The validity of carbon credits and carbon offsets has been an ongoing debate in ESG. It seems that every few months there’s news about an offsetting scheme or project using faulty methodologies that overstate the impact of their work. Now the FBI is getting involved, bringing fraud charges against Kenneth Newcombe, CEO of CQC along with CQC employee Tridip Goswami. The charges center around CQC’s cookstove project which sought to provide cleaner burning cookstoves to rural Africa and Southeast Asia and convert the avoided emissions into carbon credits. However, multiple obstacles led to problems with the project, so Newcombe and Goswami fabricated more positive results. A press release from the US Attorney’s Office for the Southern District of New York alleges:
“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 faces up to eighty years in prison if convicted on all counts, and Goswami faces fifty-five. CQC on the other hand avoided charges at the company level by complying with the investigation and voiding or cancelling credits based on the fraudulent scheme. The fraud not only hurt companies, but investors – one of which invested $250 million in CQC based on fraudulent data. Since the fraud involved investors, the SEC filed charges as did the CFTC for commodities fraud.
Fraud in ESG is unfortunately increasingly common. Fraudsters thrive in environments where highly technical information is used but not commonly understood. Companies can protect against fraud by training their employees to look for red flags and foster a culture of transparency where questions are welcome and taken seriously.
Our members can learn more about regulatory enforcement in ESG here.
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