Founder of Pasco company bilked government out of millions, gets 8 years in federal prison

The president of a Pasco-based renewable energy company was “stealing from all of us” and enjoying an extravagant lifestyle when he bilked the government out of millions of dollars in tax credits, a federal judge said Thursday.

Scott C. Johnson, 43, was a lead player in four separate fraud schemes that involved renewable fuel produced at his Gen-X Energy Group facilities, including a plant in Moses Lake.

The conspiracy happened between October 2012 and April 2015, according to federal prosecutors. What Johnson said was legitimate biofuel was either never produced or the same batch was cycled through multiple times.

Yet, Johnson and his conspirators falsely claimed the production of 72 million marketable biofuel credits, then sold that for $57 million. They also received $9,517,412 from the Internal Revenue Service in excise credit refunds.

Johnson — the fifth person to be sentenced for the fraud — was ordered Thursday to serve eight years and one month in federal prison.

The sentence was handed down by Judge Sal Mendoza Jr. during a nearly 1 1/2 -hour hearing in U.S. District Court in Richland.

Mendoza noted it was a far-reaching conspiracy that extended not only across Eastern Washington, but across the country to Georgia and Florida. He added that a lot of people were making money and enriching themselves.

Johnson is not the Richland lawyer or the Tri-Cities real estate agent with the same name.

He pleaded guilty in November 2015, shortly after he was charged, to one count each of conspiracy to commit wire fraud and conspiracy to defraud the government by making false claims.

Johnson said Thursday that he started the company in Pasco because making biodiesel was a passion.

His attorney was right when he called Johnson a good scientist but an awful businessman, he added.

The Gen-X founder said when faced with closing the doors in the fall of 2012 and letting down the shareholders and investors, he made the choice to commit a crime.

“It’s like dropping a pebble in a pond and you create those ripples, and the ripples just keep going and going. And once you drop that pebble, there’s no stopping the ripple,” Johnson explained. “The choice to drop that pebble was on me.”

Johnson said it’s not the punishment that matters to him, but what he’s done to other people. He apologized for his actions and said he looks forward to getting back to work so he can repay the taxpayers.

The sentencing range topped out at 10 years and one month — the length of time recommended by Karla Gebel Perrin, a lawyer in the Environmental Protection Agency’s Seattle criminal investigation division and a special assistant U.S. attorney on this case.

Kevin J. Curtis, a Spokane attorney representing Johnson, asked that his client be locked up for less than one year.

The four other conspirators have received between 8 1/2 years and 10 years in prison.

Mendoza said that a short sentence isn’t appropriate under the circumstances and would not promote respect of the law. He determined that Johnson was a leader or organizer of the scheme.

But it weighed in Johnson’s favor that his later cooperation with federal agents, including wearing a wiretap to meetings, helped uncover additional fraud and led to other indictments, the judge said.

“On the one hand it would be better for you to be out working and providing that money back to these folks, because when you were engaged in these frauds, you were stealing from all of us. All of us, (like) the person over at the grocery store who pays their taxes,” Mendoza said. “But instead … you were lining your pockets.”

Perrin told the court that Johnson bought a $100,000 boat and two vehicles worth $50,000 each, in addition to receiving a sports car, a luxury watch and boxes of cash as kickbacks. That cash was then used to buy gold coins and silver bars to avoid being caught, she said.

“He got rich off the American system,” she said, noting how Johnson took advantage of incentives put in place by Congress to increase the use of renewable fuels.

Mendoza denied a request to let Johnson turn himself in to the Bureau of Prisons at a later date, saying he wanted to be consistent with what he’s done in other cases. However, he did note that Johnson would like to be placed in the closest federal facility, which is in Sheridan, Ore.

Johnson’s loved ones, including his parents and his children, audibly cried when he was taken into custody immediately.

“Sir, I do wish you the very best,” Mendoza told Johnson. “I firmly believe that you will be successful in the future, if for no other reason than you have a wonderful family and I think a community that will understand if you make amends when you come back.”

This story was originally published June 1, 2017 at 7:43 PM with the headline "Founder of Pasco company bilked government out of millions, gets 8 years in federal prison."