A developer of carbon credit projects has been charged by U.S. regulators for allegedly reporting false information about the impact of its work at reducing carbon emissions — resulting in unwarranted carbon offset credits being issued.
On Wednesday, the U.S. Commodity Futures Trading Commission (CFTC) settled charges against Washington, D.C.-based CQC Impact Investors LLC (CQC), and the company’s former chief operating officer, Jason Steele, alleging violations stemming from false reports involving carbon credits. It also charged the firm’s former CEO, Kenneth Newcombe.
This marks the CFTC’s first enforcement action alleging fraud in the voluntary carbon markets.
The CFTC’s order found that between 2019 and the end of 2023, “CQC engaged in a deceptive scheme relating to projects it developed purportedly intended to reduce carbon emissions, such as by installing more efficient cookstoves or LED light bulbs in sub-Saharan Africa, Asia, and Central America.”
In parallel actions, the U.S. Securities and Exchange Commission (SEC) also issued orders against CQC and the executives, and criminal charges were filed against Newcombe, Steele, and a third man, Tridip Goswami, who was the head of the firm’s carbon accounting team.
The regulator alleged that CQC reported false information to a carbon credit registry and to third-party reviewers that resulted in the issuance of millions of carbon offset credits that the firm wasn’t entitled to receive.
“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,” U.S. authorities alleged.
According to the U.S. attorney’s office for the Southern District of New York, the scheme resulted in CQC “fraudulently obtaining carbon credits worth tens of millions of dollars and fraudulently securing an investment of over US$100 million.”
“As alleged, Kenneth Newcombe and Tridip Goswami, among others, engaged in a multi-year scheme to fraudulently obtain carbon credits by using manipulated and misleading data,” said U.S. attorney, Damian Williams, in a release.
“They then sold those credits to unsuspecting buyers in the multi-billion-dollar global market for carbon credits. The alleged actions of the defendants and their co-conspirators risked undermining the integrity of that market, which is an important part of the fight against climate change.”
The firm settled the CFTC’s allegations, admitting to misconduct, and agreeing to pay a US$1-million fine and to cancel an equivalent number of credits to those that were fraudulently obtained.
Steele also admitted misconduct and entered into a formal co-operation agreement with the CFTC. He pled guilty to wire fraud conspiracy, commodities fraud conspiracy and securities fraud conspiracy.
The CFTC’s allegations against Newcombe haven’t been proven, nor have the criminal charges against him and Goswami. They are both facing wire fraud, commodities fraud and conspiracy charges. Newcombe was also charged with securities fraud and conspiracy.
The company was not charged criminally given its “voluntary and timely self-disclosure of misconduct, full and proactive co-operation, timely and appropriate remediation, and agreement to cancel or void certain [carbon credits],” the U.S. attorney said.