A Bay Area business owner was sentenced on Tuesday to 30 years in prison for a $1 billion Ponzi scheme that amounts to “the largest criminal fraud scheme in the history of the Eastern District of California,” according to Acting U.S. Attorney Phillip A. Talbert. Jeff Carpoff, 50, pled guilty last year to conspiracy to commit wire fraud and money laundering for his role spearheading a scheme involving his company DC Solar, abusing tax credits, falsifying paperwork, using new investor money to pay back earlier investors, and leading a lavish lifestyle to make it appear like business was booming.
You could look at all of this and say, okay, objectively this is pretty bad. But, reading the details of what happened, I’m also struck by what a smooth con it was for a brief period of time (between the years of 2011 and 2018). If there were a playbook on how to pull off fraud, this would serve as at least one inspiration:
Sell the promise of the product more than the product itself: All great grifters (ahem, Elizabeth Holmes) know that the real money is in the hype surrounding the thing. In Carpoff’s case, the thing was mobile solar generator units, which is smart because once you hear “solar” you’re like that’s cool, very green, I’m in. Apparently I’m not the only one to think like this, because DC Solar hooked in several investors — including Warren Buffett’s company Berkshire Hathaway — with the promise of federal tax credits related to solar energy. At some point, DC Solar had lost so much money that it just stopped manufacturing the generators, but were able to continue selling thousands of nonexistent units to investors. Investigators found that at least half of the company’s alleged 17,000 generators did not exist.
Invent a complicated business model: Instead of the traditional model of “if a client buys a product then they receive that product,” DC Solar would sell an investor a $150,000 unit but only get paid $45,000 in cash (the maximum amount of claimable tax credit), Bloomberg Businessweek reported. The investor was then told that DC Solar would lease the unit to third parties, e.g., telecom companies, and that lease money would be used to pay off the remaining cost, as well as to generate profit for the investor.
Exploit the inherently Ponzi-like nature of outside funding: It’s all a big scam anyway. Just lean in all the way: use new investor money to keep older investors happy, as Carpoff did, and then find newer investors to pay back the then-new-now-old investors. Only about 6 percent of the revenue paid to investors came from third-party leasing, per the Washington Post. Repeat ad infinitum.
Do everything it takes to sustain the illusion: DC Solar created fake financial statements and lease contracts, put vehicle identification number stickers on older generators, and placed GPS transponders in locations where the units were decidedly not to convince investors that leasing was still going strong. That’s the level of commitment you need.
Have some fun while you’re at it: Carpoff and his wife Paulette adopted larger-than-life spending habits in order to maintain the appearance of a wealthy, successful couple whose company was thriving. According to the Department of Justice, the Carpoffs bought a minor-league professional baseball team; a NASCAR race car sponsorship; luxury real estate in California, Nevada, Mexico, the Caribbean, and elsewhere; a subscription private jet service; a football stadium suite; jewelry; and at least 148 luxury and collector vehicles, which were later seized by the feds and auctioned off for $8.2 million. The couple also once hired Pitbull to perform at a Christmas party. According to Businessweek, Carpoff also had a habit of pulling out a wad of money — sometimes more than $2,000 — from his pocket at work and asking employees to guess how much he was holding; the person whose guess was closest, if within $50 of the correct amount, would get the entire fistful of cash. Now that’s just called being a good boss.
Don’t get caught: This is probably the most important step. Unfortunately, the Carpoffs failed in this regard. If it weren’t for a snitch former employee who told authorities that DC Solar was possibly lying about the number of mobile generators it was leasing out, perhaps this dream scheme could have kept going for, by my estimation, at least another five years.
Malcolm Segal, a lawyer for Jeff Carpoff, told Reuters that his client “feels terrible that this business started out intending to provide clean energy and tax benefits to many large corporations, but unfortunately failed and resulted in his committing a number of illegal acts.” Maybe he should have some pride, instead.