A federal jury convicted a Perry Hall man Monday of wire fraud and money laundering for selling $9 million worth of bogus biodiesel credits to commodities brokers and oil companies — a case that has shaken the nation's renewable-fuel industry and prompted congressional inquiries about the adequacy of federal oversight.
Rodney R. Hailey, 33, founder of Clean Green Fuel, could be sentenced to up to 20 years in prison on each of eight counts of wire fraud, 10 years for each of 32 money-laundering counts and two years each for the two counts of violating the Clean Air Act. U.S. District Judge William D. Quarles Jr., ordered Hailey taken into custody and set sentencing for Oct. 11.
The jury took just 75 minutes to reach a verdict after a six-day trial that featured testimony about Hailey's splurging on luxury cars, real estate and diamond jewelry with proceeds from his sales of renewable fuel credits supposedly representing 23 million gallons of biodiesel. Although Hailey told inspectors from the Environmental Protection Agency that he had made the fuel from waste cooking oil collected from 2,700 restaurants in the Delmarva region, prosecutors alleged he didn't produce a single gallon.
"Like many government programs, the EPA's renewable fuel initiative was designed with the assumption that people would act in good faith and actually produce renewable fuel before collecting the subsidy for it," U.S. AttorneyRod J. Rosensteinsaid in a statement released after the trial. "The only thing 'Clean Green Fuel' produced was the dirty money Rodney Hailey used to fund his lavish lifestyle."
Joseph L. Evans, an assistant public defender who led the legal team representing Hailey, declined to comment on the verdict but said he planned to appeal.
The defense did not present any witnesses but argued that the fuel credit program was flawed and buyers had to know the credits were false.
Established by Congress in 2005, the federal program was supposed to lessen the nation's dependence on foreign oil by requiring refiners and importers either to make renewable fuel themselves or buy enough credits from producers of the fuel to meet their quotas. Prosecutors said that from March 2009 to December 2010, Hailey generated and sold 32 million "renewable identification numbers" without making any fuel.
Prompted by a tip that Hailey was selling false credits, a pair of EPA inspectors visited Clean Green Fuel's Nottingham office in July 2010. Hailey gave the inspectors varying locations for where he had been producing biodiesel before taking them to a largely empty warehouse on Pulaski Highway, explaining that he had sold the fuel-making equipment but couldn't recall the name of the buyer.
It's not clear what the EPA did with that information, but several months later a neighbor's complaint to Baltimore County police about Hailey parking a string of luxury cars in front of his Perry Hall house drew the attention of a federal financial crimes task force.
"Obviously, you can earn money honestly and buy luxury cars, but something didn't seem right," Rosenstein said in an interview after the verdict. The task force contacted the EPA and launched a criminal investigation. Agents raided the Clean Green Fuel office in May 2011, as well as Hailey's Perry Hall residence and a rented home in Pasadena, Calif.
When charged in October 2011, Hailey was accused of spending fuel credit proceeds on real estate and more than 20 luxury cars and trucks, including BMWs, Mercedes-Benzes, a Rolls-Royce Phantom, two Bentleys, a Lamborghini, a Ferrari and a Maserati. At the trial, jewelers from New York's diamond district testified about Hailey buying baubles for his wife and himself, which prosecutors said also were paid for with the fuel credit proceeds.
Assistant U.S. Attorney Stefan D. Cassella, who prosecuted the case along with Assistant U.S. Attorney Tonya Kelly, said the government would file a motion for a judgment requiring Hailey to forfeit all the cars, real estate, and other assets and cash agents were able to seize. But according to court records, authorities have been able to seize only about $3 million in assets and $200,000 in cash. Rosenstein said the judgment would ensure the government could claim any other assets or wealth discovered later.
The Clean Green Fuel case has rattled the renewable-fuel industry, as the EPA has cited two Texas companies with civil violations for allegedly producing a total of more than 100 million fake renewable-fuel credits. No criminal charges have been filed in those cases, but the EPA also has taken action against oil companies and brokers that bought the invalid credits, requiring them to buy replacement credits and settling with them to pay $3.7 million in fines.
Oil companies and brokers cited by the EPA have complained to Congress, contending that they relied on federal regulators' registration of biodiesel producers and oversight of the credit generation.
A House subcommittee has launched an investigation of the program. EPA has insisted in its replies to congressional inquiries that it has tightened scrutiny but that it was always up to buyers of credits to ensure that they were valid.
Meanwhile, biodiesel industry representatives say producers have had a harder time selling their renewable-fuel credits, as oil companies and other buyers have grown skittish.
"The sad thing is that Mr. Hailey's greed has caused immeasurable damage to an industry and a government policy that are working for the public good — to improve our environment, create U.S. jobs and boost our energy security," said Ben Evans, spokesman for the National Biodiesel Board, an industry group.