'A disaster for us': How a carbon-credit pioneer allegedly stole millions of dollars by cooking the books

By Lukas I. Alpert

A program to distribute environmentally friendly stoves in developing countries turned into a scheme to steal carbon credits and bilk investors, prosecutors say

Ken Newcombe had spent years building a program to distribute more environmentally friendly cookstoves for free to rural communities in Africa and Southeast Asia.

The benefit for his company, C-Quest Capital, would be the carbon credits it would receive in exchange for reducing the amount of fuel people burned in order to cook food - credits the company could then sell for a profit to big oil companies like BP (BP) and Shell (SHEL).

But when Newcombe tried to ramp up the program, federal prosecutors said in an indictment made public Wednesday, he quickly realized that the stoves wouldn't deliver the emissions savings he had promised investors. Rather than admit his mistake, he and his partners cooked the books instead, prosecutors said.

"This is a disaster for us," Newcombe allegedly told his partners when they informed him in late 2021 that the emissions figures were coming in at about half of what they had projected.

Newcombe, who was C-Quest's chief executive; Jason Steele, the company's chief operating officer; and Tridip Goswami, who ran the firm's emissions accounting program, then agreed to fudge the numbers to make them appear closer to the targets they had promised, prosecutors said.

That allowed them to obtain carbon credits worth tens of millions of dollars that they didn't deserve, prosecutors said. On the basis of the fraudulently gained credits, prosecutors said, C-Quest was able to secure $250 million in funding from an outside investor.

"The alleged actions of the defendants and their co-conspirators risked undermining the integrity of [the global market for carbon credits], which is an important part of the fight against climate change," said Damian Williams, the U.S. attorney for the Southern District of New York.

Prosecutors on Wednesday charged Newcombe, of Santa Barbara, Calif., and Goswami, of India, with wire fraud and securities and commodities fraud. Prosecutors also announced that Steele, of Arlington, Va., had pleaded guilty to charges in the case.

Separately, the Securities and Exchange Commission and the Commodity Futures Trading Commission filed civil charges Wednesday against Newcombe and his company.

A spokesman for Newcombe said he denied the charges. Goswami and Steele didn't immediately respond to messages seeking comment.

Newcombe, who formerly worked at Goldman Sachs and the World Bank, founded C-Quest in 2008 with the idea to help combat climate change by developing more efficient cookstoves, according to court documents.

The for-profit company - formally registered as CQC Impact Investors LLC - operated in the voluntary carbon market, an area where private companies not bound by government compliance requirements work to generate carbon credits. These can then be sold to companies that are required to adhere to government carbon limits.

Newcombe came up with the idea for the stoves as a way to reduce the amount of wood being burned to fuel cookstoves.

The company then worked with Verra, an independent issuer of carbon credits - on whose board Newcombe sat - to set criteria for measuring how much C-Quest's stoves reduced carbon emissions. The criteria included stringent measures for data collection from the stoves' users, court documents said.

C-Quest started small, distributing around 200,000 of its stoves in places like Malawi and Zambia. By 2021, Newcombe had reached a lucrative deal with an outside investor whose other companies would acquire C-Quest's carbon credits, court papers said.

The deal required C-Quest to significantly ramp up its operations to distribute over 1 million stoves a year, the court papers said.

It was around this time, prosecutors said, that Newcombe and his partners discovered that the stoves weren't as efficient as they had promised their backers and that the company wouldn't be able to generate the credits needed to make the deal work.

The company eventually lost even the ability to track the usage of the stoves and ignored many of the reporting requirements for measuring the stoves' efficiency, prosecutors added.

Earlier this year, the Washington Post published an investigation into C-Quest's stove program, which found that in many of the villages where the stoves had been distributed, people no longer cooked with them because they were shoddily constructed or had become unusable almost immediately.

Despite requirements that C-Quest follow up with stove users to measure how much less wood they were burning, representatives of the company never returned after dropping the stoves off, many villagers told the Post.

-Lukas I. Alpert

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10-03-24 1430ET

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