, according to court documents filed in Indiana last month.

The charges filed by the U.S. Justice Department said Witmer knowingly sold processed corn oil for uses that do not qualify under the program, then still collected biofuels credits on the fuel. He and Jury also conspired to obtain a tax credit they were not entitled to, the filings said.

Counsel for Witmer declined to comment while Jury’s lawyer did not respond to a request for comment. Witmer will serve 57 months in prison and Jury will serve 30 months as part of their plea agreements, the Justice Department said in a statement.

The RFS policy was designed to boost use of renewable fuels including gasoline and diesel in the country’s petroleum fuel supply, in a bid to cut down on greenhouse gas emissions and promote energy independence.

Biofuels producers create renewable fuels credits known as Renewable Identification Numbers (RINs) with each gallon of biofuel they produce. Gasoline importers and oil refiners need these credits to meet the country’s biofuels mandates. They can either blend fuels to get the credits or buy them in an opaque market.

Witmer owes $56 million for some 41.1 million fraudulent RINs sold until at least March 2015. He also could face a prison sentence of just under five years, the court filings show.

Witmer and Jury jointly owe an $8 million penalty to the U.S. Treasury Department as part of the plea agreement.

This is the latest in a recent string of cases and settlements handled by the Justice Department. It may bolster the case of critics who have said the RIN market is susceptible to fraud.

Oil refiners have renewed calls for reform of the program in recent months as prices of the credits have soared. Biodiesel credits are now trading at more than $1 apiece, making the mandates costly for some to meet.

Credits already have cost refiners billions of dollars and 2016 looks set to be the most expensive year on record.

Philadelphia Energy Solutions Inc said last month that it plans to slash benefits and reduce staff, citing the high cost of buying RINs as one of the principal reasons it needed to make the cuts.

Biofuels advocates say instances of crime are rare and that the program has helped boost use of renewable fuels and created jobs in rural America.

Ineffective regulation may prove to be an “Achilles’ heel” for the RIN market even though fraud has not been rampant, said Scott Irwin, an economist with the University of Illinois.

“These cases are important because they go to the heart of the integrity of the RINs market,” he said.

Reporting by Chris Prentice; Editing by Simon Webb and Bill Trott

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