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United States v. Wilson

United States Court of Appeals, Seventh Circuit

January 12, 2018

United States of America, Plaintiff-Appellee,
Jeffrey J. Wilson, Defendant-Appellant.

          Argued September 14, 2017

         Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. l:13-cr-00190-SEB-TAB-l - Sarah Evans Barker, Judge.

          Before Wood, Chief Judge, and Ripple and Hamilton, Circuit Judges.

          Ripple, Circuit Judge.

         A grand jury indicted Jeffrey Wilson, in a twenty-one-count indictment, with the following offenses: (1) fraud in connection with the purchase or sale of securities, in violation of 15 U.S.C. §§ 78j(b) and 78ff, and 17 C.F.R. § 240.10b-5 (Count 1); (2) fraud in the offer or sale of securities, in violation of 15 U.S.C. §§ 77q(a) and 77x, and 18 U.S.C. § 2 (Count 2); (3) material false statements in required Securities and Exchange Commission ("SEC") filings, in violation of 15 U.S.C. § 78ff and 18 U.S.C. § 2 (Counts 3-9); (4) wrongful certification of annual and quarterly reports by a corporate officer, in violation of 18 U.S.C. § 1350(c)(1) (Counts 10-14); (5) material false statements by a corporate officer to an accountant, in violation of 15 U.S.C. §§ 78m(b)(5) and 78ff, 17 C.F.R. §§ 240.13b2-2(a) and 240.13b2-2(b), and 18 U.S.C. § 2 (Counts 16-17 and 19-20); and (6) false statements to Government investigators, in violation of 18 U.S.C. § 1001 (Count 21).

         A jury convicted Mr. Wilson on all charges. He then filed a motion under Federal Rule of Criminal Procedure 29(c) for acquittal on all counts, contending that the Government had failed to present evidence sufficient to prove his guilt beyond a reasonable doubt. The district court denied the motion. It then sentenced Mr. Wilson to 120 months' imprisonment for Counts 1, 3-14, 16-17, and 19-20, and to 60 months' imprisonment for Counts 2 and 21, all to run concurrently. The court also imposed 18 months' supervised release per count, each to be served concurrently. The court ordered Mr. Wilson to pay $16, 468, 769.73 in restitution and a $1, 900 assessment.

         Mr. Wilson now appeals and renews his challenge to the sufficiency of the evidence. He contends that the Government failed to prove beyond a reasonable doubt that he had the requisite mens rea to commit the charged offenses. After hearing oral argument and carefully examining the record, we cannot accept this argument. None of Mr. Wilson's contentions reach the high threshold of showing that a reasonable jury could not have found him guilty. When viewed in the light most favorable to the prosecution, the evidence adequately supports the jury's finding that Mr. Wilson acted knowingly and willfully when making false statements to investors, regulators, an outside accountant, and Government agents. It also supports the reasonable inference that Mr. Wilson was aware of and participated in a fraudulent tax scheme called "Alchemy." Accordingly, we affirm the judgment of the district court.



         A. Facts[1]

         Mr. Wilson was the Director, Chairman of the Board, President, and Chief Executive Officer of a public company called Imperial Petroleum, Inc. ("Imperial") from May 2010, to November 2011. In May 2010, Imperial acquired e-Biofuels, LLC ("e-Bio"), a biofuel company owned previously by Craig Ducey, Chad Ducey, and Brian Carmichael. Craig and Chad are brothers; Carmichael is related to them by marriage. A third brother, Chris Ducey, handled transportation logistics for e-Bio.[2]

         Prior to its acquisition by Imperial, e-Bio had developed a fraud scheme called Alchemy. It involved purchasing biodiesel from a third party and then reselling it to customers as though it had been produced originally by e-Bio. This scheme was profitable because it allowed the company to take advantage of government incentives for renewable-energy production without actually expending production costs. The relevant incentives are renewable identification numbers ("RINs") and the blender's tax credit.

         RINs are essentially labels used by the Environmental Protection Agency ("EPA") to track renewable fuel production and consumption. Biodiesel producers can generate and attach a certain number of RINs to each gallon of biodiesel that they manufacture, using EPA-approved procedures, at EPA-registered facilities.[3] Producers can sell this RIN-valued fuel to petroleum fuel refiners and importers. These customers must obtain and retire a certain number of RINs in order to meet annual regulatory obligations.[4] This system creates a market for RIN-valued biodiesel-i.e., biodiesel that has not yet had its RINs retired.

         The blender's tax credit is a $l/gallon credit; it is granted to the taxpayer that first blends biodiesel with any amount of petroleum diesel. Before biodiesel is blended, it is known as BlOO, which indicates that it is 100 percent biodiesel. Biodiesel is often blended with a small amount of petroleum diesel. This process results in a product known as B99, which is approximately 99 percent biodiesel and, more importantly, already has been used to claim the tax credit.

         Because of these two separate government incentives, RIN-valued BlOO is more valuable to biodiesel purchasers than RIN-less B99. The conspirators behind Alchemy profited by purchasing RIN-less B99 and then reselling it as RIN-valued BlOO. To avoid suspicion, e-Bio used a third-party company, Caravan Trading ("Caravan"), as a middleman. Caravan was owned by Joseph Furando. Caravan would purchase RIN-less B99 at low cost and then resell it to e-Bio along with fake invoices describing the biodiesel as feedstock (e.g., soybean oil or chicken fat). Feedstock is used to create biodiesel, so e-Bio would pretend that it had used this "feedstock" to produce BlOO in its own plant. E-Bio generated RINs for this fake BlOO, which was actually B99 with no legitimate RIN value. The company profited by selling this product at the price of RIN-valued BlOO.

         To carry out this plan, e-Bio hired truck drivers to pick up the RIN-less B99 from Caravan's fuel terminals and deliver it to the e-Bio plant. There, it was pumped into storage tanks and later transferred to another truck for delivery to e-Bio's customers. E-Bio furnished drivers delivering this product with paperwork reciting that the fuel they were carrying was RIN-valued BlOO, produced at the e-Bio plant. To cut down transportation costs, e-Bio eventually had truck drivers carry the biodiesel directly from Caravan's fuel terminals to e-Bio's customers. The company would fax fake paperwork, including false bills of lading, to the drivers while they were en route in order to make it appear as if the fuel had been produced at (and delivered from) the e-Bio plant. These deliveries were called "Ghost Loads/' because the drivers of those loads were never seen at the e-Bio plant.

         While negotiating the acquisition of e-Bio, Craig informed Mr. Wilson that the e-Bio plant was not producing biodiesel from feedstock and that it was purchasing fuel from Caravan. Shortly after Imperial acquired e-Bio, Craig emailed Mr. Wilson a spreadsheet entitled "e-Biofuels make versus buy cost 6-16-2010.xls" (the "Make vs. Buy spreadsheet").[5]This spreadsheet compared the cost of making biodiesel from scratch versus the profit of buying it from Caravan. At one point, Mr. Wilson asked Craig how e-Bio could increase its output under the latter option, and Craig told Mr. Wilson that e-Bio's main customer would purchase as much biodiesel as e-Bio could sell.

         The parties disputed at trial the degree of Mr. Wilson's involvement in e-Bio's business. The evidence showed that the Duceys continued to oversee many of e-Bio's daily operations after the Imperial acquisition, and Mr. Wilson maintained that he was largely unaware of e-Bio's day-to-day operations. According to him, he purchased the company because it came with a self-sufficient group of managers. There was, however, significant evidence about Mr. Wilson's involvement in and awareness of e-Bio's activities, as set out in the following paragraphs.

         A few months after the acquisition, Mr. Wilson exchanged emails with his son and Chad, both of whom were working at the e-Bio plant. Chad stated that e-Bio was not producing any glycerin, a necessary by-product of transesterification (the process that converts feedstock into biodiesel). Mr. Wilson replied with his understanding that a lack of glycerin meant e-Bio was not producing biodiesel from feedstock. His son confirmed this conclusion. Around the same time, Mr. Wilson told the managers of Caravan that he wanted to increase their business together.

         In November 2010, Imperial filed its first annual report with the SEC. In that report, Mr. Wilson represented that e-Bio manufactured millions of gallons of biodiesel from feedstock, that it produced glycerin as a by-product of this production process and that it took advantage of RINs that are generated when biofuel is produced. The following year, Mr. Wilson filed another annual report, three quarterly reports, and two current reports with the SEC. All of these documents included the same or similar statements representing that e-Bio produced biofuel from feedstock rather than buying and reselling biodiesel produced by a third party. Mr. Wilson certified the accuracy of the annual and quarterly reports even though they included false statements about e-Bio's production process and output. Mr. Wilson communicated similar statements to Imperial's outside accountant and its investors.

         During Mr. Wilson's tenure as president of Imperial, e-Bio increased its fraudulent fuel sales substantially. It was able to increase its output by undertaking more and more Ghost Loads, especially in the Houston area.[6] The Government's witnesses testified that Mr. Wilson knew of these Ghost Loads and wanted to increase them by sending more drivers to Texas. Mr. Wilson also had discussions about ways to mitigate the risks posed by the Ghost Loads. For instance, he favored bribing e-Bio's truck drivers so they would not expose the true nature of their deliveries, and he agreed to purchase a fax machine to transmit falsified paperwork directly to the drivers rather than by using an intermediary. He also was present during discussions about removing e-Bio's name from the trucks to deflect any suspicions about the deliveries.

         During one audio-recorded meeting, Furando explained that the conspirators referred to the entire scheme as Alchemy. He also said: "Big oil does not care. ... The RINs you guys generate, they don't care if they're real or not. They just want an obligation met. And they want to be done with it."[7] The parties dispute whether Mr. Wilson attended this meeting. During trial, three witnesses testified that they were at the meeting along with Mr. Wilson. A fourth witness identified a voice in the recording as that of Mr. Wilson; Mr. Wilson's brother disputed that identification. The jury had separate exemplars of Mr. Wilson's voice to compare with the recording.

         In summer 2011, a hedge fund, Platinum Partners ("Platinum"), considered investing in Imperial. David Steinberg, an investment professional at Platinum, evaluated Imperial as a potential investment. Ashley Player, a renewable energy consultant whom Platinum had hired to conduct due diligence on Imperial, assisted him. As part of her investigation, Player inquired as to how e-Bio's 15-million-gallon-per-year plant could produce 25-30 million gallons of biodiesel per year. Chad told her that about half of e-Bio's output came from reprocessing "off-spec" biodiesel (i.e., biodiesel that fails to meet one or more industry specifications). The other 15 million gallons, he told her, were produced from feedstock. Platinum Partners did not invest in Imperial.

         Around this same time, Mr. Wilson was attempting to activate the production equipment at the e-Bio plant. Investors were requesting to visit the plant, but Mr. Wilson was not willing to host them until the plant could process genuine feedstock. Mr. Wilson ran into difficulties getting the plant up and running, and he eventually resigned from his position.

         During Imperial's ownership of e-Bio, the subsidiary generated 99 percent of Imperial's revenues. Overall, e-Bio resold over 35 million gallons of biodiesel and realized more than $55 million in profits as a result of Alchemy. As e-Bio generated more and more revenue, the value of Imperial's stock rose as well. Mr. Wilson and his wife transferred hundreds of thousands of Imperial shares during this time, and Mr. Wilson issued more than $1 million in Imperial shares to different companies that he controlled. He also paid off more than $5 million in company debts using Imperial stock and wrote more than $100, 000 in company checks to himself. These payments were not disclosed in Imperial's SEC filings and run counter to Mr. Wilson's statements in SEC reports that he had deferred his salary. When the scheme fell apart, Imperial's stock lost almost all of its value, and investors lost more than $18 million.

         In June 2012, Government agents interviewed Mr. Wilson as part of an investigation into whether Imperial's SEC filings contained false statements about e-Bio's production of biodiesel. When confronted with questions from investigators, Mr. Wilson repeated the explanation that Chad had given to Ashley Player: he told them that at least half of e-Bio's output was produced from feedstock at the company's EPA-registered plant, and that the other half was made by reprocessing off-spec biodiesel. Mr. Wilson also told the investigators that: (1) he never compared the cost of off-spec biodiesel to feedstock; (2) he did not compare the costs of reprocessing off-spec methyl ester to making biodiesel from feedstock; and (3) he did not know if reprocessing off-spec methyl esters was more profitable than making biodiesel from feedstock.

         B. District Court Proceedings

         In September 2013, the Government filed a twenty-one-count indictment alleging that Mr. Wilson had committed the following offenses: fraud in the purchase or sale of securities (Count 1); fraud in the offer or sale of securities (Count 2); material false statements in required SEC filings[8] (Counts 3-9); wrongful certifications of annual and quarterly reports[9](Counts 10-14); material omissions and false statements to a public company's independent accountant[10] (Counts 16-17 and 19-20); and false statements to Government investigators (Count 21). Craig was charged as a co-defendant.[11] He pleaded guilty prior to the trial and testified against Mr. Wilson. Chad, Chris, Carmichael, Furando, and Katirina Pattison (the original Alchemy conspirators) were all charged separately and also pleaded guilty. During Mr. Wilson's trial, the Government presented testimony from multiple participants in the ...

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