LA Businessman Convicted In $511M Biofuels Tax Fraud Case

By Cara Salvatore
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Law360 (March 16, 2020, 6:24 PM EDT) -- A federal jury in Salt Lake City on Monday convicted Los Angeles businessman Lev Dermen on money laundering-related offenses in a sprawling $511 million tax fraud case accusing him of masterminding a multistate fraud to pass off fake biofuels to reap federal incentives, according to the U.S. Department of Justice.

The verdict came back as a mistrial bid was being considered in the case due to the global coronavirus pandemic.

Dermen was found guilty of conspiracy to commit mail fraud, conspiracy to commit money laundering and expenditure money laundering, among other counts, the DOJ said in a statement Monday evening.

Federal prosecutors from Main Justice's tax division as well as the District of Utah had been squaring off with Dermen since opening arguments on Jan. 30 over charges he led a massive scheme to obtain per-gallon credits for green fuel by rotating biofuel "precursors" around the country, putting them down on paper as the real thing at each step of the way to reap the federal incentives. Dermen was charged with 10 counts, including conspiracy to commit a fraud allegedly worth at least $511.8 million in the form of checks from the federal biofuels program.

"Today's guilty verdict brings Lev Dermen and his coconspirators to justice. They created and implemented this massive biofuel scheme to fund their greed at the expense of all taxpayers," Principal Deputy Assistant Attorney General Richard Zuckerman of the Justice Department's Tax Division said in a statement in advance of a press call.

Dermen's lawyer, Mark Geragos, said Monday evening, "We filed for a mistrial yesterday specifically because our fear was that this jury would understandably shortcut their deliberations. Unfortunately we were prescient. This verdict of 12 jurors was delivered at the same moment as the White House is advising no groups of more than 10 should congregate."

Geragos said his client "was caught in a judicial abyss stemming from a patchwork of ad hoc judicial actions with no uniform, let alone national, guidance."

Geragos also said by phone Monday that, with one juror showing up in a face mask last week and with that juror having subsequently been excused, he was going to address the situation via post-trial motions. Geragos said that the Tenth Circuit closed its doors completely an hour after Monday's verdict and suggested that juror panic had played a role in the outcome.

Meanwhile, a lead investigative agent in the case, Tyler Hatcher, said in the DOJ's press conference on Monday that $400 million worth of fraud "was proven at trial" and that some of it would never come back. 

With regard to a Bugatti that Jacob Kingston allegedly bought Dermen as a gift in the scam, Hatcher said, "It is still missing, so if anybody sees it, let me know."

Dermen was the last defendant in the case after four others, members of a fundamentalist, polygamist Mormon sect, pled guilty over the summer. The leader of that quartet, Jacob Kingston, who copped a plea along with his brother, his mother and one of his wives, was a star government witness against Dermen.

Prosecutors were given permission by U.S. District Judge Jill Parrish to introduce allegations of a dark 25-year history between Dermen and California law enforcement and corrupt dealings with foreign officials. Multiple allegedly corrupted Los Angeles-area law enforcement officials were named before trial.

Dermen told the court Sunday that jury deliberations violate best practices for dealing with the current pandemic. Epidemiologists are strenuously recommending people physically distance themselves from others to deal with the novel virus.

Numerous courts across the country are experiencing disruptions because of the coronavirus.

The Supreme Court on Monday put off oral arguments scheduled for the next two weeks. The court building closed to the public last week, but Monday's notice indicated that official business will continue, without extending filing deadlines.

The U.S. is represented by John Sullivan, Richard M. Rolwing, Leslie A. Goemaat and Arthur J. Ewenczyk of the U.S. Department of Justice, Tax Division.

Dermen is represented by Mark J. Geragos of Geragos & Geragos.

The case is U.S. v. Lev Aslan Dermen, case number 2:18-cr-00365, in the U.S. District Court for the District of Utah.

--Additional reporting by Jody Godoy, Yvonne Juris, Christopher Cole, and Mike LaSusa. Editing by Emily Kokoll.

Update: The story was updated to include additional comment from Mark Geragos and comment from Tyler Hatcher.

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USA v. Kingston et al

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August 01, 2018

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