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Couple plead guilty to swindling Warren Buffett

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Via Financial Times

A California couple pleaded guilty on Friday in connection with a Ponzi scheme that swindled almost $1bn from American blue-chip companies including Warren Buffett’s Berkshire Hathaway and the insurance provider Progressive.

Jeff Carpoff pleaded guilty to conspiracy to commit wire fraud and money laundering in a California federal court, while his wife Paulette admitted to charges of money laundering and conspiracy to commit an offence against the US.

The couple owned DC Solar, a California-based manufacturer of mobile solar power generators that were used at outdoor concerts, sporting events and on construction sites. DC Solar sold those generators in packages to investment funds, which passed lucrative alternative energy tax credits on to outside investors including Berkshire, Progressive and the independent bank East West Bancorp.

The investors collectively paid more than $912m to the funds and DC Solar for a stake in the generators.

But the authorities allege that DC Solar only constructed a portion of the 17,000 generators — worth a purported $2.5bn — it claimed to have manufactured. DC Solar instead used the capital it raised to pay off earlier investors, US attorney McGregor Scott charged. The company filed for bankruptcy protection last year.

“This billion-dollar Ponzi scheme hurt investors and took money from the United States Treasury,” Mr Scott said on Friday. “Today’s guilty pleas send a strong message that fraudsters will get caught and will pay for their crimes. You can run, but you cannot hide.”

Berkshire disclosed last year that it had invested $340m in the vehicles, known as tax equity investment funds. Progressive last year wrote down its investment and increased its income tax provisions to reverse the tax credits it had previously claimed.

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Mr and Mrs Carpoff siphoned off at least $140m to purchase almost 150 luxury and sports cars, real estate in Lake Tahoe and Las Vegas, a Nascar race sponsorship and for a performance by the musician Pitbull at a DC Solar holiday party, according to court filings and US securities regulators.

“Jeff Carpoff pled guilty today in an early attempt to resolve the case as expeditiously as possible and to continue his efforts to make amends by making restitution to the investors,” Malcolm Segal, an attorney for Mr Carpoff, told the Financial Times. “He is terribly sorry for what he did and hopes this is the beginning of a new start.”

Mr Segal said that the couple had so far forfeited more than $100m and was working with the government to recover additional assets for the defrauded investors. An auction of the Carpoffs’ vehicles, which included a 1978 Pontiac Trans Am once owned by Burt Reynolds, raised more than $8m.

Bill Portanova, an attorney for Mrs Carpoff, said: “Paulette Carpoff has undergone tremendous changes these last few years. The business that they thought was going to be good for everyone morphed into something that everyone knew was wrong and now she is dealing with the consequences.”

Four other people have been charged and pleaded guilty for their roles in connection to the Ponzi scheme. Mr and Mrs Carpoff will be sentenced in May and face maximum prison terms of 30 and 15 years, respectively.

Berkshire Hathaway, East West Bancorp and Progressive did not respond to requests for comment.

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