SEC Charges CFO for Role in $910 Million Ponzi Scheme
Litigation Release No. 24692 / December 18, 2019
Securities and Exchange Commission v. Robert A. Karmann, No 2:19-cv-02531-MCE-CKD (E.D.Ca. filed December 17, 2019)
The Securities and Exchange Commission today announced charges against a CFO and certified public accountant for his role in a multi-year alternative energy tax credit Ponzi scheme run by two California-based companies. The defendant has agreed to settle the SEC's charges, with monetary relief to be determined by the court at a later date.
According to the SEC's complaint, filed in federal court in Sacramento, Robert A. Karmann, the CFO for one of the two companies, was an integral participant in a massive Ponzi scheme that raised approximately $910 million from 17 investors between 2011 and 2018. Investors allegedly were induced by others involved in the scheme to invest in tax credit investment contracts and sale leaseback investments through promises of gains in the form of tax credits, guaranteed lease payments, and profits from the operation of mobile service generators. In reality, the complaint alleges, 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 Ponzi-like payments, where funds from new investors were used to pay off old investors, not from actual lease payments.
The SEC's complaint alleges that, beginning in late 2014, Karmann advanced the scheme by transferring or coordinating the transfer of funds among the bank accounts of the two California-based companies to hide the lack of legitimate lease revenue. He also provided brokers, investors and prospective investors reports and financial statements that he knew contained false information.
The SEC's complaint charges Karmann with violating the antifraud provisions of Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, as well as Rules 10b-5(a) and (c) thereunder, and seeks injunctive relief, disgorgement, and civil penalties. Karmann has consented to permanent injunctions, with monetary relief to be determined by the court on motion by the SEC at a later date. The SEC previously charged two other defendants in this matter.
In a parallel criminal case, on December 17, 2019, the U.S. Attorney's Office for the Eastern District of California announced criminal charges against Karmann.
The SEC's continuing investigation is being conducted by Sarra Cho and Christopher Nee and supervised by Andrew Sporkin and Daniel Michael, all of the SEC's Complex Financial Instruments Unit, with the assistance of Kam Lee. The litigation is being led by Dean Conway and supervised by Thomas Bednar. The SEC appreciates the assistance of the U.S. Attorney's Office for the Eastern District of California, the Federal Bureau of Investigation, and the Internal Revenue Service.