- Warren Buffett may have inadvertently helped fund the lavish lifestyle of a couple as part of what the FBI calls an $800 million "Ponzi-type" scheme, according to Bloomberg.
- Buffett's Berkshire Hathaway conglomerate invested $340 million in DC Solar.
- DC Solar 's owners Jeff and Paulette Carpoff allegedly splurged millions on luxury cars, private jets, diamond jewelry, a stadium box, and a pro baseball team.
- "Any allegation that there was a Ponzi scheme or anything illegal about the operation of the business is without merit," the couple's lawyer said.
- Watch Berkshire Hathaway trade live.
Warren Buffett may have inadvertently funded the lavish lifestyle of a couple as part of what the FBI is calling an $800 million "Ponzi-type" scheme, according to Bloomberg.
Buffett's Berkshire Hathaway conglomerate invested $340 million into Jeff and Paulette Carpoff's company, DC Solar, according to a company filing.
The scheme allegedly involved the sale of mobile solar generators to at least a dozen investors including insurance giant Progressive, paintmaker Sherwin-Williams, and several regional banks, according to Bloomberg.
The investors typically paid $45,000 of the $150,000 price tag for each of the units up front, then claimed a $45,000 tax credit on their investment as well as tax deductions for the devices' depreciation, according to court filings.
After the FBI accused DC Solar of defrauding investors, Buffett and his team determined it was "more likely than not" that the deal's tax benefits were invalid, so Berkshire Hathaway took a $377 million charge in the first quarter of this year.
"While we completely disagree with the FBI agent's claim that DC Solar was a Ponzi scheme and with any assertion that Jeff Carpoff acted improperly, we have been working closely with the government attorneys to provide resources to reimburse investor companies and banks to try to see that they do not suffer a loss," said Malcolm Segal, the Carpoffs' attorney, in an email to Business Insider.
"These companies spent a lot of time, research and due diligence before investing their funds," he added. "We remain hopeful that they will receive the tax credits and all the other benefits their investment committees sought for their shareholders."
He told Bloomberg: "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."
Business Insider has contacted Berkshire Hathaway for comment.
Lavish spending and piles of cash
Court filings revealed the Carpoffs' lavish spending during the time they ran DC Solar. A list of big-ticket purchases included:
- 2018 Dodge Challenger SRT Demon — $105,682
- 1967 Ford Mustang GT 500 Super Snake — $192,550
- 2017 Cadillac CTS-V — $95,105
- The Martinez Clippers, a professional baseball team — price unknown
- NetJets, which sells shares in private airplanes — $19 million
- Box in the Las Vegas Raiders' new stadium in Paradise, Nevada — $783,000
- Diamond jewelry and Cartier watches — $500,000
The Carpoffs also kept plenty of cash on hand, court filings showed.
When federal investigators raided their home in December, they seized almost $19,000 found in a purse, about $9,200 in a work bag, around $8,650 in one of the vehicles, and more than $40,000 in the master bedroom — including around $19,000 not in the safe — according to a court filing. At DC Solar's headquarters, they found almost $1.7 million in the office safe, nearly $151,000 in another safe, and more than $17,000 in cash hidden under desks and other locations, the court filing showed.
Jeff Carpoff often pulled out up to $2,000 in cash at staff meetings, challenged employees to guess how much he was holding, and handed the wad to whoever made the best guess within about $50, according to Bloomberg, citing people familiar with the matter.
As well as the tax benefits touted by DC Solar, the firm would also lease the solar generators to end-users such as telecom companies and pay back investors with the proceeds, allowing them to cover the rest of their investment and turn a profit, according to court filings. However, investigators found that other investors' money made up more than 90% of the funds claimed as lease revenue, court filings show.
The arrangement made DC Solar "appear successful, and the leases appear legitimate, when, in reality, leasing the equipment generated little income and early investors were paid from funds contributed by later investors," the federal complaint reads.
DC Solar didn't have as many generators as it claimed, according to court filings. The company and its contractors had built between 3,000 and 5,000 of the generators a year ago, according to a former employee interviewed by federal investigators — well below the 12,000 supposedly in use, the filings show. The former employee also said the company inflated the number of generators deployed by having employees bury GPS devices in various locations, which could be passed off as generators in its tracking software, according to the filings.