SolarCity Reaches $29.5M Settlement Agreement With U.S. Government

On Friday, the U.S. Department of Justice (DOJ) announced that SolarCity Corp. has agreed to pay $29.5 million to resolve allegations that it violated the False Claims Act by submitting inflated claims on behalf of itself and affiliated investment funds to the U.S. Department of the Treasury pursuant to Section 1603 of the American Recovery and Reinvestment Act of 2009 (Section 1603). As part of the settlement, SolarCity and its affiliates will also release all pending and future claims against the U.S. for additional Section 1603 payments. In its announcement, the DOJ notes SolarCity was acquired by Tesla Motors Inc. in November 2016, after the alleged conduct at issue in this case.

“The Section 1603 program subsidized the renewable energy industry through cash grants to cover legitimate costs of renewable energy properties,” says Acting Assistant Attorney General Chad A. Readler of the DOJ’s Civil Division. “This program expired, but this settlement demonstrates that the government will still hold accountable those who sought to take improper advantage of government programs at the expense of American taxpayers.”

Under the Section 1603 program, the Treasury paid a cash grant equal to 30% of the eligible cost basis to construct or acquire qualified renewable solar energy systems placed in service before Dec. 31, 2016, the DOJ explains. The Treasury required applicants to certify that each Section 1603 grant application accurately set forth the cost basis of the system, and that all supporting information was true, accurate, and complete.

Beginning in 2009, SolarCity submitted thousands of Section 1603 claims on behalf of itself and affiliated investment funds. The government alleged that SolarCity falsely overstated the cost bases of its solar energy properties in its certified Section 1603 claims to the Treasury and, as a result, SolarCity and its affiliated investment funds received inflated grant payments from the Treasury.

“Treasury’s Office of Inspector General appreciates the hard work of the Department of the Treasury and the Department of Justice in supporting Treasury OIG’s mission to protect the programs and operations of Treasury from fraud, waste and abuse,” says Inspector General Eric Thorson for the Treasury’s Office of Inspector General (OIG). “Treasury OIG will continue its work to investigate instances of fraud impacting the American Reinvestment and Recovery Act grant programs, that are operated by the Treasury, and paid for by the American taxpayer to ensure that the money distributed by Treasury follows the law and is used for its intended purpose.”

“Treasury appreciates the substantial efforts of the Department of Justice and Treasury’s Office of Inspector General in pursuing this years-long investigation that was initiated following a referral from the Section 1603 Program staff,” says Treasury Fiscal Assistant Secretary David A. Lebryk. “This settlement sends a clear message that, working with the Department of Justice and the Office of Inspector General, Treasury will pursue any fraud or abuse in programs that it administers in order to protect the taxpayer.”

As part of the settlement, SolarCity has agreed to dismiss a lawsuit filed in the Court of Federal Claims by two investment funds affiliated with SolarCity arising from allegations that Treasury underpaid certain Section 1603 applications, as well as to release any other potential claims for additional Section 1603 payments. The lawsuit is captioned Sequoia Pacific Solar I, LLC v. United States, No. 13-139C (Fed. Cl.).

According to the DOJ, this settlement was the result of a joint investigation conducted by the Treasury, the Treasury OIG, and the Civil Division’s Commercial Litigation Branch. The DOJ notes that the claims resolved by the settlement agreement are allegations only and there has been no determination of liability, the DOJ notes.

Response

Following an inquiry into the DOJ settlement announcement, a SolarCity spokesperson emailed Solar Industry the following statement:

SolarCity accurately valued the solar energy systems in the applications it submitted for cash grants under the Treasury’s program, and it was entitled to the full amounts that Treasury ultimately approved and paid to the company after reviewing its applications. These are the facts:

 – Between 2009 and 2013, SolarCity installed approximately 29,000 solar energy systems that were eligible for cash grants under the Treasury program. SolarCity took its responsibilities under the program very seriously, and far from trying to overstate the value of those projects, it went to great lengths to determine accurate values. Independent appraisers, accountants, and investors gave those projects a total value of approximately $1.8 billion.

 – In addition to engaging independent appraisers and accountants with industry expertise, SolarCity hired expert attorneys familiar with the rules and regulations for such programs, solicited input from government regulators and market participants on valuation methods and assumptions, regularly reviewed and updated the assumptions and data it provided to the appraisers, and repeatedly sought direction and clarity from Treasury itself on the requirements of the program.

 – After conducting its own independent review, including a comparison to Treasury’s internally developed benchmarks, Treasury valued the projects at about $1.7 billion, and as required by federal law, paid SolarCity and its affiliates 30% of that amount, or $510 million, in cash grants. Around 2012, the Treasury began to reconsider some of its own valuations and revisited the amounts it had previously approved and paid.

 – SolarCity filed a federal lawsuit alleging that Treasury failed to follow the law. To defend its decision to ignore valuations by independent appraisers, accountants and investors and instead substitute its own judgment about value, Treasury hired an academic, Dr. John Parsons, whose testimony was thrown out of court in a similar lawsuit last year after the judge found he had lied under oath about his history of publishing articles in Marxist academic journals. With its expert discredited and a trial of SolarCity’s claims approaching, the government agreed to drop its case in exchange for a settlement.

It is telling that after an exhaustive five-year investigation, the government did not bring any lawsuit accusing SolarCity of any wrongdoing of any kind, and that it has agreed to drop all its claims upon SolarCity repaying approximately 5%, or $29.5 million, of the cash grants that Treasury previously reviewed, approved, and paid. As SolarCity has said all along, its projects were valued correctly, and the methods used to value its projects were sound.

Photo courtesy of the SolarCity website

2 COMMENTS

  1. is this a “marxist academic journal”? does the gov’t have a list of “marxist academic journals”? my first name is mark. i will not publish my marksist journal in case this is a misspelling! another “cash cow” led to slaughter? what a decision! litigate into bankruptcy to prove innocence or pay off the ***?

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