Ethanol Plant Involved in Federal Bribery Case; Two Men Charged in Bio-Scamming Taxpayers (Update)

April 23, 2009 | Roger McEowen


As times continue to grow tougher in the ethanol industry - proposed projects fail to raise the necessary capital and bankruptcy rate of existing plants rises – the possibility of crooked conduct increases. That was the case recently in North Carolina, an area that had planned on being at the center of the bio-fuels craze on the East Coast, but where those plans have been dashed by failing plants.

In 2004, Agri-Ethanol Products of Raleigh wanted to construct a $220 million ethanol production facility in Beaufort County and needed a Clean Air Permit. Securing the permit, it was believed, would encourage investors to fund construction of the plant. The company (as is now the case with many ethanol projects) was having trouble raising capital, so they started telling potential investors that they had political connections – even putting the boast in their prospectus. That claim was true. The company did have political connections – obtained by a bribe. Agri-Ethanol officials had approached Boyce Hudson, a senior field officer with the North Carolina Department of Environment and Natural Resources (DENR) who also lobbied the state legislature and the governor’s office, and offered him $100,000 cash and a two-year consulting contract worth another $108,000 after he retired from the DENR in 2005. In exchange for the money and the consulting contract, Hudson guaranteed the company the necessary state clean-air permit.

A potential investor contacted authorities about the political-connection claim in the prospectus. A federal agent posed as a potential investor who paid Hudson a $15,000 advance on his bribe. Later in 2006, Agri-Ethanol paid Hudson $5,000. But, Hudson got impatient for the rest of his money and sent an invoice to Agri-Ethanol for the remainder of his bribe funds. That gave the feds the ammo they needed, and they brought federal extortion and money laundering claims against Hudson.

On May 27, 2008, Hudson plead guilty to the charges in federal district court and in late July was sentenced to 40 months in federal prison followed by three years of supervised release. Hudson must pay a $35,000 fine and repay the $15,000 advance on his bribe. Hudson is 67 years old.

In a separate matter, a former owner and president of a biodiesel plant in Mississippi along with his corporate secretary (also a lawyer), have been accused of defrauding the USDA out of $2.8 million by filing false claims for tax subsidies related to biodiesel and ethanol over a more than two-year period. In a 10-count indictment, the pair is accused of submitting false claims related to the amount of soybean oil used to produce biodiesel fuel that the plant manufactured. Under federal law, taxpayers can receive $1 per gallon of biodiesel produced. If convicted, the pair face up to five years in prison and a $250,000 fine. The company filed bankruptcy in 2006 and was later sold to a business in the Virgin Islands. The lawyer had previously been sentenced to eight years in prison after pleading guilty to eight counts of stealing more than $1 million in clients' money and investing it into the biodiesel plant rather than into clients' real estate accounts.