What kind of person could create a scam that would make even Warren Buffett, the stock market god, fall for it? A gutsy auto mechanic in California, USA.
Jeffery Karpov, 50, was an auto mechanic and later founded DC Solar. He had neither a systematic financial education nor deep experience in the political and business world, but cheated more than $1 billion (about 6.4 billion yuan) from 35 investment funds and at least 17 investors. Among them, Warren Buffett's Berkshire Hathaway was defrauded of $340 million (about RMB 2.2 billion).
On Nov. 10, a federal court in the Eastern District of California sentenced Karpov to 30 years in prison and his wife, Paulette, to 15 years in prison for money laundering and criminal fraud. But people still wonder how Karpov managed to fool legendary investors like Warren Buffett along the way to create this scam of rare proportions in California history.
Auto mechanic turned solar company owner
Before he was busted, Karpov had been one of California's most prominent grassroots entrepreneurs.
Born into an ordinary family in Los Angeles, he never went to college, received auto mechanic training after high school, became an auto mechanic, and worked for more than a decade to get his own auto repair store.
With the wealthy people of Los Angeles, Karpov's target customers were well-off British car owners, and he made his first bucket of money by representing car companies like Jaguar and Land Rover for repair services in Los Angeles. As his career took off, love came quietly. His wife, Paulette, was not only the love of his life, but also his right-hand man at work in the future.
In the eyes of many people in Los Angeles, at this time, Karpov was already a winner in life. But he wasn't satisfied with that. He found a new business opportunity - in order to obtain new government subsidies and tax breaks, many companies and public sector began to install solar panels. 2005, he set up DC Solar, officially from the auto repair industry "kill" into the solar industry, also want to He also wanted to get a share of the pie. With a good tongue, he got a lot of big customers like Disney and Coachella, and made a lot of money.
In 2011, Karpov introduced a solar-powered generator that can be mounted on a trailer, claiming to be able to power cell towers and lighting equipment in emergency situations. This is particularly attractive to organizers of large events such as sporting events, but more importantly, this product can get a large new energy rebate and subsidies from the U.S. federal government. As a result, not only did companies and organizations that needed generators for emergency backup begin to approach him to place large orders, but his company was also seen as an investment with promising profit prospects.
DC Solar, which was gaining momentum, soon attracted a large number of investors. Warren Buffett's Berkshire Hathaway, American Forward Insurance and many other big-name investors came calling. The U.S. federal government was also eager to find a "model innovator" at the time, so it actively endorsed DC Solar.
In 2016, the U.S. Department of Transportation named it the "Most Innovative Company in America. DC Solar's "startup" status stood out among other technology giants such as Amazon and AT&T (American Telephone and Telegraph), which also received the award. By the time of the incident, his company's total business volume had reached $2.5 billion over seven years.
In December 2018, Karpov, who seemed to be at the "top of his game," hosted an extravagant party at San Francisco's most luxurious Fairmont Hotel to welcome Christmas and the New Year early. Amidst the strong aroma of cocktails and the sound of DJs swiping, race car driver Carl Larson, who attended the party, tweeted, "This is the best holiday party I've ever been to!"
No one thought at the time that this would be DC Solar's last holiday party.
The "empty glove" scam
Karpov didn't get to "celebrate Christmas". On December 22 of that year, his mansion in Martinez, California was raided by the Federal Bureau of Investigation (FBI). DC Solar's headquarters in Benicia did not escape either, as a large number of documents, computers and vehicles were seized by the FBI.
On the day of the incident, Karpov played it cool, issuing a statement saying the raid was due to a "tax dispute" between the company and the government, and expressing his confidence that the government would resolve the issue fairly. But it soon became clear that his problem was not simply a "tax dispute".
According to the U.S. Attorney's Office for the Eastern District of California, the FBI received a letter from within DC Solar that year, alleging that the company had falsified the number of installed solar generators and provided false financial statements and leases to investors. Police then investigated the company and were surprised to find that it had long since ceased production of solar generators and that at least half of the 17,000 solar generators promised did not exist. There were reports that his company actually only had a maximum of 6,000 generators.
In the subsequent investigation, DC Solar's "empty glove" tactics were finally uncovered.
According to the U.S. police, Mr. and Mrs. Karpov found the federal government's huge solar subsidy policy, they began to take the initiative to contact investors "pie": you invest in our DC Solar, you can immediately get the federal government's tax subsidies; we get the investment to you after the production of solar generators, you can lease the generator back to us. In this way, you can get a stable investment income, and we will be these generators and then leased to a third party.
The deal sounded "reasonable" and "sure-fire", attracting a group of investors, including Warren Buffett, to "bite the bullet". However, after getting the investors' money, DC Solar simply did not use it for "business". U.S. police investigation found that after making a name for itself in 2011, the company rarely engaged in the production of solar energy products research and development, the name of only a few used to confuse investors prototype solar power generation area ......
In order to avoid the fraud was exposed, the Karpov couple falsified a large number of financial records and solar generator leasing contracts, but also planned a "Ponzi scheme", using the funds of new investors to do the return on investment of old investors. The Karpovs became billionaires through this scheme.
Sentenced to 30 years in prison
As with all Ponzi schemes, the bubble will eventually burst. Before the Karpovs could "close and run", they were caught in a police net.
Less than two months after the FBI raid, DC Solar filed for bankruptcy. At this point, Karpov was still lying to the public, claiming that the company had the support of its employees and investors and was able to pay its debts.
Soon after, however, the U.S. government began liquidating the Karpovs' assets. According to the investigation, since 2012, Karpov frantically purchased more than 100 various luxury cars, including many expensive and limited edition models. The car enthusiast, who studied auto mechanics when he was young, not only bought luxury cars after he became rich, but also spent a lot of money to sponsor the NASCAR tuning car race, which is famous with Formula 1 in the United States, and was on the podium with the racers. In addition, Karpov also spent a lot of money, buying a lot of luxury villas in Nevada, California and the Caribbean, and shelling out more than $5 million in cash to buy part of the ownership of a winery.
In a statement released by the U.S. Department of Justice, the prosecutor in charge of the case emphasized that "Karpov single-handedly masterminded the largest criminal fraud case ever handled by a federal court in the Eastern District of California." He accused Karpov of "presenting himself as an innovator in the new energy sector, but in fact bilking investors and the government out of billions of dollars to provide for his own extravagant lifestyle." According to prosecutors in the Eastern District of California, after raiding Karpov's assets, they auctioned off some of his ill-gotten gains, including his luxury car, which sold for more than $8 million. Prosecutors have seized $120 million in assets that will be "returned to the victims" and "returned the company's $500 million tax fraud to the U.S. Treasury. The IRS case officer said that Karpov's pyramid scheme cost the agency "at least $900 million in lost tax dollars.
Before being sentenced, the Karpovs had pleaded guilty. In a written statement issued by his attorney, Karpov said he was "upset that he had harmed investors and caused great harm to his family and colleagues. But in the eyes of investors, such empty statements are worthless. The U.S. government can more or less cut its losses, but a lot of money has been squandered by the Karpovs, and investors, including Warren Buffett, have lost a lot of money.
Berkshire Hathaway could only end up saying grimly in its financial report that the return on investment and tax benefits promised by DC Solar were promises that could not be fulfilled. Warren Buffett has a famous saying that many investors hold dear: "I am greedy when others are greedy, and I am greedy when others are timid." However, in the face of Karpov's elaborate scam, the "stock god" became a prisoner of greed.