A federal court indictment returned by a grand jury last Wednesday alleges illegal storage and disposal of hazardous waste by a former CEO of a defunct Rusk County electronics recycling company, multiple counts of wire fraud and a conspiracy to evade paying employment taxes.
Kevin Shibilski, 59, Merrill, is charged in a 19-page indictment with storing and disposing of hazardous waste without a permit, in his capacity as the Chief Executive Officer of 5R Processors, Ltd., a Wisconsin company involved in the recycling of electronic waste from corporate and institutional clients and from manufacturers that participate in a Manufacture-Take-Back program. The document alleges Shibilski illegally stored and disposed of broken and crushed glass from cathode ray tubes that was hazardous due to lead-toxicity at facilities in Wisconsin and Tennessee.
The indictment also charges Shibilski with eight counts of wire fraud by taking in over $5.76 million from clients but failing to recycle more than 8.3 million pounds of their crushed glass from cathode ray tubes that had lead in them and instead stockpiling it at 5R Processors’ warehouses in Wisconsin and Tennessee. The final count in the indictment alleges Shibilski conspired to defraud the United States by the nonpayment and evasion of more than $850,000 in employment and income taxes for 5R Processors and its nominee entities.
The indictment states Shibilski between about March 2013 and September 2020, “Knowingly stored and disposed of hazardous waste, and aided and abetted the storage and disposal of hazardous waste, to wit: broken and crushed CRT glass that was hazardous due to lead-toxicity, at unpermitted facilities in West Bend, Wisconsin, Glen Flora, Wisconsin, and Morristown, Tennessee.”
The indictment states Shibilski between about March 2013 and June 2016, “Knowingly, and with the intent to defraud, devised and participated in a scheme to defraud institutional recycling customers and Manufacturer Take Back (MTB) clients, and to obtain money and property by means of materially false and fraudulent pretenses, representations, promises, and by concealment of material facts.”
In related cases, Thomas Drake, 80, Jasper, Ga.; James Moss, 61, Ladysmith and Bonnie Dennee, 66, Phillips, who all held positions with 5R Processors, have been charged with conspiring to store and transport hazardous waste without the required permits. Moss also has been charged with conspiring to evade the payment of employment taxes and income taxes to the Internal Revenue Service. Drake, Moss, and Dennee have entered into plea agreements with the U.S. Moss pleaded guilty on Sept. 1, and his sentencing is scheduled for Nov. 13. Plea hearings for Drake and Dennee have yet to take place.
Also in federal court, Shibilski has filed a civil fraud and conspiracy suit against Drake, Moss and Dennee and former 5R Processors bookkeeper, Michele McCrea. The lawsuit also identifies Ladysmith Federal Savings & Loan and former Ladysmith Federal CEO Scott Von Haden as active participants in an alleged fraud scam.
5R Processors was a Wisconsin-based corporation involved in recycling, including the reconditioning, refurbishing, remarketing, de-manufacturing, and end-of-life processing of electronic equipment, appliances and other assets. The name 5R” stood for RECYLE all materials through state of the art end-of-life processing; REUSE parts and components; RECLAIM all materials used to manufacture electronic equipment through de-manufacturing processes; REENGINEER electronic and other equipment in preparations for re-entrance into the marketplace and REDUCE the amount of toxic materials entering landfills globally.
5R accepted used electronics such as computers and televisions from commercial and public entities in exchange for a fee, and represented to customers that those materials would be recycled or disposed of in accordance with state and federal laws. 5R’s customers included large corporate and institutional clients who sent their electronic waste (e-waste) to 5R for proper recycling and manufacturers of electronics that participated in the manufacture-take-back (MTB) program and paid to have e-waste properly recycled.
5R used a de-manufacturing technique whereby electronic equipment was taken apart manually and the parts sorted into commodities which then could be resold. For example, cathode ray tubes in computer monitors and televisions were broken down and the glass separated between “clean glass” that was sold as a commodity and “dirty glass” or “funnel glass” that had lead in it. The leaded CRT glass was crushed and loaded into gaylord boxes for shipment to downstream vendors that were allowed to handle the CRT glass. 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 5R had to pay money to downstream vendors to dispose of the leaded CRT glass.
5R operated numerous facilities and warehouses in Wisconsin and Tennessee, among other places, including Wisconsin sites at 600 Gates Avenue, Ladysmith, 515 Fritz Avenue, Ladysmith, 103 W. 3rd Street, Ladysmith, N4421 County Highway I, Catawba, N5779 White Street, Glen Flora, W3620 Artisan Drive, Glen Flora and 133 Oak Street, West Bend and in Tennessee at 4991 Enka Highway, Morristown.
According to the indictment, Shibilski initiated the purchase of 5R in March 2013 in a 3-year phased sale from Drake. Shibilski paid nothing to buy 5R but agreed to have 5R pay $100,000 per year for 10 years to buy out Drake’s ownership interest. Shibilski immediately received a 15 percent ownership interest and became the CEO and CFO of 5R, with a starting salary of $107,052, that increased to $170,508 in 2015. Drake remained Chairman of the Board with a total compensation package of $123,386. Drake agreed to transfer another 34 percent of 5R’s stock to Shibilski in increments in 2014, 2015 and 2016, with the agreement that Shibilski would become the majority owner once he extinguished Drake’s personal guarantees on 5R’s bank loans.
The Resource Conservation and Recovery Act (RCRA) was a federal law governing the handling of hazardous waste, and was implemented and enforced by the U.S. Environmental Protection Agency (EPA). Any material determined to be a hazardous waste must be managed and disposed of under federal regulations. A RCRA permit is required for the treatment, storage or disposal of any hazardous waste. In addition, a manifest is required for any vehicle transporting hazardous waste and the waste must be transported to a facility that is permitted to treat, store or dispose of hazardous waste. The EPA authorized numerous states, including Wisconsin and Tennessee to administer the RCRA regulatory program, which included issuing permits to treat, store or dispose of hazardous waste and regulate transportation by manifest. However, the EPA retained authority to enforce RCRA within these states.
Under RCRA it is illegal to store or dispose of hazardous waste without a permit. It is also illegal to transport hazardous waste without a manifest.
Among the substances that can make a solid waste a hazardous waste under RCRA, due to toxicity, is lead.This includes CRT glass, specifically when extract from CRT glass is found to contain lead at a concentration of five miligrams per liter or greater
However, CRT glass that is destined for recycling may not be considered hazardous waste if, among other things, the glass is not accumulated speculatively, meaning that the person responsible for accumulating the CRT glass can show that at least 75% of the CRT glass was recycled within one calendar year.
“At no time did 5R have a permit for the treatment, storage or disposal of hazardous waste in Wisconsin or Tennessee,” the indictment alleges.
Several private certification standards existed in the e-waste recycling industry that served to regulate the practices of e-waste recycling businesses. The certification standards helped to ensure that e-waste recycling companies were compliant with federal, state, and local environmental laws regarding the receipt, storage, transportation, handling, and disposal of hazardous materials, including leaded glass from CRTs. Prominent e-waste industry certification standards included the Responsible Recycling (R2) certification, the E-Steward certification, and the International Organization for Standardization (ISO) certification for the recycling, refurbishing, and destruction of e-waste.
“The industry certification standards further ensured that certified e-waste recycling businesses were not engaged in the unauthorized remarketing, exportation, or landfilling of e-waste materials,” the indictment states.
Many large corporate and institutional recycling clients and MTB clients would only do business with R2 certified recyclers, because the R2 certification indicated that the e-waste recycler was in compliance with federal and state environmental laws, as well as privately administered e-waste recycling industry standards designed to protect the environment, and public health and safety.
5R obtained R2 certification on or about Dec. 26, 2011.
It was part of the scheme to defraud that institutional recycling clients paid 5R to take their e-waste and dispose of it properly, including CRTs in computer monitors and televisions. In exchange, 5R would issue a certificate of recycling to the client that certified that the e-waste was recycled in compliance with all federal, state and county regulations. 5R did not disclose to these clients that it was not recycling the funnel glass and dirty glass from the CRT computer monitors and televisions, but instead storing it in 5R warehouse facilities. MTB clients paid money to 5R to obtain pounds of e-waste that had been recycled properly, including CRT computer monitors and televisions. 5R did not disclose to the MTB clients that it was not recycling the funnel glass and dirty glass from the CRT computer monitors and televisions, but instead storing it in 5R warehouse facilities.
It was further part of the scheme to defraud that false entries were made in the 5R inventory reporting system to create fake pounds of recycled e-waste in order to meet the pound requirements for obtaining MTB payments. It was further part of the scheme to defraud that false entries were made on yearly state reports that were required to be filed by 5R that reconciled the MTB e-waste recycled as “pounds paid for” versus “pounds actually processed.”
It was further part of the scheme to defraud that auditors from the R2 certification program were misled and lied to about 5R’s recycling of funnel glass and dirty glass from CRT computer monitors and televisions in an effort to keep 5R certified in the R2 program.
From 2013 through 2016, 5R took in over $4.89 million in MTB sales, and over $870,000 in corporate and institutional recycling sales, but 5R failed to recycle over 8.3 million pounds of CRT funnel glass and dirty glass from this e-waste, and instead stockpiled it at its warehouses in Wisconsin and Tennessee.
The indictment also alleges a conspiracy from about July 2014 to June 2016 when Shibilski, Moss and other individuals defrauded the United States by failing to account for and pay employee income, FICA and unemployment taxes totaling $858,100.
It was part of the conspiracy that the conspirators attempted to evade IRS collection activity for the payment of 5R’s employee income taxes and employment taxes by forming nominee corporations called Pure Extractions (PE) and Wisconsin Logistic Solutions (WLS) as a way to hide 5R’s assets and income stream under these different entities. The conspirators moved 5R’s trucking and logistics platform, assets, and employees to WLS, and left 5R’s corporate entity with only debt. The conspirators moved 5R’s recycling operations, assets and employees to PE, and left 5R’s corporate entity with only debt.
It was further part of the conspiracy that the conspirators used the federal income taxes withheld from employees, and the collected FICA and Medicare taxes due and owing to the IRS, as a weekly unapproved loan from the IRS to fund corporate operations, including payroll. Instead of obtaining bank loans, or cutting costs, or reducing payroll expenses, the conspirators spent the taxes held in trust by 5R for the IRS, without the permission of the IRS. While engaging in this conduct, Shibilski continued to receive his weekly pay and monthly rent checks from 5R. Shibilski also set up his spouse as a ghost employee of 5R and WLS, and he continued to receive paychecks in her name, while the IRS was not being paid the trust fund taxes.
It is alleged in the indictment that Shibilski or Moss, under direction of Shibilski, signed and filed multiple quarterly federal tax returns reporting wages, taxes due, taxes paid and any unpaid unemployment taxes between 2014 and 2016.
If convicted, Shibilski faces a maximum penalty of five years in federal prison on the charge of storing and disposing of hazardous waste without a permit, 20 years on each of the eight wire fraud charges, and five years on the tax charge.
5R Processors went out of business in 2016.