Couple Admits To Ponzi Scheme -- WSJ
January 25 2020 - 3:02AM
Dow Jones News
By Dave Michaels
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 25, 2020).
WASHINGTON -- A California couple whose solar company counted
Berkshire Hathaway Inc. as one of its investors pleaded guilty
Friday to running a $900 million Ponzi scheme.
Jeff and Paulette Carpoff, who began raising money in 2011,
admitted to a scam that involved swindling sophisticated corporate
investors who earned valuable federal tax credits for helping
finance a renewable-energy business. Authorities seized and
auctioned off 148 luxury vehicles owned by the Carpoffs, including
a 1978 Pontiac Firebird once owned by Burt Reynolds.
The solar company, DC Solar Solutions Inc., once sponsored a
Nascar racing outfit.
"By all outer appearances this was a legitimate and successful
company," said Kareem Carter, special agent in charge of IRS
criminal investigation in Northern California. "But in reality it
was all just smoke and mirrors -- a Ponzi scheme touting tax
benefits to the tune of over $900 million."
DC Solar's investors included Berkshire Hathaway and the insurer
Progressive Corp., which last year took a $156.1 million charge to
reverse an earlier income-tax benefit linked to DC Solar.
Berkshire Hathaway invested $340 million in DC Solar, according
to the conglomerate's first-quarter securities filing. The firm
said it reversed income tax benefits it had earlier recognized
because "we now believe that it is more likely than not that the
income tax benefits...are not valid."
Berkshire Hathaway, whose chairman and chief executive officer
is Warren Buffett, didn't respond to a message seeking comment.
Mr. Carpoff pleaded guilty to conspiracy to commit wire fraud
and money laundering, according to court records. Ms. Carpoff
pleaded guilty to conspiracy to commit an offense against the U.S.
and money laundering, court records show.
Malcolm Segal, an attorney for Mr. Carpoff, said DC Solar was
started as a legitimate business, "but as it grew, it overwhelmed
Mr. Carpoff."
"Because of that he began committing acts he knew were wrong and
illegal, " Mr. Segal said. "But he tried to salvage the business
and failed."
Mr. Carpoff is forfeiting personal and business property to pay
back investors, Mr. Segal said.
Bill Portanova, an attorney for Ms. Carpoff, said she
"recognizes what she has done wrong over these past several years
and she will be working for many years trying to make things
right."
The Securities and Exchange Commission also sued the Carpoffs in
a civil complaint filed in Sacramento. The SEC said the couple,
whose business is in bankruptcy, siphoned off at least $140 million
of investor funds to pay for their personal expenses, which
included the sports cars, dozens of properties, and a share in a
private jet service.
The investors were eligible for a 30% tax credit, which roughly
covered the amount of cash they initially placed with DC Solar, the
SEC said. The investors generally assumed an obligation to
contribute millions more to the business through promissory notes,
the SEC's lawsuit says.
The value of the promissory notes was roughly $1.8 billion, the
SEC said, meaning the face value of total investor commitments to
DC Solar was over $2.7 billion.
The SEC's lawsuit alleges the couple committed securities fraud
and seeks disgorgement of illegal profits and payment of civil
penalties.
DC Solar, which was based in Benicia, Calif., supposedly made
money by leasing solar generators that power cellphone towers and
lighting needed at major sporting events. The SEC alleges that most
of the generators were never manufactured and "the vast majority"
of lease income paid to investors came from new investor proceeds,
the hallmark of a Ponzi scheme.
DC Solar filed for bankruptcy in February 2019, listing
professional driver Chip Ganassi's racing company as its largest
unsecured creditor, owed $4.3 million. The company last year
sponsored Mr. Ganassi's Nascar program and other cars in Nascar's
Cup Series and Xfinity Series.
Write to Dave Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
January 25, 2020 02:47 ET (07:47 GMT)
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