The U.S. Commodity Futures Trading Commission (CFTC) has settled charges against CQC Impact Investors LLC, known as C-Quest, a Washington, D.C.-based developer of carbon credit projects, marking the first enforcement action involving fraud in the voluntary carbon markets.
The charges involved allegations of false reporting regarding carbon emissions reduction, leading to the issuance of unwarranted carbon offset credits.
The CFTC’s order revealed that from 2019 to the end of 2023, C-Quest engaged in a deceptive scheme relating to projects designed to reduce carbon emissions, such as installing efficient cookstoves and LED light bulbs in sub-Saharan Africa, Asia, and Central America.
The alleged false reporting resulted in millions of carbon offset credits that the firm was not entitled to receive.
Alongside the CFTC’s actions, the U.S. Securities and Exchange Commission (SEC) issued orders against C-Quest and its executives, and criminal charges were filed against the former CEO, Kenneth Newcombe, former COO, Jason Steele, and head of the carbon accounting team, Tridip Goswami.
U.S. authorities claimed that data was manipulated to make the projects appear more successful in reducing emissions than they actually were.
Relevant: CFTC Finalizes Guidance On Voluntary Carbon Credit Derivative Contracts
The U.S. Attorney’s Office for the Southern District of New York reported that C-Quest fraudulently obtained carbon credits worth tens of millions of dollars and secured over $100 million in investments.
The defendants’ actions allegedly risked undermining the integrity of the carbon market, which is critical in combating climate change.
C-Quest settled the allegations by admitting to misconduct, agreeing to pay a $1 million fine, and canceling an equivalent number of fraudulently obtained credits.
Steele also admitted misconduct, pled guilty to multiple charges, and entered a cooperation agreement.
Meanwhile, the charges against Newcombe and Goswami, including wire fraud, commodities fraud, and securities fraud, remain unproven.
A spokesperson for Dr. Newcombe released a statement pointing out that he is currently hospitalized and battling cancer with “virtually zero” chance of exercising his rights to defend himself. “Dr. Ken Newcombe spent decades working to improve the lives of the world’s poor and protect the future of the planet, at the World Bank and elsewhere, including through his pioneering work on using private markets to combat climate change. He denies the accusations against him, and deeply regrets that the company he spent the last decade of his life building has now been stripped for parts and corrupted from being the global force for good into which he had built it. He is confident that if he lives to see a jury hear this case, that jury will reject these false charges and return his good name to him,” it concludes.
Read more: Verra Urges CFTC To Be More Assertive With Carbon Markets Fraud
