Fraud in Business

Renewable-fuels fraud cases expose weakness in EPA program

The luxury cars lined up on Catron Road in a suburban subdivision north of Baltimore. A baby blue Rolls-Royce, a white Maserati, a black Bentley and two Ferraris. More than a dozen jammed the street and driveway in front of Rodney R. Hailey's five-bedroom colonial. Hailey told people that his company, Clean Green Fuel, was in the business of making renewable fuel, but some neighbors grew suspicious. One eventually complained to law enforcement officials. That tip led authorities to uncover what federal prosecutors in Maryland say was a multimillion-dollar scam.

Hailey, they allege, never produced so much as a drop of clean biodiesel. They say he sold phony renewable-fuel credits to major oil companies, brokers and producers, then simply pocketed the cash, spending lavishly on cars and jewelry.

The case landed Hailey, who denies the allegations, in federal court in Maryland. It also prompted calls for greater oversight of the fuel credit program run by the Environmental Protection Agency. As the United States works to use more clean energy, companies that make or import gasoline or diesel are required to use a certain amount of renewable fuel. If they don't, there's another way to meet the mandate: They can buy credits that represent renewable fuel another company has made. Those credits are called renewable identification numbers or RINs.

It's all about incentives to boost production of renewable fuel. Companies can buy the credits even if they don't buy the fuel which still will be consumed in the United States. But allegations against Hailey's company, and another Texas company that also sold those credits, have exposed opportunities for fraud in the system, some in Congress say.

“We need to make sure that EPA is doing its job,” Rep. Ed Whitfield (R-Ky.), chairman of a House Energy and Commerce subcommittee, said in a statement. “That means addressing problems like RIN fraud before they get further out of hand and cause significant damage.”

Hailey, 33, sold 32 million credits representing more than 21 million gallons of “non-existent fuel” between March 2009 and December 2010, Maryland U.S. Attorney Rod J. Rosenstein said in an indictment. Clean Green was paid more than $9 million — money the government says he used to buy at least two-dozen luxury cars and high-end jewelry worth nearly $82,000. Hailey, who appeared in U.S. District Court in Baltimore for a hearing last week, has pleaded not guilty to charges of wire fraud, money laundering and violating the Clean Air Act and is set to go to trial in June. His attorney, Joseph Evans, would not comment on the specifics of the case but said the government is “trying to smash him beyond all reason.”

When EPA inspectors visited Hailey at his White Marsh office after being tipped off by the neighbor, prosecutors say he told them that he made biodiesel by converting used vegetable oil from thousands of restaurants in the region, court papers say. When inspectors later tried to check out his production facility, Hailey said he ...