Five Sentenced to Prison for Defrauding US Government in Billion-Dollar Biofuel Tax Fraud Scheme

Undated file photos show Jacob Kingston, left, and Isaiah Kingston. Weber County Sheriff's Office via AP/File

Five individuals were sentenced to prison last week after they were implicated in a $1 billion biofuel tax fraud scheme.

Lev Aslan Dermen (56), a.k.a. Levon Termendzhyan, a Los Angeles businessman, received 40 years in prison; Jacob Kingston (46) was sentenced to 18 years; Isaiah Kingston (42) was sentenced to 12 years; Rachel Kingston (67) was sentenced to seven years; and Sally Kingston (45) was sentenced to six years, according to a Department of Justice press release.

The Kingston family operated Washakie Renewable Energy, a biodiesel company based in Box Elder County, Utah, and used it to carry out multiple acts of conspiracy to commit fraud between 2010 and 2018.

Former CEO Jacob Kingston and CFO Isaiah Kingston, who are brothers, were the co-owners of Washakie.

Rachel Kingston was the “special projects manager” at Washakie, while Sally Kingston assisted her.

“According to court documents and testimony from Dermen’s 2020 trial, from 2010 to 2018, Dermen conspired with Jacob and Isaiah Kingston, their mother, Rachel Kingston, Jacob Kingston’s wife, Sally Kingston, and others, to fraudulently claim more than $1 billion in refundable renewable fuel tax credits,” said the DOJ.

“The IRS ultimately paid out more than $511 million in credits to Washakie Renewable Energy … a Utah biodiesel company owned by Jacob and Isaiah Kingston. The Kingstons distributed the fraud proceeds among themselves and Dermen.”

Defendants’ Eight-Year Scam Netted Millions From Taxpayer Fraud

The eight-year conspiracy featured several fraud schemes that spanned the globe, bringing in millions of dollars for the convicted, which was spent on lavish gifts, including cars, yachts, and property.

The defendants decided to abuse the federally subsidized Renewable Fuel Standard (RFS) program by purchasing biodiesel which was really produced by others who had already claimed the tax credit and RINs.

The conspirators then exported the biofuel to foreign countries by forging transport documents to disguise and import the biodiesel as “feedstock.”

The company used this forged paperwork to prove that it produced biodiesel from the feedstock in order to make fraudulent claims for Environmental Protection Agency RINs and Internal Revenue Service biofuel tax credits.

Dermen and the Kingstons schemed to purchase millions of gallons of biodiesel and rotate it through the U.S. shipping system to make it look like the fuel was being produced and sold by Washakie.

Washakie received more than $300 million from the IRS after it applied for tax credits for its fake 2013 production and over $164 million in 2014. They also fraudulently generated millions of EPA RINs, which were then sold for approximately $65 million.

According to the evidence presented at the trial, Dermen and the Kingston family then conspired to cycle their fraud proceeds by funneling more than $3 billion in financial transactions through multiple bank accounts to maintain the appearance of legitimate business transactions.

In order to carry out the scheme, Dermen assured the Kingstons that they would be protected by his “umbrella” of corrupt law enforcement, which would protect them from criminal prosecution, said prosecutors.

After agreeing to the plot, Jacob and Isaiah Kingston immediately transferred over $134 million in fraudulent proceeds to companies in Turkey and Luxembourg, which were then laundered through the international and U.S. financial system.

Conspirators Lived Lavish Lifestyle From Proceeds

Proceeds from their fraudulent claims allowed Dermen and the Kingston Family to make lavish purchases in the United States, Turkey, and Belize.

Dermen’s associates in Turkey even bought and rebuilt a 150-foot yacht named “Queen Anne,” which was later seized by Lebanese authorities in Beirut in 2021 and later sold in Cyprus for $10.1 million.

Jacob also sent more than $700,000 on behalf of Dermen to purchase land in Belize for a planned casino, which is now facing forfeiture.

Other assets based in Turkey related to the fraud may face seizure as well.

Jacob and Isaiah Kingston sent an additional $21 million in fraud proceeds to SBK Holdings USA, Inc., Dermen’s California-based company.

Dermen also laundered $3.5 million through his company to purchase a mansion in Huntington Beach, California.

Jacob used $1.8 million of the fraud proceeds to buy a 2010 Bugatti Veyron for Dermen as a “gift,” who then gifted two luxury cars to him in return.

Both parties laundered $3 million through another company owned by Dermen, NOIL Energy Group, to purchase a mansion in Sandy, Utah, for the Kingstons.

The Kingston family later transferred $35 million of their share from the fraud to extended family and companies that they owned.

The federal government now seeks forfeiture of all of the properties that the Kingston family purchased with their share of the proceeds.

Family Testified Against Former Partner as Part of Plea Deal

Dermen was found guilty by a federal jury in 2020 after a seven-week trial of conspiracy to commit mail fraud, conspiracy to commit money laundering, and money laundering.

U.S. District Judge Jill N. Parrish ordered Dermen to pay $442,615,520 in fines to the IRS and imposed a monetary judgment of more than $181 million against him, in addition to his prison sentence.

The Kingston brothers both testified at Dermen’s trial in 2020 after making a plea deal.

Jacob was ordered to pay $511 million in restitution to the IRS after the court also imposed a $338 million money judgment against him.

He pleaded guilty in July 2019 to “conspiracy to commit mail fraud, filing false claims with the IRS, money laundering and conspiracy to commit the same, obstruction by concealing and destroying records and conspiracy to commit the same, and witness tampering.”

Isaiah was also ordered to pay back the same amount to the IRS after pleading guilty to “conspiracy to commit mail fraud, aiding and assisting in the filing of false partnership tax returns, money laundering and conspiracy to commit the same and obstruction by concealing and destroying records and conspiracy to commit the same”

Rachel and Sally Kingston both plead guilty to backdating documents and creating fake invoices to support the filing of the false claims and admitted “conspiracy to commit mail fraud, money laundering and conspiracy to commit the same and obstruction by concealing and destroying records.”

“The significant sentences imposed by the court reflect the breathtaking scope of the defendants’ nearly decade-long tax fraud scheme—one of the largest ever,” Stuart M. Goldberg, acting deputy assistant attorney general of the Justice Department’s Tax Division, said in the release.

“Dermen and members of the Kingston family cost law-abiding taxpayers more than $500 million and attempted to steal double that,” he said.

“They also sought to cover their tracks by cycling billions of dollars in transactions through the banking system and using fuel purchases and oil tankers to give the illusion their plant was actually producing and selling biodiesel fuel eligible for IRS credits.”

“Tax Division prosecutors and IRS-CI Special Agents not only unraveled this scheme—they uncovered, traced, and recovered millions in proceeds secreted in Turkey, the United States, and elsewhere,” Goldberg added.