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Fraud Within a Fraud

America’s renewable fuels program has been hit with a massive fraud case. A Texas man was ordered to pay $55 million in restitution and sentenced to more than 15 years in prison last Friday for selling nearly $42 million in fraudulent biofuel credits.

Jeffrey David Gunselman took advantage of a weakness in the 2007 US Renewable Fuel Standard, which sets annual quotas for corn-based ethanol production. Because ethanol production isn’t expected to be high enough to meet these quotas, suppliers and refiners have been scrambling to snatch up increasingly scarce Renewable Identification Numbers (RINs). Sharks like this Texas “businessman” are taking advantage of companies desperate to comply with the EPA’s poorly-conceived mandate. NewsOK brings us the AP report:

Prosecutors said he devised a scheme beginning in 2010 to mislead the Environmental Protection Agency by claiming his company, Absolute Fuels, produced biodiesel fuel. He never had a facility to produce the fuel and falsely generated federal renewable fuel credits that were sold to oil companies and brokers, prosecutors said.

He told purchasers to wire payments to his bank account. Ultimately, $41.7 million was deposited.

Ivan Vikin, special agent in charge of EPA’s criminal enforcement efforts in Texas, said there are about a dozen cases nationwide similar to the one involving Gunselman.

The EPA announced in February that it would start cracking down on RIN fraud. Clearly, there is a real cause for concern.

But targeting people like this Texas “businessman” ignores a much bigger fraud: the mandate itself. It claims to be green-friendly, yet corn-based ethanol has been shown to increase emissions. At the same time, corn ethanol contributes to worldwide spikes in food prices, starving the world’s poor and potentially starting riots.

The EPA is looking to stamp out one fire while the forest burns down around them. Rather than focusing on a few isolated fraudsters, the EPA needs to think bigger and kill the ethanol mandate entirely.

[Withered corn crop image courtesy of Shutterstock.]

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  • Corlyss Drinkard

    What is remarkable about this case is the ability to detect this fraud amidst the details of a program which is itself a complete fraud. Kudos to the prosecutors! They must be Harvard Law School grads.

  • Luke Lea

    What are the vested interests for continuing this program? Farmers in the Mid-West I presume. What about the credits themselves? I’ve never understood quite how they work. Is it like cap and trade?

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