Pushkin.

I'm Ril Sabar, and I wrote the billion dollar ponzi scheme that hooked Warren Buffett and the US Treasury for the Atlantic magazine, and it's the story of the week.

Back in two thousand and seven, I invited the actor and environmentalist Ed Bagley Junior over to my house because while there's tons of information online about making your home more environmentally responsible, I can only hear things when a celebrity says them to me.

After running back to his electric car for a compass, Baguley determined that my house's south side was too well shaded for solar panels.

I was super disappointed to find out that a major adult celebrity carries a compass in his car.

I mean, is he telling his agent to meet him at the new restaurant at latitude twenty four point seven two six longitude negative one eighteen point three six three to two.

So I got a pass from Bagley on the solar panels, But that was actually my last house.

A new one seems a lot sunnier.

But the problem is that everyone who sells solar panels seems like they're working a scam.

I mean, I'm sure they're not.

But also they totally are.

Writing is hard.

Who's got that kind of time when you're already busy trying to be you all stand So it turns on a mic.

Maybe the twitles enough because a journalist trand has got in that jule jib partitories single story.

Just listen to smart people speak.

Conversation.

Film information is the story of the week.

Ariol Sabar wrote a profile for The Atlantic about a guy named Jeff Karpoff who had no college education, no backgrounds in engineering, but was able to create a multi billion dollar solar panel company, well sort of, Ariel, Like most of the great stories I tell yours is about a car mechanic, and this mechanic, Jeff Karpoff, he fell on some hard times, right so.

Around two thousand and seven, you know, he was this kind of pawnchey, thirty somethingter car mechanic living in this small town of Martinez, California, which is kind of a refinery town.

And so he goes up there kind of this working class household.

He loves cars.

He gets in trouble a lot as a high schooler.

He graduates from high school and he starts trying to open his own garages.

It doesn't go particularly well for him, Like he opens one, it just doesn't generate enough money.

He's out of work.

He doesn't know what he's going to do with his future.

But now his business is going under, So what is he going to move on to?

He basically like harvests a bunch of weed and he tries to sell it through this marijuana dispensary in San Jose.

And I interviewed the founder of the dispenser and he's like, yeah, I remember Jeff Karpuff.

He came down.

He tried to interest me him in his weed and like we only sell like really high grade stuff.

And we took this to this lab we used and it was like just terrible.

And he's like, there's no way we're going to carry this stuff.

And so once again Jeffkarpuff is sort of faces another kind of business failure.

So just so I can get a picture of this guy, is he really charismatic?

Like what is he like?

He's unusual, He's he is a charming guy in a kind of like a Bubba like way.

He's like the guy he's gonna throw his arm around your shoulder and say, hey, man, you want to come and take a take a spin in my like my mid nineteen seventy chevelle.

Like he's got these awesome muscle cars, but he's gonna feel like you're kinda kind of feel cool around him.

And you know, he has a sort of ruddy face.

He has a big goatee.

What's interesting about him is this kind of working class charm.

It's not a it's not a like Wall Street charm.

Yeah, it's not slick.

It's not slick.

It's kind of like Bo Duke and the DUSA Hazard going yehah.

All right.

So in two thousand and seven, he's lost his house, he's declared bankruptcy, he's had mechanic business has failed.

He apparently can't make decent weed.

So what does he turned out?

So he gets this phone call from a former client at his garage.

His client's like, listen, man, I've got some solar panels I've just come into I need someone to help me sell them.

And he's talking to one of his neighbors, and one of his neighbors is like, yeah, you know, I've always thought about putting solar panels on my roof, but like, I only live here on the weekends and I'm worried that these things are going to get stolen off the roof of my house.

So Jef Karpoff being Jeff Karpoff, how's this kind of like aha moment where he's like, wait a second, why do solar panels have to be on the roof?

Like what if you put them on a car trailer?

You can wheel out into the sun when you're at your vacation home so that you can power your home.

But when you're not there, you can put it in the garage, or you can just like hitch it to the back of your car and take with you wherever else you happen to be going.

So he goes out, he gets a patent.

Oh, the patent's title is literally as simple as trailer with solar panels.

Like it's just there's nothing else to it.

He can do this because he's a mechanic.

He's a mechanic, although he has no training in solar engineering.

And when I talk to his brother in law Bobby, he's like, yeah, I didn't know anything about solar I just figured it.

Eh, It's like good thing they got Google and all that.

This is the Peter Teele argument against.

College kind of Yeah, and so like these investors who live not far from him, they get wind of Jeff Karpoff building what sounds like solar on wheels.

These entrepreneurs sort of have Jeff wheel it out to like an empty parking lot, and they're like kind of gobsmack pot.

It's so simple and it makes so much sense, Like why should solar be fixed?

Why can't we make something that you get you can take on wheel to a construction site, to a concert venue, to a movie set, that can send renewable, clean power to users who need power on the go.

And they were thinking, Jeff, no, no, this is not an anti theft device.

This is mobile solar power.

This is like a disruptive generator.

This is disruptive technology.

So he goes to Daytona Beach and he basically pretends to be this like revolutionary in vendor who's on the verge of releasing this like world changing solar product.

And he sort of calls up this real estate agent and he says, I want you to show me a bunch of mansions in Daytona Beach.

I'm in the market now.

Of course, while he's doing this, he's basically broke.

So he goes to this real estate agent and he basically says, look, yeah, I'm shopping for mansions.

Oh, by the way, you must have a lot of really you know, affluent clients.

Is there anyone in your world who you think might be interested in investing in like a revolutionary solar product.

And this real estate agent is like, yeah, I actually know this woman in New York and through her connections in the world of New York find ants, Karpoff gets connected with some of the top people in this very arcane world of tax credit financing.

So this company it's is it called DC.

Solar, Yeah, it's called DC Solar.

And so he finds out about these tax credits, which how do those work?

Yeah?

So basically, since like the nineteen seventies oil crisis, when you had like long lines of cars waiting at gas stations to fill their tanks, Congress has tried to encourage investment in alternative energy, and so they created something called the Investment Tax Credit.

Basically, what it does is it gives businesses who buy solar equipment a tax credit.

And that tax credit, for a long time, used to be just ten percent.

In two thousand and five, Congress tripled the incentive.

Okay, so that makes it just thirty percent cheaper for people to buy these things.

Correct, the taxpayer is subsidizing the purchase essentially, and so the tax credits become really attractive, such that like there comes a moment when Karpoff realizes that what people are really interested in is less my mobile solar device than the tax credits they can get for buying them.

But why they still have to pay seventy percent for this overpriced thing.

Ah, but they don't.

Jeffkarpoff's scheme was.

The brilliance of his scheme is that he allowed buyers of his generators to put just thirty percent.

Down the full money they're getting back in gover Like.

All you have to put down, you know, big corporation who wants to buy my solar generator, is the thirty percent that you're going to get back anyway from the government at the end of the year.

So it costs you nothing.

You just put down thirty percent.

Now you'll get it back at the end of the year.

I, Jeff Karpoff and DC Solar will loan you the remaining seventy percent that you owe me, and you'll gradually pay it back because I will be renting your generators for you and getting lease money for doing that.

So there are these other companies that are buying the generator for only the thirty percent, which they get back in tax credits.

Correct.

Jeff is then renting out to other the ones that these new companies own.

He's renting them out and giving the profits on the rentals to this other company.

What kind of companies are these?

They're buying these things that they don't even bother physically owning.

Jeff's just renting them out to other people.

What kind of companies make these purchases?

These are like blue chip companies.

These are like some of the most stable, most sort of like venerable firms in America, like who like Geico, like Progressive Insurance, like Sherwin Williams, the bank company, Like.

Why is the paint company buying generators that they're renting out to other people.

One of the things that all these companies have in common is that they're not particularly exciting.

They are not pritically innovative.

But what they do have is a very predictable revenue stream every year, so they know that at the end of the year, you're going to have like this much profit, and they need to do as much as they can to reduce their tax burden at the end of the year.

What a lot of these companies do is they invest in these in these tax credit investments.

They give them tax breaks and a little bit of additional income lease income usually.

And what kind of numbers are we talking about, like for Berkshire Hathaway or Sherwan Williams, how many generators are they buying, how much they spending.

Sherwan Williams was their first big buyer, and they bought twenty nine million dollars worth, which for a guy who was broke wor you know, high school educated mechanic, to make that much money overnight was just like he just was living large as anybody would.

How does he react to that?

Oh, he's he's over the moon.

And almost immediately he takes out like one point three million dollars cash and buys himself a new house on the highest hill in Martinez where he can basically look down and all the people who thought he'd never amount to much suddenly it's like, look at me now, man, look at me.

Now, Look what I did.

He closes this huge twenty nine million dollar deal with Sherwan Williams.

He's getting deals from Geico.

These are real companies.

They must be like, you know, kicking the tires on this thing, right.

They're not, you know, They're just happy to work.

Have their tax lawyers talk with Jeff Karpoff's tax lawyers, fill out some forms, and in some cases there were site visits, not many.

They were really just interested in making sure that they were following kind of the letter of the law.

Did those site visits go okay?

Yeah?

I mean, Jef Karpoff was really good at making investors believe that the generators they were looking at belong to them.

But what he'd actually do was he basically sell the same generators over and over again to multiple buyers.

And I talked to one of Jeff Karpoff's salesmen at the time, and he said, you know, I went in there but right, you know, shortly before the Sherwood Williams inspection, and I noticed that like the first row of generators was fully assembled.

They looked fine, but like the rows behind them were not.

And if you actually knew what you were looking at, you realized that these things were only like half built, and he'd hidden all the sort of half assembled ones behind them fully assembled ones, and apparently this was enough to fool the inspectors for Sherwin Williams.

That's a pink company.

They're detail oriented.

You think, yeah, hell me is he actually making versus what he's selling.

So in the end, over a period of seven years, he sells about seventeen thousand of these mobile solar generators.

In actuality, only six thousand have been manufactured, and investors have no idea that they're basically all co owning the same generator, yet receiving independent tax credits for the purchase of all of them.

When we come back, Jeff Karpoff's scheme runs into a big problem.

But first, our advertisers are going to tell you about a great opportunity.

All you have to do is start a podcast and get three of your friends who start a podcast, and get them to get three of their friends to start a podcast.

You can't lose.

Jeff Karpoff has gone from car mechanic to this solar panel entrepreneur.

How are the panels he's making if he has no real engineering skill?

When they work, they work, okay.

The trouble is that they weren't particularly reliable.

They go back in some pretty awful places fairly early on.

So the power cut off during the filming of Disney's Alexander and the Terrible, horrible, no good, very.

Good, Bad Day, although all too appropriate for that movie, all.

Appropriate, it was definitely not a great day for Carpoff either.

There's another story we heard where Pink's trailer lost air conditioning an MTV concert.

Oh, I don't want that.

You don't want an angry Pink No, and I think with two exclamation points.

Yeah.

And so what Jeff Karpoff started doing was attaching one hundred gallon diesel generators to the solar generator as a backup, so that, I like, there was a breakdown or if there was a string of cloudy days, you'd have a diesel generator kick in, okay, And so they were.

There were some technical difficulties and the expanse the fact that they were charging one hundred and fifty some dollar for these things, or claimed to be able to get that much, meant that there was no one really interested in buying them, and also very very few people interested in leasing them for the long term short term lease is sure, So Jeff could not lock in those long term leases, and those long term leases were what underpinned his business model.

So he can't find these leases, and that puts them in a pickle because if he can't, if he can't raise money for the leases, he can't pay back the seventy percent.

So he's in a pickle, and he has a few options.

At that point.

He can either shut down the business.

I know enough about Jeff Karpoff now to know that that's not even a consideration.

Not a consideration.

He wants to keep this great thing going.

He wants to keep this snowball rolling until it's larger than life, and that's what he decides to do.

He and some of his associates have a meeting in twenty twelve in which they decided, like, well, wait a second, we were still able to convince a lot of these blue chip companies to buy our solar devices as a tax credit investment.

So I think we can close like a number of additional deals worth hundreds of hundreds of million dollars.

Now, what we're gonna do is we're gonna take that money from new sales and not use them to build new generators.

But we're gonna give most of that money, not all of it because we want some for ourselves, but give most of that money to earlier investors.

And mate, we're gonna make them think that that money is coming from the leases of their generators when it's not.

Oh, that's just pure Ponzi scheme, right, pure ponzi.

Yeah, okay, pure Ponzi with a twist, because in most Ponzi schemes, you have to raise all of that money, oh right, that you need to give to the to the last guy.

What's awesome about this or terrible is that in this case, Jeff's load is lightened by the fact that the American taxpayer is subsidizing it through the tax credits, right, so he doesn't have to come up.

With So it's a Ponzi scheme with a thirty percent discount, Yeah, exactly.

So he gets a thirty percent right off on his Ponzi on the amountain.

That's not enough.

You're still screwed eventually.

But it buys you time.

So he's taking in all this money through this Ponzi scheme.

Is he spending it?

Like, what's he doing with all this money?

He's definitely spending it, you know, on on on muscle cars, on luxury seats at the new NFL Stadium in Las Vegas on a pro private jet service.

But he's also using it to kind of tell a story, which is interesting.

You know, he's basically surrounding himself with this sort of like mythology that he is this embodiment of the American dream, right, and so like when he would pull into too work in the morning, like a hard rock version of the Star Spangled banner would like thunder from the speakers of his rent pickup Roman.

He later installed this like giant, like six panel photograph for the American flag on his factory walls and claimed that his family said the Pledge of Allegiance instead of grace at holiday meals.

That's awesome and one of my favorite moments was actually found in an old episode of Counting Cars, which is a reality TV show.

Oh, he goes into like a custom car place in Vegas and he says, I want a motorcycle with an America theme.

Paine job.

He wants like the statue of Liberty on the side of the tanks, like waving the American flag, and he wants like like a kind of an image of the Constitution on the back of the bike that says, we the people.

And you wrote this thing that blew me away about him and cash at his meetings.

Oh yeah, he loves cash.

He loves cash.

So he would like come into the office like randomly with like shopping bags full of cash.

Like he just of no discernible provenance, but he'd come in with like bags of cash, walk through the accounting department, and you can imagine their orror, like unaccounted for cash if you're a professional accounting department.

He's like, hey, guys, sid what I got.

He'd open up his plastic bag.

He's like, there's two hundred and fifty thousand dollars of cash in this bag, and I got another guy who had spoke to you.

He remembered walking past his office one day and noticing that Jeff had his like giant cash safe open and he had just this huge pile of cash on his desk.

It was like a pile so large that if two people were sitting on opposite sides of the desk, they wouldn't have been able to see each other.

And he would do things too to make people just feel like super lucky to work for him.

So at the end of like all hands business meetings, which were held once a month.

He would reach into his pocket pull out like a giant wat of cash, and he'd go around the room asking each of his employees to guess how much cash was in his fist, and whatever employee came closest to guessing it, some would get the cash.

And it was fun.

It was like you were in a casino, like you might.

You might be this working class guy putting together generators all day.

But guess what if you guess that he had three thousand dollars in his hand, That money was yours to take home and do what you wanted.

And the other thing he spent his money on a really really big parties.

Now d C Solar at its largest had like maybe one hundred employees, but he would show throw these lavish Christmas parties at the Fairmount Hotel, which one of the nicest hotels in San Francisco.

And he's paying for live private performances by like the pop band Sugar Ray, by the rapper Pitbull, by the country band Big and Rich, just for his employees, with like elaborate light shows, go go dancers, full video production for one hundred employees.

How does he show off in front of his employees.

At some point I wasn't deftly sure when he comes up with this nickname for himself, which is that he's now he's no longer just Jeff Karpoff, He's Jeff motherfucking Carpoff.

Becomes such a well known acronym, he's just basically abbreviates it to JMFC.

So like he would have like JMFC emblazoned on I don't know hats, and also on his parking space outside of work would say JMFC.

He would openly refer to himself at these holiday parties as Jeff motherfucking Karpoff.

So he loved like sort of like basking in the limelight of his success.

But he also, I think was smart about it, because if you're running a criminal scheme, your employees should probably have having some doubts and some questions, but you didn't need to make them have such a great time that they're like, you know what, I don't need to look too closely at whether these generators work.

So he's given them a great time.

No, it's the opposite.

He's got cash everywhere.

It's like scarface.

I would definitely question this, Okay, are investors at all starting to catch on.

They are eventually starting to develop some suspicions, and I think you know there is word does start to leak that the IRS has begun audits because the numbers don't really work.

The IRS has to be sure if you're claiming a forty five thousand dollars tax credit on one hundred and fifty thousand dollars purchase, the RS wants to be sure that the thing you're selling is actually worth one hundred and fifty thousand dollars.

So the IRS starts looking at, well, how much are these things actually worth?

And once they actually do an audit, they decide that these devices aren't worth one hundred and fifty thousand dollars.

They're worth thirteen.

Thousand oh so not even close, not even close.

Yeah.

So, even while the IRS is investigating, is the Obama administration still into this company and giving them all these tax breaks.

THEBOMA administration is certainly interested interested in combating climate change and one of the initiatives that they that they launch is this program called the Smarts City Challenge, And so amazingly like DC Solar gets chosen to be among the companies that are part of this smart city challenge, and so.

Shouldn't the irs have warned them not to put them on.

I'm not really sure how those kinds of communications happen.

So now that the walls are kind of closing again, they're running out of time, how do they react?

So Jeff and his wife have kind of really different reactions.

Like Jeff Karpoff's still like outwardly seems to be having the time of his life.

But Paulette, who's kind of behind the scenes, who's helping run the company, she has to do kind of all the dirty work in the sense of like making sure that everybody stays in line.

The Carpoffs actually installed dozens of these surveillance cameras around their office and shop floor, and Paullette would like look at all the feeds from these cameras, which played on like a really big TV screen in her office, So like she was constantly looking at like who's going into what office?

Like why is that person spending so much time in the bathroom?

That's that's suspicious.

She was sort of short women, but she was very sort of powerful within the company, and the employees lived in fear of her.

And she also apparently had this plaque on her desk that said, I'll be nicer if you'll be smarter, and that persona was amplified by these two large dogs Belgian mellanoise, one named Diesel interesting, the other food which I think means crazy in French.

That one of them was trained to attack.

There's like a level three attack dog.

I forget what the terminology is.

So you have this really like good cop bad cop thing happening between Jeff, who's like the fun guy I always joke in handing out cash to Paullette, who's like really anxiously trying to hold everything together behind the scenes.

So the Carbovs know that they are on a limited amount of time with this Ponzi scheme, or how are they going to deal with this?

They start moving money overseas into offshore accounts.

They also buy kind of a mansion on the Caribbean island nation, at the Caribbean nation of Saint Kitts and Nevis.

One of the contingency plans that he claimed to have made was that he claimed to have buried a half a million dollars worth of math at a cemetery, and Martinez.

Of course he did.

Whether that story is true or not.

I don't know, but he told he told someone about it.

He said, don't worry if anything goes south.

I've got money stashed away in different places, including a bunch of myth in a cemetery.

I'm not sure the FBI knew about that before my story, but they do now.

I'm not sure if there's been any exhumations since then.

So listeners, hurry before the FBI takes this up.

There's a half a million dollars worth of math in the desert somewhere.

It's pretty wild.

So how does he get busted?

Yeah, so like after you know, a fairly long, intensive investigation, like one hundred and seventy vehicles stream out towards DC Solar headquarters.

One hundred and seventy's a lot.

Yeah, And you know, they go to his house and they go to DC Solar headquarters.

They do have to knock down the door at Jeff Karpov's house.

I think they had to had to be a bit of a surprise.

There were some precautions they had to take.

There was a swat team.

And what do they find that.

They find a lot of cash, like how much cash?

Like I think in Jeff's safe they found like one point seven million dollars.

What does it look like?

I can't picture like how big a pile that is.

I think it's like a Scrooge mcdoug level of cash.

And that's his emergency running away to Saint KITT's money.

Yeah, I think it's part of his go bag of like, okay, if I need to get out of here.

And the irony is that, like he could have left earlier.

He probably could have fled the country earlier, but he doesn't do it.

And just three days before the raid, he's wearing like a black sequin tuxedo of course, and partying with Pitbull at the Fairmont Hotel at a holiday party.

He's having one more glorious day as Jeff motherfucking Carpoff before it all comes crashing down.

So does he wind up going to trial?

No, he does not wind up going to trial.

The US Attorney's Office in the Eastern District of California basically gets all of his underlings to flip on him.

They all basically make plea agreements.

That's gonna land in prison time, but less prison time than they than they get if they went to trial.

So a lot of people got to a lot of people go to prison.

Yeah, a lot of people say this is you can't pull off a Ponzi scheme like this without a lot of help.

And they're basically corner.

They have no where, nowhere else to go, and they agree to plead guilty to a number of felonies.

How much time does he get?

He gets some thirty years, which is a long time, and his wife, paul ed she gets about eleven years in total.

How much did these people scam the government out of?

They wind up scamming these companies and by extension, the US taxpayer out of about a billion dollars.

How does Jeff Karpoff compare to the other great scammers of our time?

The Bernie made Offs, the Elizabeth Holmes.

What I like about Jeff Karpov is that he inverts the traditional Ponzi story.

A lot of times Ponzi schemes, especially those involving like mom and pop investors, are due by like a financial whiz kid who went to way better schools, who has way better connections.

This inverts that by making the small town, high school educated little guy who everyone's written off out maneuver.

The likes of Warren Buffett, the executives of US Bank Progressive Insurance.

So it's a kind of like it's a revenge of the little guy against all these big companies who've been screwing the little guy forever.

And that's part of what attracted me to the piece.

Ario El Sabar, you wrote the billion dollar ponzi scheme that hooked Warren Buffett and the US Treasury for the Atlantic, and it's the story of the week and possibly also the longest headline we've had on the show.

Thanks so much for having Rachel.

As we learned in episode thirty six, titled The Never Ending Treasure Hunt, people love to look for bury treasure.

Ario revealed in his story that there is possibly five hundred thousand dollars worth of methamphetamine under the ground in a cemetery in Martinez, California.

Listeners, the Martinez meth Treasure Hunt is on.

Whoever finds this chat will not only have a lifetime supply of stimulants, but a special mention at the end of a future episode, good luck and made the best grave digger win.

Pushkin Industry is not responsible for any of all laws broken on the Martinez Metz Treasure Hunt.

At the end of the show.

What's next for Joel Stein?

Maybe he'll take a naper poker round online.

Our show today was produced by Kate mccauliffe and Nishavenka.

It was edited by Lydia Jane Kott.

Our engineer is Amanda kay Way and our executive producer is Catherine Shiradah.

And our theme song was written and performed by Jonathan Colton and a special thanks to my voice coach Vicky Merrick and my consulting producer Laurence Alasnik.

To find more Pushkin podcasts, listen on the iHeartRadio app, Apple Podcasts, or wherever you listen to your podcasts.

I'm Joel Stein and this is the story of the week.

There's a very very obscure You're an exotic financial instrument.

Uh oh, I like this.

Yeah, I know it's scary.

I'll try to make it really simple, please.

And it's called a tax equity fund.

And what a tax equity

You've already lost me