FBI raids Cima Green, US House investigates EPA on RFS2 handling
On the same day that federal agents occupied the offices of biodiesel trading company Cima Green Energy Services in New Jersey May 24, the House energy and commerce committee sent a letter to the U.S. EPA stating that the agency is under investigation for its administration of the renewable fuel standard (RFS).
Agents from the Federal Bureau of Investigation and EPA, along with members of the secret service and local law enforcement, raided Park Ridge, N.J.-based Cima Green just before the Memorial Day holiday weekend, in what Cima Green’s Senior Vice President of Sales and Marketing Joe Furando told Biodiesel Magazine was a “heavy-handed fact-finding mission” regarding eBiofuels LLC and its parent company, the publicly traded Imperial Petroleum.
“I asked investigators if I or any officers from our companies were under indictment or if there were arrest warrants, and they said ‘no,’” Furando said. Despite the event being “unexpected,” Furando said he and all the company personnel were treated “gently and with respect” by the investigators.
Furando said eBiofuels was a customer that bought feedstock and RIN-less fuel from Cima Green. RINs are renewable identification numbers established by EPA as part of the RFS2 program to help track compliance. Prior to the events on May 24, Imperial Petroleum’s eBiofuels recently filed for Chapter 7 bankruptcy and CEO Timothy Jones stepped down.
While Furando said the investigators used the word “fraud,” they were not specific. Since EPA was there, and with the series of RIN fraud cases lately, Furando said he deduced the investigation involved RIN fraud at some level, in addition to U.S. Securities and Exchange Commission inquiries about eBiofuels’ bankruptcy.
“Because we’re not indicted, we’re not the target,” Furando said, adding that Cima Green will provide them with whatever information it can to further their case. “We have never traded in questionable RINs,” he said.
When asked whether any other companies that did business with eBiofuels are under similar investigation, Furando said, “We asked that too, but they are tight-lipped. They didn’t ask us for any other company names.” A call to the Newark, N.J., office of the FBI was never returned.
Katirina Tracy, Cima Green chief operating officer, said, “We have no concrete answer to what they wanted.” She added that her initial two thoughts were, first, if the company employees were alright, and second, what broader effect this all might have on the biodiesel industry. “Because we really do care about it,” Tracy said. She noted Cima Green’s ongoing display of support for the industry by way of its NBB membership dues and donations to the trade association, and money spent with accounting firm Weaver and Tidwell LLP to assure that its activities are all on the up-and-up.
Cima Green made big splashes at recent National Biodiesel Conferences, donating $25,000 to the National Biodiesel Foundation during a silent auction last year and, most recently, donating a biodiesel-powered motorcycle built by Orange County Choppers to the National Biodiesel Board. The company is also one of the Advanced Biofuels Association’s newest members.
“While we do not know the details behind the FBI actions involving the biofuels industry, we fully support the EPA and authorized agencies continuing any enforcement actions so that the small number of bad actors who have disrupted the biodiesel marketplace are removed from the system and punished,” NBB Director of Communications Jessica Robinson told Biodiesel Magazine. “Strong enforcement, along with our industry’s ongoing RIN Integrity efforts, will help safeguard the marketplace in the future.”
Calls to Imperial Petroleum about the ongoing investigation went unanswered.
The same day, the House energy and commerce committee sent EPA a letter stating it was investigating the EPA’s administration of RFS. Specifically, the investigation revolves around the growing biodiesel RIN fraud issue. “Unfortunately, the production of and trade in fraudulent or invalid RINs has developed into a large and growing problem," the letter states. "And EPA’s efforts to address the problem so far appear ineffective, and in some respects have harmed the renewable fuels marketplace.”
The House energy and commerce letter goes on to say that credible sources indicate to the committee’s investigators that the number of invalid RINs identified by EPA could double from 140 million to about 280 million. “It does not appear that the EPA has taken any steps to actually solve the problem,” the letter reads. The committee sent a laundry list of questions the agency is required to respond to with documents and written responses by June 7.
EPA is also being sued by RIN broker OceanConnect LLC for its handling of the biodiesel RIN scandals. “Everyone wishes we weren’t going down these roads,” said Eric Rubury, president of OceanConnect, referring to broader biodiesel RIN fraud, EPA’s administration of RFS2 and the House committee investigating EPA. He said for obligated parties that are on the hook for purchasing invalid RINs when they did so in good faith, along with middlemen companies such as OceanConnect and Cima Green being snared in the net, the story’s not over.
“The letter [from the committee to EPA] shows that the concern is growing,” he said. “[The] Cima Green [raid], the fact that the market believes additional parties [will be indicted for fraud], it all further increases concerns over EPA saying it has no responsibility in this matter.” He said with fraudulent RINs making up north of 15 percent of the market, “At what level of fraud does it become impeccably clear EPA has failed the broader market and Congress?”
Also last week the agency denied a request from the oil lobby to eliminate mandates for biofuels that have not yet reached commercial availability, particularly cellulosic biofuel. “EPA’s mandate is out of touch with reality and forces refiners to pay a penalty for not using imaginary biofuels,” said American Petroleum Institute’s Director of Downstream and Industry Operations Bob Greco. “EPA’s unrealistic mandate is effectively an added tax on making gasoline.” The Clean Air Act requires EPA to determine the mandated volume of cellulosic biofuels each year at the projected volume available, but in 2011 EPA required refineries to use 6.6 million gallons of cellulosic biofuels even though, according to the agency’s own records, none were commercially available. EPA denied API’s 2011 petition for reconsideration of the mandate and continues to mandate cellulosic biofuels this year.
Amid all of the news about RIN uncertainty and EPA’s handling of administering the RFS, the National Biodiesel Board announced the launch of the Genscape RIN Integrity Network dashboard, which allows obligated parties who subscribe to the Genscape service to do their due diligence with real-time information on participating biodiesel producers through an online information service. It allows subscribing parties to tell whether an individual biodiesel producer's RINs have been verified through the Genscape system. Currently more than 70 full registrations and 15 obligated parties have signed up to trial the service.
“We’re confident that this third-party verification program, once fully in place, will be effective in protecting the system from bad actors and giving the market a great deal of confidence,” Robinson said. “We have been working with the EPA and supporting them in this effort, encouraging stakeholders to report any suspicious activity. In conjunction with EPA we worked to build a form to report any concerns. It remains available on our website.” Click here to access the form.