Two Plead Guilty for Roles in $910 Million Ponzi Scheme

Victims were lured with the promise of gains from alternative energy tax credits.

Two men have pleaded guilty to participating in a massive fraud involving a solar energy company that defrauded investors of approximately $910 million, according to the US Attorney’s Office for the Eastern District of California. In a parallel action, the Securities and Exchange Commission also charged the men for their roles in the alternative energy tax credit Ponzi scheme. 

“Joseph Bayliss and Ronald Roach each played an important role in this scheme to sell investment opportunities offered by certain solar energy companies in the business of making, leasing, and operating mobile solar generators,” the US Attorney’s Office for the Eastern District of California said in a release. But “in reality, thousands of the purportedly profitable generators were never even manufactured, let alone put into use, and the vast majority of revenue to investors came from investor money, not from actual lease payments.”

The company allegedly lured investors by claiming there were favorable federal tax benefits associated with investments in alternative energy. The company structured the transactions  to maximize the tax benefits to the investors. Investors would buy the generators without ever taking possession of them, and then would pay a percentage of the sales price and finance the balance with the company.

The investors would then lease the generators back to the company, which, in turn leased them to third parties. A portion of the lease revenue would be used to pay the investors’ debts to the company and to the investors. However, the third‑party leases produced little income, and the company allegedly paid early investors with Ponzi-like payments contributed by later investors.

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The complaint alleges Bayliss provided bogus technical certificates of inspection for generators that he either never inspected or never existed. Meanwhile, Roach compiled financial statements that falsely reported that the business had real and significant revenue from real leases.

Roach “lent the imprimatur of his accounting firm to the bogus financials, and in some cases disseminated them directly to investors,” said the complaint. “While investors were fleeced, Bayliss and Roach each made millions off the scheme.”

The company boasted it was a major player in its industry with thousands of generators in the field, lucrative contracts with big customers, and extensive experience in making and maintaining the generators and finding customers for them.

“That was all a sham,” said the SEC.

In fact, the company only made about one-third of the generators that it claimed to have sold to investors. Recent efforts by investors to locate the generators have identified a little more than 5,800 of the approximately 17,600 generators for which the company entered into investor contracts. Investors paid hundreds of millions of dollars for generators that never existed, said the SEC.

The SEC’s complaint charges the two with violating the antifraud provisions of the federal securities laws and seeks injunctive relief, disgorgement, and civil penalties. Roach and Bayliss have consented to permanent injunctions, with monetary relief to be determined by the court on motion by the SEC at a later date.

Roach and Bayliss are schedule to be sentenced in late January. Roach faces a maximum statutory penalty of 10 years in prison, while Bayliss faces a maximum statutory penalty of five years in prison.

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ESG Funding Skyrocketed in 2018

BlackRock and Vanguard continue to grow socially conscious investment vehicles.

Assets managed in environmental, social, and governance (ESG) are growing. Willis Towers Watson’s Thinking Ahead Institute released new research on Monday that showed the largest 500 asset managers increased their positions in ESG by 23.3% in 2018 compared to their overall assets. Client interest in sustainable investing rose 83%.

BlackRock, which has been the largest asset manager since 2009, has almost $6 trillion in assets under management. Vanguard Group holds more than $4.8 trillion, and State Street Global has more than $2.5 trillion. Each has been in the top three list of global asset managers for five years. Fidelity holds more than $2.4 trillion in assets.

Beyond ESG, the Thinking Ahead study reveals several other trends:

  • The $91.5 trillion that the 500 managers hold declined 3% from the previous year.
  • The median assets under management was $45.6 billion, which rose from $44 billion the previous year.
  • Rowe Price joined the list of top 20 asset managers for the first time.
  • 57% of assets are in North America, compared with 31% in Europe and 5% in Japan.

The report revealed that the investment industry remains relatively unstable. Nearly half (242) of the names in the 2008 list of global 500 asset managers are not in the 2018 list. Experts attribute this to increased regulatory scrutiny, fee compression, and technology costs. Meanwhile, 81% of fund managers said that they increased resources to technology and data. And 57% of managers surveyed said they had experienced an increase in regulatory oversight.

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The results show that early ESG proponents are finally getting their due. Some have been pushing their beliefs for a long time. In 1982, John Streur, CEO of Calvert Research & Management, launched the first mutual fund that avoided any entities doing business in apartheid-era South Africa.

More recently, in 2012, Unilever’s then-CEO Paul Polman made sustainability a core management principle. The company created the Unilever Sustainable Living Plan, an effort to ensure that 100% of the material used in the company’s products were sustainable, leading to an increase in revenue and lower carbon footprint. And in 2018, BlackRock CEO Larry Fink said at the The New York Times Dealbook conference that within five years, all investors will use ESG metrics to determine a company’s worth. Last month, Bloomberg introduced new indexes with ESG benchmarks.

Sovereign wealth funds and US-based public pension funds have been early adopters of ESG. The Norwegian Government Pension Fund Global has been a pioneer, first turning to socially conscious investing in 2001. The California Public Employees’ Retirement System, the California State Teachers’ Retirement System, and the New York State Common Retirement Fund have incorporated ESG into their investment practices.

 

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