Three former officials of a Rusk County recycling firm have agreed to plead guilty in federal court to conspiracy to store and transport hazardous waste without the required permits and manifests. Three Informations and plea agreements filed last week allege they attempted to conceal illegal storage and transport of crushed leaded glass by various means.
Thomas Drake, 80, Jasper, Georgia; James Moss, 61, Ladysmith, and Bonnie Dennee, 66, Phillips, are charged with conspiracy to store and transport hazardous waste without the required permits and manifests, in violation of the Resource Conservation and Recovery Act (RCRA).
The Information filed against Moss also charged him with conspiracy to evade the payment of employment taxes and income taxes to the Internal Revenue Service totaling $858,101 carrying a maximum penalty for this charge is also five years in prison, restitution, and a $250,000 fine.
As part of their plea agreements, Drake, Moss, and Dennee agreed to waive their right to be charged by indictment by a grand jury. In these circumstances, federal charges are entered by way of an Information filed with the Court.
5R Processors Ltd. (5R) based in Ladysmith, was a corporation involved in recycling electronic equipment, appliances, and other assets. 5R operated numerous facilities and warehouses in Ladysmith, Glen Flora, Catawba and West Bend, and in Morristown, Tenn. Drake founded 5R in Wisconsin in 1988 and served as the Chief Executive Officer and Chairman of the Board of Directors. Drake was responsible for overseeing all aspects of 5R’s operations, including compliance with OSHA and federal and state environmental laws. Moss joined 5R in 2007, and became its President in 2010. As President of 5R, Moss was responsible for managing all plant operations. Dennee started with 5R in 1997. She worked in various positions at 5R, including director of environmental, health, safety & certifications, and executive vice-president.
5R’ s customers included large public and private entities. These customers paid 5R, through the manufacturer-take-back program, over $9.6 million to recycle e-waste, including CRTs containing leaded glass.
According to the Informations, 5R used a de-manufacturing technique whereby electronic equipment was taken apart manually and the parts sorted into commodities which then could be resold. 5R took in computer monitors and televisions that contained cathode ray tubes (CRTs), which were broken down and the glass separated between “clean glass” that was sold as a commodity and “funnel glass” that had lead in it. Until 2011, 5R shipped the leaded CRT glass to vendors that were allowed to handle it, and 5R was charged for the disposal.
The Informations allege that from 2011 to 2016, the defendants and others conspired to knowingly store hazardous waste such as broken and crushed CRT glass that contained lead at unpermitted facilities in Catawba and Glen Flora and Morristown, Tenn.; knowingly transport the hazardous waste without a required manifest and conceal the violations from state regulators in Wisconsin and Tennessee as well as auditors with a nationwide recycling certification program known as R2.
According to the Informations, the defendants attempted to conceal their illegal storage and transport of the crushed leaded glass by various means, including:
n Changing the date labels on the containers;
n Hiding the containers by putting them inside semi-trailers and locking the trailer doors;
n Moving the containers to the back of the warehouse and stacking other pallets in front of them, making it impossible for regulators to see the boxes or inspect them;
n Storing the containers at a warehouse known as the “Sunshine Building” on Artisan Drive in Glen Flora, and not disclosing the existence of this warehouse, or its contents, to state regulators or R2 auditors;
n Storing the containers at 5R’s plant in Morristown, Tenn. in two warehouse spaces that did not have electricity or power, and which were referred to by 5R employees as the “dark side” and the “dark-dark side;” and
n providing the state regulators with inaccurate inventory and shipping records for the leaded glass.
Court documents also allege Moss and other members of the conspiracy,
n Instructed 5R employees to create fake 5R bills of lading which showed bogus shipments of funnel glass and dirty glass to downstream vendors that were allowed to accept and handle leaded CRT glass. The fake bills of lading were created so that 5R could provide some records to the R2 auditors if asked to provide proof of downstream shipments of funnel glass and dirty glass.
n Instructed 5R employees to create fake entries in the SR perpetual inventory system in order to alter the true amount of funnel glass and dirty glass inventory on hand and inventory shipped to downstream vendors.
n Instructed 5R employees to lie and conceal information from regulators during a September 16, 2014, and May 5, 2015 inspection of the 5R warehouse in Morristown, Tenn., and not show the regulators where all of the funnel glass and dirty glass was stored on the premises, including closing the warehouse doors to the storage rooms called the “dark side” and the “dark-dark side” and hiding their contents from the regulators.
n Lied to WDNR regulators at a Nov 4, 2015 enforcement conference when asked to identify all 5R locations where the funnel glass and dirty glass was being stored. The regulators were intentionally not told about the funnel glass and dirty glass stored at the 5R warehouse located at W3620 Artisan Drive, Glen Flora.
“It was further part of the conspiracy that as of November 2016, Moss, and other members of the conspiracy, caused 5R to accumulate and store over 1.3 million pounds of hazardous waste in the form of funnel glass and dirty glass at 5R’s unpermitted facilities in Wisconsin, and over 7 million pounds of hazardous waste in the form of funnel glass and dirty glass at its unpermitted facility in Tennessee,” a federal court information document states.
The defendants agreed to plead guilty to this conspiracy charge.
If convicted, the maximum penalty for this charge is five years in prison, restitution, and a $250,000 fine.
In addition, Moss agreed to plead guilty to a conspiracy to defraud the IRS in the collection of employment taxes and income taxes for 5R and two other related companies, Wisconsin Logistic Solutions (WLS) and Pure Extractions. The Information alleges Moss and others failed to truthfully account for and pay over to the Internal Revenue Service all of the federal income taxes withheld from employees and FICA taxes due and owing to the U.S. for 5R, WLS and Pure Extractions, totaling $858,101.29. The maximum penalty for this charge is also five years in prison, restitution, and a $250,000 fine.
In the plea agreement, Moss agrees to pay restitution for all losses relating to the offense of conviction and all losses covered by the same course of conduct or common scheme or plan as the offense of conviction. He also agrees the full amount of restitution is due and payable immediate sentencing guideline range, and in sentencing the defendant give the defendant the maximum available reduction for acceptance of responsibility.
Before the advent of flat screen TVs and monitors, crushed CRT glass had value as a recyclable item and could be sold to vendors. However, once the newer screen technology came online, CRTs lost all value and SR had to pay money to downstream vendors to dispose of the leaded CRT glass.
The Resource Conservation and Recovery Act (RCRA) was a Federal law governing the handling of hazardous waste in the United States, and was implemented and enforced by the United States Environmental Protection Agency (EPA). Pursuant to RCRA, any material determined to be a hazardous waste must be managed and disposed of as prescribed by the applicable federal regulations. A RCRA permit is required for the storage and disposal of any hazardous waste. In addition, a manifest is required for any vehicle transporting hazardous waste and such waste must be transported to a facility that is permitted to store or dispose of hazardous waste.
RCRA defined hazardous waste as a solid waste that exhibits among other things, toxicity. Among the substances that can make a solid waste a hazardous waste under RCRA due to toxicity is lead. CRT glass can be considered hazardous waste under RCRA.
According to court documents, at no time did 5R have a permit for the storage or disposal of hazardous waste in Wisconsin or Tennessee, nor a manifest for the transportation of said hazardous waste in those states from 2011 to 2016.
A second count against Moss alleges knowingly conspired with other individuals to defraud the United States for the purpose of impeding, impairing, obstructing, and defeating the lawful functions of the Internal Revenue Service of the Treasury Department in the ascertainment, computation, assessment and collection of the revenue, namely, income taxes and employment taxes. It was part of the conspiracy that Moss, and other members of the conspiracy, failed to truthfully account for and pay over to the Internal Revenue Service all of the federal income taxes withheld from employees and FICA taxes due and owing to the United States on behalf of the following entities:
— 5R for tax quarters 201409 through 201612 totaling $253,776.17.
— Wisconsin Logistics Solutions LLC for tax quarters 201503 through 201606 totaling $56,728.11.
— Pure Extractions Inc. for tax quarters 201509 through 201606 totaling $31,734.22.
It was further part of the conspiracy that Moss, and other members of the conspiracy, failed to pay to the Internal Revenue Service, the employer’s share of the FICA taxes, and FUTA taxes, due and owing to the United States on behalf of the following entities:
— 5R for tax quarters 201409 through 201612 totaling $267,884.15.
— Wisconsin Logistics Solutions LLC for tax quarters 201503 through 201606 totaling $58,549.58.
— Pure Extractions Inc. for tax quarters 201509 through 201606 totaling $32,784.49.
“It was further part of the conspiracy that Moss, and other members of the conspiracy, attempted to evade IRS collection activity for the payment of 5R’ s employee income taxes and employment taxes by forming shell corporations called Pure Extractions and Wisconsin Logistic Solutions as a way to hide 5R’ s assets and income stream under these different entities,” court documents state.
“It was further part of the conspiracy that Moss, and other members of the conspiracy, used the federal income taxes withheld from its employees and the collected FICA taxes due and owing to the IRS, as an interest-free line of credit from the IRS to fund 5R operations and smooth out cash flow shortages. Instead of cutting costs, or reducing payroll expenses, Moss, and other members of the conspiracy, used this cash flow strategy without the permission of the IRS, and in violation of law, on a weekly basis since 2014. Moss, and other members of the conspiracy, continued to receive their paychecks during this time period,” court documents state.
It was further part of the conspiracy that Moss, and other members of the conspiracy, pursued a business strategy of waiting for increased IRS activity to obtain back-payment of 5R’ s employee income taxes and employment taxes, and then negotiating an installment payment plan of the unpaid tax amounts on terms favorable to 5R. After a short time, 5R would stop making payments on the payment plan, as well its current 941 tax obligations, and the whole process would be repeated.
The charges against Drake, Moss, and Dennee are the result of an investigation conducted by the Wisconsin Department of Natural Resources, Bureau of Law Enforcement; the U.S. Environmental Protection Agency, Criminal Investigation Division; and IRS Criminal Investigation.
James Cha with EPA Regional Criminal Enforcement Counsel and Assistant U.S. Attorney Daniel J. Graber are handling the prosecution.