Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 1 of 26 JOHN W. HUBER, United States Attorney (#7226) RlCHARD M. ROL WING, Special Assistant United State~ Attorney (OH #0062368) LES_LIE A. GOEMAAT, Special Assistant United States Attorney (MA '#676695) . ARTHUR J. EWENCZYK, Special Assistant United States Attorney (NY #52637;85) ·JOHN E. SULLIVAN, Senior Litigation Counse(Tax Division (WI #1018849)' _, Attorneys for the United States of America .... , 111 South Main Street, # 1800 Salt Lake City, Utah 84111 · Telephone: (801) 524-5682 Email: richard.m.rolwing@usdoj.govleslie.a.goemaat@usdoj .gov artliur.j .ewenczyk@usdoj.gov · john.e.sullivan@usdoj.gov IN THE UNITED STATES DISTRICT COURT DISTRICT OF UTAH,. CENTRAL DIVISION UNITED STATES OF AMERICA, · Case No. 18-CR-00365-JNP-BCW Plaintiff, FIRST SUPERSEDING INDICTMENT v. Viols.· -. JACOB ORTELL KINGSTON, ISAIAH ELDEN KINGSTON, and LEV ASLAN DERMEN, · a/k/a Levon Termendzhyan, · Counts 1 thru 14 - 26 U.S.C. § 7206(2) (Aiding and Assisting in the Filing of a False Return) Counts 15 thru ·19 18 U.S.C. §§ 1956(a)(l)(B)(i) and 2 Defendants. (Money Laundering). Co1mt 20 - 18 U.S.c. §§ 1957 and 2 (Money Laundering) Counts 21 thru 25 18 U.S.C. §§ 1957 and Z (Money Laundering) Forfeiture Allegation 1 -· .,,. ·-------~ Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 2 of 26 The Grand Jury charges: At times relevant to this Indictment: Defendants and Their .Companies . 1. . . . Defendant JACOB ORTELL KINGSTON was a resident of Utah and . . owned 50% ofWashalde·Renewable Energy, LLC ("Washakie"). He was the chief executive officer of Washakie; 2. Defendant.ISAIAH ELDEN KINGSTON was a resident of Utah and owned 50% of Washakie. He was the chief financial officer of Washakie. 3. Wa,shalde was a limited liability company with corporate offic~s in Sa~t Lake City, Utah. As of January 7, 2013, Washalde described itselfon its website as "Utah~s largest producer of clean burning and sustainable biodiesel." As of November 10, 2013 ~ Washalde described itself on its website as "the largest producer of biodies!31 and chemicals in the intermountain Wt?St." 4. United Fuel Supply ("UFS") was a limited liability company with corporate offices in Salt Lake City, Utah. UFS was controlled by Defendants JACOB ORTELL KINGSTON and ISAIAH ELDEN KINGSTON. 5. DefenqantLEV ASLANDERMEN, a/k/aLevon Termendzhyan, was a .resident of California. He controlled several :fuel-relat~d compan,ies in the United States, including Noil Energy Group, a corporation with offices in California. 6. .S~K Holdings, Inc., later SBK Holdings USA, Inc., was a corporation formed in California in D~cember 2013 initially owned by Defendants JACOB ORTELL . . ~, 'll Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 3 of 26 KINGSTON and LEV ASLAN DERMEN, a/le/a Levon Termendzhyan. Defendant DERMEN had signatory authority over SBK Holdings USA, Inc.' s bank accounts and · . became the sole owner of the entity in or around Septem.ber 2014. 7. The Internal Revenue Service ("IRS") was an agency of the United States Department of Treasury responsible for adm1nistering and enforcing the tax laws of the United States .. Law and Industry 8. The IRS administered tax credits designed to increase the amount ·of . renewable fuel used and produced in the United States. The tax· credits were refundable regardless of whether thetaxpayer owed other taxes,·and were paid by U.S. Treasury check 9. Biodiesel was ·a type of renewable ·fuel derived from plant or animal matter that met certain IRS· and Environmental Protection Agency ("BPA") stand~rds. Agribiodiesel was a type ofbiodiesel. Biodie~el was referred to as "BlOO"'in the fqel industry if it was not mixed with diesel fuel. Renewable diesel was another type of renewable fuel, derived from biomass, that met certai;n IRS and BPA standards.· Renewable diesel was referred to as ."RlOO" in th.e fuel industry if it was.not mixed with diesel fuel. "·Feedstock" was a generic term for raw material used to produce various ' . . kinds of renewable fuel. 10. . . Biodiesel mixture was produced by blending· B 100 with at least .1 % of diesel fuel. After blending, the mixture ofBlOO and diesel was referred to "B99''. in the Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 4 of 26 fuel industry. The biodiesel mixture credit was a refundable fuel tax credit available to . . blenders ofbiodiesel mixture who used the mixture as a fuel or sold it for use.as a fuel. The amount of the credit was $1.00 for every gallon of B 100 that was used to produce the biodiesel mixture. The market value ofB 100 Wf!S higher than the. market value of B99 because the $1.00 per gallon biodiesel mixture credit could be obtained by blending the B 100 with diesel fuel. 11. Renewable .diesel mixture was produced by blend~ng Rl 00 with at least .1 % of diesel fuel. After blending, the mixture· of Rl 00 and diesel was referred to as "R99" in the fuel industry. The renewable diesel mixt:ure credit was a refundable fuel tax credit available. to blenders of renewable di~sel mixture who used the mixture as a fuel or . sold it for use as a fuel. The ai~ount of the credit was $1.00 for every gallon ofRlOO that was used to produce the renewabie dieselmixture. The market value ofRlOO was higher than the market value ofR99 because the·$1.00 per gallon renewable diesel mixture credit could be obtai.ned by blending the Rl 00 with diesel fuel. 12. Liquid fuel. derived from biomass was a type of. alternative fuel that did not 1p.eet the IRS and EPA requirements for biodiesel or renewable diesel. . · a. The alternative fuel mixture credit was a $.50 per gallon refundable · fuel tax credit available to registered producers of alternative fuel mixtures who used the . mixture as fuel in the producer's trade or business or.sold it for use as fuel. It was no longer refundable after December 31, 2011. b. The alternative fuel credit was a $.50 per gallon refundable fuel tax 4 Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 5 of 26 credit available to registered alternative fuelers who sold for use, or used, alternative fuel as a fuel iri a motor vehicle or motorboat. . 13.- . IRS Form 8849, Claim for Refund of Excise Taxes, was used to claim fuel tax credits for biodiesel mixtures, agri-biodiesd mixtures, renewable diesel mixtures, and liquid fuel derived from biomass. Mail Fraud Scheme Allegations 14. Fr.om in or around at least as early as 2010 through 2016, JACOB ORTELL . KINGSTON and ISAIAH ELDEN KINGSTON: schemed with each other and others, including LEV ASLAN DERMEN, a/k/a Levon Termendzhyan~ to have Washakie and UFS fife false claims with the United States to fraudulently obtain refundable fuel tax credits and other governm.ent benefits. 15. · As part of their scheme, among other things, JACOB ORTELL ·KINGSTON and ISAIAH ELDEN KINGSTON, and others, including LEV ASLAN DERMEN, a/k/a Levon Termendzhyan, did the following: a. They bought and res?ld, and ca.used others to buy and resell on their behalt B99 and other products that were not e!igible for. a refundable fuel tax credit. b. · They falsified and caused othe~s to falsify pur1'µtn/ . .. , I ' ... , ' '• 7 ·:" · .· · A:trioutjt . . . $3,174,387 $1;905,114 $3,654,952 $486,000 $840,000 Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 8 of 26 ·.' . . . . ,• . . .. .. . . 09/20/11 · F~l~edf~ill,.(s). · •. · Cfairtted:oAi?hin:t8849. Biodiesel mixtures and liquid fuel dvrived from biomass Biodiesel mixtures k. 10/19/11 Renewable diesel mixtures $1,000,000 L.' . 10/24/11 $2,000,000 M. 10/24/11 N. 10/28/11 Biodiesel mixtures Biodiesel mixtures andrenewable diesel mixtures Biodiesei mixtures 0. 11/03/11 Renewable diesel mixtures P. Q. 11/10/11 Biodiesel mixtures 11/18/11. R. 12/28/11 $2,785,648 s. 01/31/12. Renewable diesel mixtures Renewable diesel mixtures and liquid fuel derived from biomass Liqui4 fuel derived from biomass T. 02/28/13 Biodiesel mixtures $3,901,235 u. v. 0?/19/13 Biodfo.sel mixtures $640,959 03/20/13 w. 03/21/13 . x. 04/05/13 Y. 05/21/13 z. 05/31/13 Biodiesel mixtures AA. 06/13/13 Biodiesel mixtures BB. 08/07/13 Agri-biodiesel mixtures $25,800,000 cc. 08/22/13 Biodiesel mixtures $16,~00,000 DD. 09/09/13 Biodiesel mixtures $35,008,437 EE. 10/18/13 Biodiesel mixtures $33,465,236 FF. 11/05/13. Biodiesel mixtures $33,581,899 GG. 1112'7/13 Biodiesel mixt1rres $3 8,,078,529 ~. ~· t ·-·· ,. Pata~ .' ·.:Nuih. Date· 08/03/11 I. J. ·. ~ff~t1 . I·: ;, ., '. · ·IDbf~fidhlif ., . j}.~· / \'·,.;. ;;:-::,.,, •·:'" ';; .·'· I .. · .1.-, ','\.' .·.>Bat~ .. " •," "··' .. ·. -,. - . ,, .. ,, \ l. :~·\: .':,',.' ~ ,;;r.-' .'Amount of >~~l~,~~~~(~1"~'J·~~~\ ,;, •. ; :.·,_0'l~ithe:d:: :_: ·,·•·. ~€r~cii1 ···· 1 JACOB KINGSTON 02/13/13 Line 2a - Biodiesel mixtures $3,901,235 2 JACOB KINGS.TON 01/25113 Line 2a - Biodiesel mixtures $640,959 3 JACOB KINGSTON 03/11/13 Line 3f - Liquid fuel derived from biomass $20,283,659 JACOB KINGSTON (a) Line 2a - B iodiesel mixtures 03/12/13 (b) Line 3f- Liquid fuel derived from biomass 4 5 JACOB KINGSTON (a) Line 2a-Biodiesel mixtri.res 03/27/13 (b) Line 3f -Liquid fuel derived from biomass $806,041 $3,600,000 $2,398,274 $6,461,246 6 JACOB KINGSTON 04/17/13 ·Line 3f - Liquid fuel derived from biomass $11,872,884 1 JACOB KINGSTON 05/20/13 ·Line 2a - Biodiesel mixtures $11,700,000 8 JACOB KINGSTON 06/03/13 Line 2.a - Biodiesel mixtures $11,400,000 9 JACOB KINGSTON 07/29/13 .Line 2b -Agri-biodiesel mixtures $25,800,000 10 JACOB KINGSTON 08/13/13 Line 2a - Biodiesel mixtures $16,200,000 10 Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 11 of 26 l .... r Cburlt, " ·. · ., .. .. '•' .,., .. , Amount of . .. fil~fen'ciant ·· -~ . . .··"Date·" , Js:redit· ciaimed ,• 11 JACOB KINGSTON 09/05/13 Line 2a - Biodiesel mixtures $35,008,4~7 12 JACOB KINGSTON 09/30/13 Line 2a - Biodiesel mixtures $33,465,236 13 JACOB KINGSTON 10/20/13 Line 2a- Biodiesel mixtures $33,581,899 14 JACOB KINGSTON 11117/13 Line 2a - Biodi~sel mixtures $38,078,529 All in violation of Title 26, United States Code, Section 7206(2). Counts 15 thr~ 17 (Money Laundering) is. u.s.c. § 1956(a)(1)(B)(i) 20. Paragniphs 1through17 are incorporated by reference and re-alleged as though fully set forth herein. $11.2 Million Loan to Borrower X . ' 21. In June 2013, Defendants JACOB ORTELL KINGSTON and LEV ASLAN DERMEN, a/k/a Levon Termendzhyan, used proceeds of the Mail Fraud Scheme to make an $11.2 million loan to Borrower X, a California b~sinessman, as follows: a. On or about June 10, 2013, Defendant JACOB ORTELL K.INGSTON caused funds representing fraud proceeds, that is, & U.S. Treasury check in 11 Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 12 of 26 the amount of $11,700,000, to be deposited into Washakie account #4874; b. . On or about June 17~ 2013, Defendant JACOB ORTELL KINGSTON caused funds representing fraud proceeds, that is, a U.S. Treasury check in the amount of $11,400,000, to be deposited into Washakie account #4874; c. On or about June 21, 2013, Defendants JACOB ORTELL · KINGSTON and ~EV ASLAN DERMEN, a/k/a Lev~n Termendzhyan, caused a wire transfer in the anwunt of $11,226,211 to be sent from Washakie account #4874 to a third party account in Florida for the purpose of making a loan to Borrower X of that amount; d. On or about February 4, 2015, Defendant LEV ASLAN DERMEN, a/k/a Levon Termendzhyan, executed, and caused Borrower X to execute, a promissory . ' . note for $12,000,000 to document the loan to Borrower X, which made the loan payable _to SBK Holdings USA, Inc. instead offo Washakie, the source of the loan. Borrower X made principal and interest payments on this loan to accounts controlled or directed by Defen4ant DERMEN; and e. As a result of the foregoing, Defendants JACOB ORTELL ~GSTON and LEV ASLAN D:~RMEN, a(k/a Levon Terme4dzhyan, disguised the. criminally derived proceeds fraudulently obtained from the United States.as payments related to a loan payable to SBK Holdings USA, Inc. 12 Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 13 of 26 Statutory Allegations 22. On or about the dates set forth. in the table below, in the Centra;l Division of . the District of U:tah and elsewhere, . JACOB ORTELL KINGSTON and LEV ASLAN DERMEN, .a/k/a Levon Termendzhyan, defendants herein, did knowingly a~d willfully conduct and attempt to conduct financial transactions affecting interstate commerce, that is, causing the making of principal and interest payµients on the $11,226,211 loan made to Borrower X, which transactions involved the proceeds of spe'cified unlawful activity, that is, the proceeds of the Mail Fraud Scheme, in violation of Title 18, United States Code, s·ection 1341,,knowing that the transactions were. designed in whole or in part to conceal and disguise the nature, location, source, ownership, and control of the proceeds of said specified unlawful activity, and that while conducting or atten;ipting to c~nduct such transactlons, lmew that . the property involved in the transactions represented the proceeds of some form of unlawful activity, with each of the following financial transactions constituting a separate count: ' 15 16 JACOB KINGSTON LEVDERMEN 02120115 . JACOB KINGSTON . 03116115 LEVDERMEN ,~.' $210,000 wire" transfer for the benefit of SBK · Holdings USA; Inc., representing an interest' · payment ori Borrower X's loan $70,000 wire transfer for the benefit of SBK · Holdings USA, Inc., representing an interest payment on Borrower X's loan 13 Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 14 of 26 .. ; . ·d6Wii;,. ··.... J)~f~ndants. · · 17 JACOB KINGSTON LEV DER.MEN. ... . .• ·' ])ate., 4/15/15 ·· .. .. ·' ,' ·' '. '' Fmili0mr'Fians}l¢ti011 ·· $70,000 wire transfer for the benefit of SBK Holdings USA, Inc.; representing ·an interest , payment on Borrower X's loan ' . ' All in vio.lation of Title 18, United States Code, Sections 1956(a)(l)(B)(i) and 2. Counts 18 and 19 . (Money Laundering) .18 U.S.C. § 1956(a)(l)(B)(i) 23. Paragraphs 1 throug~ 17 are incorporated by re~erence and re-alleged .as '' though fully set forth herein. Purchase of Real Property at 2072 East Creek Road 24. .In August2013, Defendants JACOB ORTELL KINGSTON, ISAIAH ELDEN KINGSTON, and LEV ASLAN :OERMEN, a/k/a Levon Termendzhyan, used proceeds of the Mail Fraud Scheme to purchase the real property at ~072 East Creek Road; ·Sandy, Utah 84093, as follows:. a. On or about April 8, 2013, Defendant JACOB ORTELL KINGSTON caused :funds representing fraud proceeds, that is, a U.S;. Treasury check in the amount of$8,859,520, to be deposited into Washakie account #4874 at the Bank of . ' Utah; . b. On or about May 24; 2013, Defendant JACOB ORTELL KINGSTON caused funds representing fraud proceeds, that is, a U.S. Treasury check in the amount of$1 l,87.2,884, to be deposited into Washakie account #4874 at the Bank of Utah; 14 I . Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 15 of 26 c. On.or about May 28, 2013, Defendant JACOB. ORTELL KINGSTON caused $15 million to be transferred from Washakie account #4874 to . · Merrill Lynch account #2117; d. · On or about June~' 2013, Defendant JACOB ORTELL KINGSTON issued and signed a $3 million check payable to NoUEnerg1 Group from loan account #1352 at Merrill Lynch, which account was secured·by account #4821 at Merrill Lynch; · e. . On or about June 7, 2013, Defendant JACOB ORTELL KINGSTON caused $15,000,123 to be transferred from Merrill Lynch #2117 to Defendant JACOB ORTELL KINGSTON's personal account #4821 at Merrill Lynch; f. . On or about June 10, 2013, Defendant LEV ASLAN DERMEN, a/k/a Levon Termendzhyan, caused 8: $3 million check.from JACOB ORTELL KINGSTON's Merrill Lynch aycount #1352_to _be deposited into Noil Energy Group account #8583 at Bank of America;· g. On or about June 10, 2013, Defendant JACOB ORTELL KINGSTON caused funds representing fraud proceeds, that is, a .U.S. Treasury check in 'the amount of $11,700,000; to be 4eposited into _W"ashalde ac9qunt #4874;, · h. On or about June 13, 2013, Defendant JACOB ORTELL KINGSTON caused $10 million to be transferred from Washakie account #487 4 to · Defendant JACOB ORTELL KINGSTON's per~onal account #4821 at Merrill Lynch; i. On or about Jun~ 17, 2013, Defendant JACOB ORTELL KINGSTON caused .funds representing fraud proceeds, that is, a U.S. Treasury check 15 in Case 2:18-cr-00365-JNP-BCW Document 95 Filed 11/20/18 Page 16 of 26 the amou:11t.of$1 l,400,000, to be deposited into Wash~kie account'#4874; j. . On or about July 3, 2013, Defendant JACOB ORTELL KINGSTON used $3,024,393 of funds from his personal account #4821 at Merrill Lynch to pay off the outstanding balance on his loan acc