December 21, 2015

Owners of Lehigh Valley Companies and Their Engineer Charged in Green Energy Fraud Scheme

PHILADELPHIA—David Dunham, 35, of Bethlehem, PA, and Ralph Tommaso, 46, of Warren, NJ, were charged by indictment, unsealed today, with engaging in a multi-million dollar conspiracy to defraud individuals and the United States in a green energy scam involving used cooking oil, announced United States Attorney Zane David Memeger. The defendants are charged with conspiracy, providing false statements to the government, wire fraud, tax fraud, and obstruction of an IRS audit and a U.S. Department of Agriculture examination.

From 2010 through 2012, in Wind Gap, Allentown, Bethlehem, and elsewhere, Dunham and Tommaso operated, respectively, the companies Smarter Fuel, Inc. (Smarter Fuel) and Environmental Energy Recycling Corporation, LLC (EERC), coordinating the activities of these companies, and then formally merging under the umbrella of Greenworks Holdings, LLC (Greenworks). According to the 101-count indictment, the defendants falsely claimed to have produced and sold renewable fuel for which they misappropriated approximately $50 million in payments, subsidies, and other benefits. Dunham and Tommaso allegedly defrauded government programs intended to encourage the production of renewable fuel as an alternative to traditional fossil fuel. By claiming credits for renewable fuel they never produced, and that otherwise did not qualify, Duhnam and Tommaso stole tens of millions of dollars from the United States government. It is further alleged that Dunham and Tommaso stole millions more by fraudulently claiming and generating tradable credits that they sold to unsuspecting purchasers who believed these credits satisfied their legal obligation to introduce a certain quantity of renewable fuel per year.

The defendants, through their companies, collected used cooking oil from restaurants and other food service locations, sometimes processing it to remove hard particles, water, and other waste. They then sold this cleaned cooking oil primarily to renewable fuel producers that used it as a “feedstock” ingredient in their production process.

Dunham and Tommaso did not sell their cleaned used cooking oil as a final fuel, but allegedly fraudulently claimed otherwise, applying for and receiving government subsidies for every gallon of cleaned used cooking oil that they produced, plus more. Their claims vastly exceeded their actual production. In 2010, Dunham and Tommaso allegedly claimed subsidies and other payments on more than 917.5 million gallons of product, when they produced less than six million gallons. In 2011, Dunham and Tommaso allegedly claimed subsidies and other payments of more than 18 million gallons, when they only produced about 7.5 million gallons. Of the cleaned used cooking oil they did produce, the vast majority did not qualify for credit or subsidy. The defendants’ allegedly fraudulent claims included more than one million gallons of the wastewater that was the byproduct of their processes to clean debris and pollutants from used cooking oil, the non-fuel sales of their product as a feedstock ingredient to be used by biofuel producers in buyers’ production of biofuel, and transactions that existed on paper only, where the defendants did not produce or even possess the product for which they generated subsidies.

The indictment alleges that Dunham and Tommaso provided false information and altered and forged documents and records to government and private auditors in an effort to conceal their fraud. They allegedly directed employees to alter the documentation of obviously unqualified sales and change them to show sales that qualified for subsidies and other payments.

Dunham is also charged with underreporting his taxable income for the tax years 2009 and 2010. In his filings for these years, Dunham allegedly altered the dates on sales invoices, and delayed generating invoices on other sales, in order to avoid paying taxes on these sales until a subsequent tax year. He also allegedly obstructed an IRS audit of Smarter Fuel.

“According to the indictment, these defendants exploited critical government programs that were designed to encourage the production and use of renewable fuels. Instead of producing the renewable fuel as represented, the defendants lied to the government and stole tens of millions of dollars,” said Memeger. “My office will continue to hold accountable those people who enrich themselves through government fraud and deny the taxpayers the full benefit of effective federal programs.”

“The illegal activity in this case has real consequences, including undermining a law that reduces our nation’s dependence on foreign oil and achieves important greenhouse gas reductions,” said Director Doug Parker, of EPA’s Criminal Investigation Division. “Companies and their managers should think very carefully before taking similar actions that could lead to prosecution.”

“Fulfilling individual tax obligations is a legal requirement and those who willfully evade that responsibility will be prosecuted,” said Special Agent-in-Charge Akeia Conner, IRS Criminal Investigation.

In a related matter, William Barnes, a professional engineer, was charged by information, unsealed today, with two counts of conspiring to provide false statements to the U.S. Environmental Protection Agency (“EPA”). Barnes was allegedly hired to help the companies in Wind Gap and in Allentown register for the EPA’s program as renewable fuel producers and allegedly conspired with the company owners to provide false Engineering Reports to the EPA.

If convicted, Dunham and Tommaso each face a substantial prison term, supervised release, a possible fine, and potential criminal forfeiture of up to $50 million. Dunham faces a $8,700 special assessment; Tommaso faces a $8,400 special assessment. Barnes faces a statutory maximum possible sentence of ten years in prison, supervised release, a possible fine, and a $200 special assessment.

The case was investigated by the Environmental Protection Agency, IRS Criminal Investigation, Department of Agriculture–Office of Inspector General, U.S. Postal Inspector Service, and the Federal Bureau of Investigation Allentown Resident Agency. It is being prosecuted by Assistant United States Attorneys Nancy E. Potts and John Gallagher.

An Indictment is an accusation. A defendant is presumed innocent unless and until proven guilty.