Jeff and Paulette Carpoff had what sounds like a great idea to me: mobile solar generator units. These are solar generators that would be mounted on trailers that could provide emergency power to cellphone towers and lighting at sporting events. Plus there were generous federal tax credits due to the solar nature of the generators.
I’m willing to hand over a check just hearing the idea. Others agreed and gave Carpoff almost $1 billion in investments to create over 17,000 of the generators.
“A million dollars isn’t cool. You know what’s cool? A billion dollars.”
Sean Parker – The Social Network
What’s not cool is that the Carpoffs only had about 6,571 of the generators.
The conspirators pulled off their scheme by selling solar generators that did not exist to investors, making it appear that solar generators existed in locations that they did not, creating false financial statements, and obtaining false lease contracts, among other efforts to conceal the fraud.
There is a “What is a Security?” twist to the charges. Some of the fake generator investments were structured as sale-leaseback arrangements. The investors paid to purchase generators from DC Solutions, while simultaneously leasing them to DC Distribution. DC Distribution would then sub-lease the Generators to end-users. The investors would profit from the investments due to tax credits, depreciation on the generators, and lease payments. If the purchase of the generator is tied to the lease and exclusive, then there is a line of cases finding that to be an investment contract. Just like the orange grove in Howey. However a bulk of the investments were made to a fund, pooling money for a bulk purchase and lease of generators.
As interesting as I may find this topic in the charges, the conspirators are going to jail and probably have less interest in the arcane corners or securities law.
I’m going to assume that the Carpoffs started the business with good intentions. They did create thousands of these generators and leased at least some of those for legitimate purposes. They seem to have made at least $18 million in revenue. It seems that the business just did not scale. They could find enough end users to satisfy the investment demand.
As with many Ponzi schemes, they weren’t willing to be honest with their investors about the failure and engaged in false and misleading. There was much more money to be made in collect cash from investors than from leasing the generators.
As with any good fraud fraud charges they list out the extravagant items bought by the fraudsters. This comes up short on the itemization.
- 150 cars
- dozens of properties
- 1978 Firebird previously owned by actor Burt Reynolds
- a minor-league professional baseball team
- share in a jet service
- Nascar sponsorship
Jeff and Paulette Carpoff are scheduled to be sentenced by U.S. District Judge John A. Mendez on May 19. Jeff Carpoff faces a maximum statutory penalty of 30 years in prison. Paulette Carpoff faces a maximum statutory penalty of 15 years in prison. The actual sentences, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.
Four defendants have previously pleaded guilty to federal criminal charges related to the fraud scheme since October. Joseph W. Bayliss, 44, of Martinez, and Ronald J. Roach, of Walnut Creek, each pleaded guilty to related charges on Oct. 22, 2019. Robert A. Karmann, 53, of Clayton, pleaded guilty to related charges on Dec. 17, 2019. Ryan Guidry, 53, of Pleasant Hill, pleaded guilty to related charges on Jan. 14, 2020. A seventh co-conspirator is scheduled to plead guilty on Feb. 11. The investigation into the fraud remains ongoing.
Sources:
- SEC Charges Husband and Wife with Nearly $1 Billion Ponzi Scheme
- SEC Complaint
- Top Executives Plead Guilty to Participating in a Billion Dollar Ponzi Scheme—the Biggest Criminal Fraud Scheme in the History of the Eastern District of California
- Massive $1 billion solar power ponzi scheme results in the largest single-owner car collection ever auctioned by the U.S. Marshals Service
