Jeff Carpoff had a lot to celebrate as friends and business associates gathered at his company’s Christmas party last year.
The onetime auto mechanic and his wife, Paulette, had started a solar company about a decade earlier that was doing remarkably well -- so well that it could count Warren Buffett’s Berkshire Hathaway Inc. as an investor in its funds. Their business, making mobile solar generators, had afforded them lavish goodies. They owned more than 90 cars, from classic Fords and Plymouths to Bentleys, at least 20 properties, and even a professional baseball team in Martinez, just northeast of San Francisco.
And now as the year came to a close, here was Pitbull, the rapper from Miami, headlining their Christmas party at a swanky Fairmont hotel, according to people familiar with the matter. The event, tweeted Kyle Larson, a race-car driver once sponsored by a Carpoff company, was the “best holiday party I’ve ever been to by far!!”
A few days later, when law enforcement agents showed up at their front door, the Carpoffs’ extravagant life came crashing down. It was an edifice largely built on an alleged fraud — a Ponzi-type scheme, in essence, say federal authorities — that was as elaborate and brazen as their spending habits.
Their company, DC Solar, is now out of business, most of its 100-strong workforce unemployed. Their home in Martinez, a sprawling 4,100-square-foot affair, is in foreclosure, the swimming pool littered with leaves. When FBI agents visited the home on that day in late December, they took many of the luxury cars. They also seized a pile of cash -- $1.8 million in all -- that had been secreted away in a safe and elsewhere in one of the couple’s offices.
The Carpoffs, authorities contend, had managed to parlay a do-good incentive to encourage solar investments into an $800 million fraud scheme. Promising big federal tax credits and profits, their pitch enticed sophisticated investors, even though it came from an enterprise little-known outside of California and the car-racing world.
Not only did Berkshire bite, sinking $340 million alone, but so did insurer Progressive Corp. It had to reverse tax benefits worth more than $150 million due mostly to its DC Solar investments. A half-dozen or so regional banks were financial backers, too, including East West Bancorp Inc., Valley National Bancorp and United Financial Bancorp Inc. All plunked their money in funds set up by DC Solar that afforded significant tax credits and possible profits.
The company was supposed to use the money to build mobile generators, which supply power at sporting events and other outdoor venues. But evidence suggested DC Solar “engaged in nearly no legitimate business,” the government said. The company built and leased only a fraction of the more than 12,000 mobile units it had claimed were in use, the FBI said. Instead, the company allegedly used much of the money from new investors to pay off old ones -- and to fund the couple’s spending.
DC Solar’s precipitous fall is now forcing many of the investors to take charges on tax breaks that they thought were worth millions of dollars. It’s also putting the spotlight on the federal tax credit, which since 2006 has helped fuel solar’s surge from an alternative electrical resource to the U.S. mainstream. Dozens of the country’s biggest companies, from JPMorgan Chase & Co. and Bank of America Corp. to even paint maker Sherwin-Williams Co., now invest in renewable energy to benefit from the tax credits. (Sherwin-Williams was among DC Solar’s investors.)
While the program has been largely free of irregularities, the DC Solar tale now stands as a warning sign of how investors, perhaps too hungry for the credits, may be lax in scrutinizing the health of the underlying business. Indeed, the alleged scam started to crack only when a former employee told federal authorities that they believed the number of leased mobile units claimed by DC Solar was false, according to a court filing.