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Market Moves

Japan, European Development Bank Launch Social Bond Initiative

Partnership will promote and develop bonds that focus on ESG.

By Michael Katz

Japan’s $1.48 trillion Government Pension Investment Fund (GPIF) and the Council of Europe Development Bank (CEB) have launched a partnership to promote and develop sustainable capital markets. Their focus will be on social bonds, and the incorporation of ESG assessments in fixed-income investments.

“GPIF requires all asset managers to integrate ESG into their investment analysis and decision-making,” Hiro Mizuno, CIO of GPIF, said in a statement. “We regard the purchase of green, social and sustainability bonds as one of the direct methods of ESG integration in the fixed income investment.”

The CEB’s social bonds are issued in alignment with the “social bond principles” that are administered by the International Capital Market Association (ICMA), a Switzerland-based not-for-profit membership association with more than 580 members in 62 countries. According to the ICMA, social bonds are the use of proceeds bonds that raise funds for new and existing projects with positive social outcomes.

The social bond principles “promote integrity in the social bond market through guidelines that recommend transparency, disclosure and reporting,” says the ICMA. “They are intended for use by market participants and are designed to drive the provision of information needed to increase capital allocation to social projects.”

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The CEB launched its first social inclusion bond in 2017 and has since issued a total of €1.5 billion ($1.67 billion) of such bonds. The proceeds of the bonds are earmarked to finance projects considered to have a high social added value in social housing, education, and job creation and preservation in micro, small, and medium-sized enterprises, throughout Europe.

The CEB said its first social inclusion bond helped preserve nearly 113,000 jobs, while creating almost 1,300 new jobs, and helped make available close to 2,300 homes to low-income persons through construction or renovation projects. The bank also said that in education and vocational training, more than 57,000 students in 212 institutions benefited from the funds.

Launched in 2018, the bank’s second social inclusion bond, helped preserve more than 65,000 jobs and create 6,000 new ones, while making 2,600 homes available to low-income people. It also benefitted about 24,000 students in 31 institutions through education and vocational training.

“We are privileged to partner with GPIF,” CEB CFO Jacques Mirante-Péré said in a statement. “Their leadership on ESG-focused investments lends important support to the type of high-social-impact projects that the CEB finances throughout Europe.”

GPIF has approximately $32.4 billion in assets under management tracking ESG indices, and in September reported that four out five ESG indices selected by the fund outperformed their parent indices and market averages over the past two years. The ESG indices selected by the GPIF are composed mainly of medium and large-cap stocks and include the MSCI Japan ESG Select Leaders Index, the MSCI Japan Empowering Women Index, and the FTSE Blossom Japan Index.

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Home > News > Regulation > CFO Pleads Guilty for Role in $1 Billion Ponzi Scheme
Regulation

CFO Pleads Guilty for Role in $1 Billion Ponzi Scheme

Funds were ‘pilfered’ to purchase luxury vehicles, real estate, and to pay earlier investors.

By Michael Katz

The CFO of a California solar energy company has pleaded guilty for his role in an alternative energy tax credit Ponzi scheme that defrauded investors of approximately $1 billion.

Robert Karmann played a key role in a scheme to sell investment opportunities offered by his company and another unnamed solar energy company that manufactured, leased, and operated mobile solar generator, according to charges filed by the SEC and the Justice Department,

The generators were touted for their versatility and environmental sustainability. and were purportedly used by cell phone companies to provide emergency power to cell towers during power failures. They were also supposed to power lights at sporting events. The investments also were advertised as presenting gains in the form of tax benefits, guaranteed lease payments, and profits from the operation of the generators.

“That was all a sham,” said the SEC in its legal complaint. “The company had manufactured and put into service far fewer generators than it claimed, and made hardly any of its revenue from leasing generators.”

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As CFO, Karmann allegedly managed and directed the periodic transfers of new investor money to pay the company’s obligations to existing investors, said the Justice Department. It also alleged he disseminated false financial and other information to investors to mislead them about material aspects of the generator investments.

“Karmann’s criminal conduct was intended to create the false impression for investors that the MSG [mobile solar generator] investments were operating as promised,” said the Justice Department, “which helped lull existing investors, lured prospective investors, and caused investors to seek more than $1 billion in tax benefits from the Internal Revenue Service to which they were not entitled.”

Karmann also pleaded guilty to securities violations associated with the same investment fraud scheme.

The SEC said that in late 2014, Karmann allegedly began transferring, or coordinating the transfer, of funds to hide the fact that there was no legitimate lease revenue. He also allegedly supplied brokers, investors and prospective investors with reports and financial statements that he knew contained false information.

Investors paid hundreds of millions of dollars for generators that never existed, according to the SEC’s complaint, and most of the purported revenue was comprised of funds from earlier investors, which is the hallmark of a Ponzi scheme.

The SEC said the majority of investor funds were “pilfered” to purchase luxury vehicles and real estate, in addition to paying earlier investors

Karmann was charged by the SEC with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The regulator is seeking injunctive relief, disgorgement, and civil penalties. Karmann has consented to permanent injunctions, with monetary relief to be determined by the court on a motion by the SEC later. The SEC previously charged two other unnamed defendants in the scheme.

Karmann, who is scheduled for sentencing at the end of March, faces a maximum of 15 years in prison. The investigation into the fraud is ongoing.

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