Berkshire Hathaway Suffers $377 Million Hit After Investing In Solar Ponzi Scheme

Berkshire Hathaway
Berkshire Hathaway Chairman Warren Buffett walks through an exhibit hall (Photo: Reuters)

Berkshire Hathaway, the holding and investment firm famously led by billionaire businessman Warren Buffett, has lost $377 million through an investment that is linked to a company accused of fraud. The company in question is a solar generation firm in the United States, which has been found by authorities to be involved in fraudulent activities.

The Omaha-based holding firm revealed its loss in its first-quarter report released over the weekend. Berkshire reportedly invested $340 million in various tax equity investment funds since 2015. Unknown to the company, federal authorities have started to investigate what is believed to be "fraudulent income" from the fund's major sponsors.

According to the company, its investment was tied to a company called DC Solar. Federal authorities have alleged that the company may have been running a fraud scheme, which involved the misuse of tax benefits. Berkshire admitted that it only learned about the findings of federal authorities sometime in December of last year and January of this year. According to the company, which launched their own investigation into the matter, the income tax benefits they had recognized with the investment may actually not be valid.

Apart from Berkshire, investment firms such as East West Bankcorp and Progressive Corp also reported losses involving their investments into DC Solar. The mobile solar generator company apparently bloated their capabilities in terms of providing investors with "favorable tax consequences." Federal authorities who had investigated the business allegedly uncovered a large Ponzi-type scheme involving various investments.

The US Securities and Exchange Commission has also formally accused DC Solar of engaging in a Ponzi scheme. In February, the Federal Bureau of Investigation (FBI) has determined that the firm's operations seemed to reflect evidence of an investment fraud scheme.

DC Solar filed for Chapter 11 bankruptcy protection earlier this year. The company provided products such as solar generators and light towers, similar to the ones used in large sporting events. The company's lawyer, Malcolm Segal, who represents its owners Jeff and Paulette Carpoff, has denied the company's involvement in the alleged Ponzi scheme. The California-based firm has so far refused to provide any further details.

Berkshire's asset base is comprised of equity investments worth $191.8 billion, which includes a number of renewable energy firms. The $377 million hits are relatively very small when compared to the company's $738.7 billion total portfolios. However, it still managed to slightly reduce Berkshire's first-quarter operating profits to $5.56 billion. Operating profits were still up by 5 percent when compared to the same period last year.

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