Damian Williams, the United States Attorney for the Southern District of New York, and James E. Dennehy, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation, announced today the unsealing of charges against Kenneth Newcombe and Tridip Goswami in connection with a scheme to commit fraud in the carbon markets, which resulted in their company, CQC Impact Investors LLC, fraudulently obtaining carbon credits worth tens of millions of dollars and fraudulently securing an investment of over $100 million.
Also announced was the decision not to bring criminal charges against CQC, despite the alleged conduct of Newcombe and Goswami, in light of CQC’s voluntary and timely self-disclosure of misconduct, full and proactive cooperation, timely and appropriate remediation, and agreement to cancel or void certain VCUs.
Also unsealed is the guilty plea of Jason Steele in connection with his participation in the conduct. Steele pled guilty pursuant to an information before U.S. District Judge Margaret M. Garnett. Steele is cooperating with the government.
According to the allegations contained in the indictment, the market for carbon credits emerged from an effort to reduce greenhouse gas emissions. While most carbon credits are created through, and trade in compliance markets, there is also a voluntary carbon market.
Voluntary markets revolve around companies and entities that voluntarily set goals to reduce or offset their carbon emissions, often to align with goals from employees or shareholders. In voluntary markets, the credits are issued by non-governmental organizations, using standards for measuring emission reductions that they develop based on input from market participants, rather than on mandates from governments.
The non-governmental organizations issue voluntary carbon credits to project developers that run projects that reduce emissions or remove greenhouse gases from the atmosphere.
CQC was a for-profit company that ran projects to generate carbon credits—including a type of credit known as a voluntary carbon unit—by reducing emissions of greenhouse gases. CQC profited by selling VCUs it obtained, often to companies seeking to offset the impact of greenhouse gases they emit in the course of operating their businesses.
One type of project that CQC ran to obtain VCUs involved installing cookstoves in rural Africa and Southeast Asia, among other places (collectively, the “Cookstove Projects”). The cookstoves, if installed and used properly, were more efficient than the preexisting cooking methods many people in those regions used.
To obtain VCUs from its Cookstove Projects, CQC collected data through surveys about, among other things, how much fuel people saved by using CQC’s cookstoves, as opposed to the preexisting cooking methods, and the number of CQC’s stoves that were installed and operational. That data went into a formula that an issuer of VCUs (“Issuer-1”) used to calculate the emission reductions CQC had achieved and to determine how many VCUs to issue to CQC.
From at least in or about 2021, through 2023, Newcombe, the CEO of CQC, and Goswami, the Head of CQC’s Carbon & Sustainability Accounting Team, along with others at CQC, including Steele, the company’s COO, submitted false and misleading data to Issuer-1, tricking Issuer-1 into giving CQC VCUs for emission reductions that, according to Issuer-1’s methodology for calculating such reductions, had not in fact been achieved. Members of the conspiracy manipulated data to make it appear as if certain of the Cookstove Projects were far more successful in reducing carbon emissions than was actually the case.
For example, in or about August 2021, CQC received survey data for two projects in Malawi and two in Zambia. Goswami reported to Newcombe and Steele that the survey data reflected emission reductions that were only approximately half of what CQC had anticipated. Newcombe responded by writing that “[t]his is a disaster for us.”
Newcombe, Goswami, and Steele exchanged emails about possible solutions, and Goswami ultimately informed them that the “[o]nly option left” was “to ‘revise’ the survey results.” Ultimately, Newcombe, Goswami, and Steele agreed to manipulate the survey data for the Malawi and Zambia projects and enlist a person from outside CQC to fill out fraudulent survey forms to reflect the manipulated numbers. CQC sent the manipulated survey data to Issuer-1 when claiming VCUs for the Malawi and Zambia Projects.
Newcombe, Goswami, and Steele also fraudulently obtained VCUs from Issuer-1 by providing false and misleading information about the number of operational stoves in CQC’s projects. Issuer-1’s methodology for calculating emission reductions was designed to ensure that project developers, such as CQC, would receive VCUs only for stoves that were operational and in use.
Beginning in or around 2020, Newcombe set a new direction for CQC and decided to rapidly and aggressively increase the size of CQC’s Cookstove Projects. CQC’s rapid growth caused significant problems for the quality of its Cookstove Projects. To meet the targets set by Newcombe, CQC had to rely on partners that did poor work installing stoves; installed stoves in locations that were outside of a project’s scope (e.g., installing stoves in a suburban area, instead of a rural area, because it was easier to meet targets in more populated areas); and sometime claimed to install stoves that they never installed.
These logistical issues posed a meaningful problem for the number of VCUs that the company’s projects might generate—if stoves were not installed properly, or at all, it was likely that surveys would show low levels of stoves in operation, which could reduce the number of stoves for which CQC could claim VCUs.
Rather than writing off and not claiming credits for stoves that were missing, broken, or not installed in correct locations, Newcombe, Goswami, and Steele conspired to conceal from Issuer-1 the true extent of problems with CQC’s Cookstove Projects. One way in which the members of the conspiracy concealed these issues and manipulated survey data about the number of stoves in use was by instituting a practice of having CQC employees rebuild or fix stoves in samples that were missing or broken, then reporting those stoves as operational.
Through this fraud scheme, CQC received millions more VCUs than it otherwise would have, which were worth tens of millions of dollars at then-prevailing prices for VCUs. CQC sold VCUs it had fraudulently obtained to unsuspecting purchasers, who thought they were purchasing VCUs that reflected emission reductions calculated in accordance with Issuer-1’s methodology.
Relying on data about those fraudulently obtained VCUs, Newcombe and others at CQC also deceived an investor (“Investor-1”) into agreeing to invest up to $250 million in CQC. The agreement included Investor-1 purchasing some of Newcombe’s shares in CQC for more than $16 million.
Newcombe, 77, of Santa Barbara, California, and Goswami, who resides in India, are charged with wire fraud conspiracy, which carries a maximum sentence of 20 years in prison; wire fraud, which carries a maximum sentence of 20 years in prison; commodities fraud conspiracy, which carries a maximum sentence of five years in prison; and commodities fraud, which carries a maximum sentence of 10 years in prison.
Newcombe is also charged with securities fraud conspiracy, which carries a maximum sentence of five years in prison, and securities fraud, which carries a maximum sentence of 20 years in prison.
The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.
Steele, 47, of Arlington, Virginia, pled guilty to a three-count information, which charged him with wire fraud conspiracy, commodities fraud conspiracy, and securities fraud conspiracy for his participation in the fraud scheme. A sentencing date has not yet been scheduled.
