This is a long read, so I’ll summarize: All Philip Rivkin needed to turn caca into $100 million was a fake biofuel plant on the Houston Ship Channel and a random number generator.

Conventional oil refiners like ExxonMobil, Shell, and Marathon are required by the EPA to have a certain green energy content to absolve for their fossil fuel sins. Rather than physically refining biodiesel themselves, they can purchase “RINs”, or credits, from a biodiesel refiner for 50 cents or a dollar a gallon or more. Each gallon of green fuel a generator produces is “tagged” with a unique 38-digit serial number.

Rivkin’s company, Green Diesel, found it more profitable to avoid the messy fuel and merely manufacture lists of 38-digit numbers using Microsoft Excel’s random number generator. They exchanged these phony lists to refiners for cash.

It took a few years for EPA investigators to catch the scam. The refiners ate the phony numbers, having to replace them with legitimate credits.

The EPA says scams involve less than 1 percent of the value of the billions of RINs produced under the program. But the agency, whose traditional expertise is in oil spills and air pollution, has all it can handle with sophisticated financial criminals. It recently sought assistance from the Commodity Futures Trading Commission—which is itself stretched thin because of its responsibilities under Dodd-Frank.

I will posit that the EPA has no idea how much fraud is in the system, and not much interest in finding out the real number. Further, if you were going to set up a system to be attractive to scammers, it would involve 38-digit serial numbers “attached” to liquid gallons.

Rivkin took off, ultimately entering Guatemala on a phony passport. Today he is serving a 10-year sentence in a Federal facility.

Cross-posted.