California Businessman Guilty in $1 Billion Tax Scheme With Polygamists

SALT LAKE CITY (CN) – A federal jury on Monday convicted a California businessman of charges related to a $1 billion renewable fuel tax credit fraud scheme involving members of a secretive polygamist group that have eluded law enforcement for decades.

Lev Aslan Dermen aka Levon Termendzhyan of Los Angeles faces a maximum 20 years in prison for conspiracy to commit mail fraud, conspiracy to commit money laundering, and concealment money laundering, and another 10 years in prison for expenditure money laundering. His sentencing has not yet been scheduled.

Dermen was accused of conspiring with members of the insular polygamist clan the Kingston family to fraudulently claim more than $1 billion in renewable fuel tax credits from the IRS. The Kingstons are members of the Davis County Cooperative Society, also known as the “Order,” a fundamentalist denomination of the Mormon Church. The family owns Washakie Renewable Energy, a Utah-based biodiesel company.

Lev Aslan Derman (left) poses with Jacob Kingston in 2013. (U.S. Department of Justice)

Four members of the Kingston family pleaded guilty on July 19, 2019, for their role in the scheme. Washakie CEO Jacob Kingston pleaded guilty to conspiracy to commit mail fraud, aiding and assisting in the filing of false claims with the IRS, and conspiracy to commit money laundering. He also admitted to conspiring to obstruct justice by attempting to bribe government officials, tamper with witnesses, and destroy evidence based on his agreeing with family members to hide evidence and replace computer hard drives after learning of an impending search warrant. Jacob Kingston faces a maximum 30 years in prison. His sentencing has not yet been scheduled.

Other Kingston family members who pleaded guilty include Jacob’s brother, Isaiah Kingston, Washakie’s chief financial officer; Jacob’s wife, Sally; and his mother, Rachel.

Jacob and Isaiah Kingston both testified during Dermen’s seven-week trial.

Federal prosecutors say Derman and the Kingstons took advantage of a program that offers refundable tax credits designed to boost the use and production of renewable fuel in the United States. They say Dermen and Jacob Kingston shipped millions of gallons of biodiesel within the U.S. and from the U.S. to foreign countries and back again to create the appearance that qualifying renewable fuel was being produced and sold. 

They also falsified production and transportation records to substantiate Washakie’s fraudulent claims for more than $1 billion in IRS renewable fuel tax credits and other credits related to the EPA’s renewable fuel standard. The co-conspirators cycled more than $3 billion through multiple bank accounts to make it look like they were buying and selling qualifying fuel, prosecutors say. The conspiracy allegedly took place from 2010 to 2016.

The Kingstons’ fraud was ongoing before they started working with Dermen, according to U.S. Attorney for the District of Utah John Huber.

“The Kingston clan is a close-knit insular community practicing polygamy in Utah and have been for generations. Law enforcement has had suspicions about their criminal activity for decades but has been unable to bring a solid case due to the tight lipped, insular nature of the group,” Huber said in a press call Monday. 

Huber added that this is the largest known tax fraud scheme in Utah’s history.

Prosecutors say Dermen and Jacob Kingston also laundered $3 million through Dermen’s company, Noil Energy Group, to purchase a mansion in Sandy, Utah, for Jacob Kingston and his wife Sally. Dermen also reportedly laundered $3.5 million through his California company, SBK Holdings USA Inc., to purchase a mansion in Huntington Beach, California.

According to the U.S. Attorney’s Office, Dermen assured Jacob Kingston throughout the scheme that he and the Kingstons would be immune from prosecution because they would be protected by Dermen’s “umbrella” of corrupt law enforcement personnel. Jacob and Isaiah Kingston transferred over $134 million in fraudulent proceeds to companies in Turkey and Luxembourg at Dermen’s direction, in purported payment for protection.

U.S. District Judge Jill N. Parrish will determine Dermen’s sentence at a future hearing.

Reached by phone Monday, Dermen’s attorney, Mark Geragos of Los Angeles, called the verdict “a travesty of justice.”

Geragos said the court rushed through the process of jury deliberations despite the escalating public health crisis that has resulted in several courts suspending jury trials or closing to the public. Geragos filed a motion for a mistrial on Sunday, which the judge did not rule on before a verdict was reached. Geragos said at least two jurors, including one who wore a face mask for three days during the trial, were excused due to pneumonia and an unexplained respiratory illness.

“This is a corona verdict,” Geragos said.

The attorney said he would file a motion for a new trial in the coming days.

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