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Defense: No fraud, no crime in selling renewable energy credits

According to federal prosecutors, Rodney R. Hailey lived a $9.1 million “fairy tale” of expensive cars paid for through his fraudulent sale of bogus renewable energy credits.

According to his defense team, Hailey could not have engaged in any grand deception because his buyers were sophisticated energy brokers and refiners who would be well aware if he were unable to deliver the fuel he promised them.

Those conflicting images were presented Monday afternoon in opening statements to a jury in U.S. District Court in Baltimore, where the Perry Hall resident stands trial for wire fraud, money laundering and violating the Clean Air Act.

Hailey, who faces up to 32 years in prison if convicted on all counts, is accused of selling the credits even though his company, Clean Green Fuel LLC, allegedly produced no fuel.

Hailey became “rich, really rich, doing absolutely nothing,” Assistant U.S Attorney Tonya N. Kelly told the 12-member jury and two alternates. “Mr. Hailey lived his fairy tale,” she added, citing the defendant’s Ferrari and Lamborghini sports cars.

Hailey acquired millions by exploiting the federal government’s Renewable Fuel Standard program, Kelly said.

Under the program, created by the 2005 Energy Policy Act, renewable energy must constitute a specified percentage of the fuel sold by major refiners, determined by the size of the refiner. The law seeks to make the United States less dependent on foreign fossil fuels by encouraging domestic development of renewable energy sources.

The companies need not produce the renewable energy themselves, but can purchase it through brokers and third-party energy companies registered with the Environmental Protection Agency.

RINs for sale

According to prosecutors, Hailey registered Clean Green Fuel with the EPA on March 26, 2009. He claimed he was using waste oil from restaurants to produce biodiesel at a plant in White Marsh.

Hailey then sold “renewable identification numbers” or RINs — 38-digit numbers that supposedly corresponded to a certain amount of clean fuel he was producing — to fuel companies and RIN brokers. The RINs have value because oil companies can use them to satisfy their renewable fuel obligations under the Clean Air Act.

Hailey created, registered with EPA and sold RINs representing 23 million gallons of biodiesel without producing a single gallon, the prosecution said.

The RINs were “invalid, fake,” Kelly told the jury.

“He found a weakness in a government program,” she said. “He found a way to completely exploit this program.”

The case against Hailey is one of several across the country that have spurred calls for a congressional investigation of the EPA’s handling of the Renewable Fuel Standard program. Also, another provision of the Energy Policy Act of 2005 authorized federal loan guarantees such as the one that helped finance Solyndra, the bankrupt California-based solar-panel company that went out of business last year.

In court on Monday, Kelly told the panel that Hailey — not the EPA’s program — is on trial.

She urged jurors to ask themselves at the end of the trial, “Did Rodney Hailey produce 23 million gallons of biodiesel?” The evidence will show that the answer is “a resounding ‘absolutely not,’” Kelly added.

But Douglas R. Miller, Hailey’s defense attorney, urged the jury to focus on Hailey’s “supposed victims”: energy brokers and refiners who allegedly paid $9.1 million for biodiesel the government claims did not exist. Such buyers “who know this industry inside out” would not be so easily deceived, Miller said.

“Where there is no deception, there can be no fraud,” said Miller, an assistant federal public defender. “No one who had any interest in knowing the truth could have been deceived.”

Miller suggested that if fraud were committed, the brokers and refiners should be on trial as willing participants. He likened Hailey, in such an instance, to a foreclosed homeowner placed on trial for the mortgage crisis while the lenders remain free.

Miller added that Hailey’s expensive cars do not prove the government’s case but rather belie the prosecution’s contention he knowingly engaged in a multimillion-dollar fraud and tried to keep it secret.

“It’s not against the law to own a Ferrari,” Miller said.

“Rodney Hailey did not hide anything in the way he spent his money,” the lawyer added. “Rodney Hailey did not hide anything in the way he made his money.”

Hailey had reached a plea agreement with federal prosecutors but reversed course minutes before his Oct. 13 arraignment and chose to go to trial.

The trial, before Judge William D. Quarles Jr., is expected to last seven days.