DC Solar was once the "business" that allowed Jeff Carpoff, his friends and business associates to live the high life, according to Bloomberg. Unfortunately, as Warren Buffett found out the hard way, it was all one big "ponzi type scheme".
The company's purported business of making mobile solar generators was so good that it even enticed Warren Buffett's Berkshire Hathaway as an investor. Carpoff and his wife, Paulette, owned more than 90 cars and at least 20 properties – and even a professional baseball team – as a result of their company's "success". On top of that, they had swanky holiday parties, with rapper Pitbull even headlining the company’s most recent one.
But, like many too good to be true stories, law-enforcement agents brought it all to an end, alleging that the couple's extravagant life and business was built on a ponzi type scheme.
Their company, DC Solar, is now out of business, with most of its 100 workers unemployed. The couple's home is in foreclosure and $1.8 million in cash has been seized from their safe and the couple's offices. The FBI also took many of the couples' luxury cars.
The couple, according to authorities, had managed to encourage solar investments into an $800 million "fraud scheme" that promised big federal tax credits and profits to investors. Berkshire, as we noted in a previous article, sunk more than $300 million into the company, as did insurer Progressive Corp. In fact, there were about six regional banks that were also backers of the company, including East West Bancorp Inc., Valley National Bancorp and United Financial Bancorp Inc.
They all put money into funds set up by DC Solar that allegedly afforded significant tax credits.
Instead, evidence suggested that DC Solar "engaged in nearly no legitimate business", according to the government. The company reportedly built only a fraction of the more than 12,000 units it claimed and used much of the money from their new investors to pay off old ones, while funding the couples' lavish spending at the same time.
The fall of the company is forcing many investors, including Berkshire, to take charges on tax breaks that they booked worth millions. It’s also shining a light on the Federal Tax Credit which, since 2006, has helped solar surge from an alternative electrical resource into the US mainstream. Many of the country's biggest banks, including Bank of America and J.P. Morgan, now invest in the alternative energy for the tax benefits.
Nicolas Loris, an economist at the conservative-leaning Heritage Foundation said: “Having that pot of money incentivizes this type of behavior. Sometimes it’s difficult to catch this behavior because of the intricacy of the way these policies are woven into our energy markets.”
And the DC Solar story stands as a warning sign of how altruistic investors may be less likely to perform due diligence on businesses in the alternative energy industry. Sound familiar? The alleged DC Solar scam only started to crack when a former employee spoke out and told the Feds that the number of mobile units the company was claiming was false.
Meanwhile, Carpoff is claiming his innocence, through his lawyer: “DC Solar Solutions was an innovative, substantial and credible solar-energy business. It manufactured thousands of mobile solar generators, which were examined and physically delivered. Any allegation that there was a Ponzi scheme or anything illegal about the operation of the business is without merit.”
Berkshire's disclosure on the matter stated:
“In December 2018 and during the first quarter of 2019, we learned of allegations by federal authorities of fraudulent income conduct by the sponsor of these funds. As a result of our investigation into these allegations, we now believe that it is more likely than not that the income tax benefits that we recognized are not valid.”
Carpoff had previously claimed that AT&T and T-Mobile were "early adopters" of the company's products. AT&T said DC solar was never one of its vendors.
Aside from getting the means to commit fraud through the government's tax credit, DC Solar also got credibility from the government. In 2016, a U.S. Transportation Department press release described DC Solar as among “some of the most innovative folks in the private sector.”
At the same time, the Carpoffs worked to build their profile by engaging in charitable pursuits and owning a local baseball team.
Sometimes, at staff meetings, Jeff would pull out a wad of cash and ask employees to guess how much he was holding. The person that came closest, if within about $50, got the cash. It was more than $2000 at times. DC Solar's parking lot was littered with luxury vehicles, including Paulette's Bentley, a Dodge Challenger SRT and a 1967 Ford Mustang GT500 Super Snake.
The couple also relied on auto racing to boost their brand. They sponsored Chip Ganassi Racing in the NASCAR Xfinity Series and drivers including Ross Chastain.
“Within a short time, we were doing over $60 million in sales,” Jeff had told Inc. magazine in a December 2018 interview. "The track lets us bring in people from the renewable finance industry, show them a great time, show our product in use,” he continued.
It's worth noting that, in addition to interviewing Carpoff, Inc. magazine has also recently featured both Elon Musk and Elizabeth Holmes on its cover.
Overall, the company attracted at least a dozen investors to its tax equity funds who bought each mobile unit for $150,000, but paid only $45,000 in cash - the maximum amount of the tax credit that they could claim. They were told that the company would lease the equipment to end-users, which would pay off the remainder of the $150,000 owed.
The alleged reality was that DC Solar didn’t lease generators to third parties and instead, about 90% of the money that one of its affiliated companies claimed as lease revenue was actually new investor money. To fake owning the generators, employees placed GPS transponders in spots where generators weren't located, but were supposed to be. In 2016, new investor money accounted for $50 million of the company's claim of $55 million in revenue, according to a former employee.