How much fraud can two people generate? Given enough nerve, a “good scam idea” and many unwitting investors, it can be as much as $1 billion.
DC Solar Corporation was the financial vehicle CPA Ronald J. Roach, used to catapult himself into the richer circles of fraud. He and his fellow-scammer Joseph W. Bayliss, who worked as a general contractor and electrician devised a scheme around mobile solar energy generating units or “MSG’s.”
According to the Department of Justice:
“To trick investors, Roach prepared years of financial statements that falsely characterized investments to purchase MSGs as revenue earned from the rental of those MSGs. Roach and his co-conspirators used those fraudulent financial statements to hide from investors the company’s use of later investor payments to pay financial obligations the company made to earlier investors—in a classic, Ponzi-like scheme. Roach also pleaded guilty to securities violations associated with the same investment fraud scheme.”
Where Bayliss came into the picture:
“Bayliss admitted to preparing thousands of false reports certifying the existence and operating specifications of thousands of MSGs sold to investors. Bayliss admitted that, for at least two years, he signed many of those false reports knowing that the MSGs associated with them did not exist, and knowing investors would rely on those false reports.”
Investors were tricked into believing that the mobile solar units were primarily purchased by mobile cellphone services to power cell towers whenever there was a power outage. They also convinced potential investors that the MSG’s were in use as power supplies to sporting events and any situations that required portable energy.
Two Men, One Goal
Much like the infamous Bernie Madoff, Roach paid off old investors with the money from new investors. To prove how well his company was doing he prepared ghost financials of sales that never happened to companies that never received shipments.
Bayliss certified sales all over California and Nevada from 2011 to 2018. While there was, in fact a solar company, it was no more than a vehicle to show legitimacy.
In total, more than $1 billion was lost on hardware totaling $2.5 billion in value. As long as the money came in, the company could manufacture mobile solar generator units (MSG), that were mounted on trailers. The problem was, they were never sold.
How were they able to hoodwink investors into the legitimacy of the operation?
The two claimed that there were favorable federal tax benefits associated with investments in alternative energy. Much like commodities such as wheat or beef, investors could buy MSGs without ever taking possession of them. According to the DOJ:
“The investors would lease the MSGs 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.”
Even when the leases were successful (they sold enough to show off the technology), the mobile solar units generated (MSG) almost minimal income. The Ponzi scheme kept paying off investors as long as they could rope in new investors.
In addition to Bayliss’ other woes, he was also implicated in the act of intentionally destroying evidence at the company’s Las Vegas headquarters.
Choices and Consequences
In January 2020, Roach will face a penalty of up to 10 years in prison. Bayliss could face up to five years in prison. However, the sentencing will be at the discretion of the courts at that point.
With no oversite the two were able to convince investors of the unlimited potential of portable solar energy. In fact, it was quite limited. The need was obvious: money. For a while, Roach and Bayliss lived the good life off of other people’s money. Instead of legitimately working to build the MSG company, they took shortcuts outside of any manufacturing and sales efforts.
Perhaps in their rationalization, they figured that eventually, sales would catch up with the falsified revenues but more probably, they figured a tool like bankruptcy could work. The investors who chose to believe that buzz-words such as “solar” and “environmental” were more important than due-diligence paid a dear price for their unwillingness to explore an actual product and an actual solution.
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