Convictions Upheld In Imperial Securities Fraud Scheme

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Olivia Covington for www.theindianalawyer.com

An Indiana businessman convicted in a securities fraud scheme lost his federal appeal after the 7th Circuit Court of Appeals determined there was sufficient evidence to prove he had at least some knowledge of the ongoing fraud.

Jeffrey Wilson was in charge of Imperial Petroleum, Inc., which acquired e-Biofuels, LLC in May 2010. Before being acquired by Wilson’s company, e-Bio had developed a fraud scheme called “Alchemy” that purchased biodiesel from a third party, then sold it to customers as e-Bio’s original product.

Alchemy allowed e-Bio to take advantage of government renewable-energy production incentives — renewable identification numbers and the blender’s tax credit — without investing funds in production costs. Producers could generate and attach a set number of RINs to each gallon of biofuel they create and then sell it to customers, while the $1 per gallon blender’s tax credit was awarded to the taxpayer that first blended biodiesel with petroleum diesel.

Specifically, E-Bio would buy RIN-less, blended biodiesel, or B99, and resell it as RIN-valued, unblended biodiesel, or B100. The company used a third-party middleman to purchase the RIN-less B99 and resell it to e-Bio with fake invoices for feedstock, a substance used to create biodiesel.

Meanwhile, Imperial filed a report with the Securities Exchange Commission indicating that e-Bio manufactured its biodiesel from feedstock, even though earlier emails indicated Wilson knew that was not the case. Additionally, evidence was presented that Wilson attended a meeting that discussed the Alchemy conspiracy.

As e-Bio’s scheme generated more money, the value of Imperial’s stock rose, and Wilson paid off more than $5 million in company debt and wrote more than $100,000 in company checks to himself using Imperial stock. However, Wilson did not disclose those payments in SEC filings, but instead reported that he had deferred his salary.

Wilson was eventually indicted on 21 counts of securities fraud and false statements offenses. While other defendants who were indicted pleaded guilty, Wilson proceeded to trial, where the other defendants testified against him. A jury found Wilson guilty as charged after an eight-day trial.

The former Imperial head then moved for a renewed judgment of acquittal, arguing the government failed to prove beyond a reasonable doubt that he met the requisite mens rea of the charged offenses because he was unaware the scheme was going on. The district court denied that motion, and the 7th Circuit Court of Appeals affirmed Friday in United States of America v. Jeffrey J. Wilson, 17-1076.

Judge Kenneth Ripple pointed to trial evidence of the meeting at which the Alchemy scheme was discussed in Wilson’s presence, emails in which Wilson acknowledged potential investors’ concerns about ineligible RINs, and a spreadsheet sent to Wilson that compared the cost of producing biodiesel to purchasing it from third parties. Based on that evidence, a reasonable jury could have found that Wilson knowingly and willfully made false statements in his SEC reports, to his outside accountant and to government agents about e-Bio’s business practices, Ripple said.

“The Government has pointed to ample circumstantial evidence that Mr. Wilson knew about the Alchemy scheme, or at least knew that e-Bio was not producing its own biodiesel …,” Ripple wrote. “… It was up to the jury to evaluate the witnesses’ credibility, weigh the evidence, and draw reasonable inferences. That it did, and we will not disturb its finding.”

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