SEC v. ROBERT A. KARMANN, No. 2:19-cv-02531-MCE, Eastern District of California (Dec. 18, 2019) — Complaint

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DEAN M. CONWAY
(counsel for service)
SARRA CHO
CHRISTOPHER NEE
Email:  [email protected]

Attorneys for Plaintiff
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
Telephone: (202) 551-4412
Facsimile: (202) 772-9245

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

vs.
ROBERT A. KARMANN,
Defendant.

    Case    No.

COMPLAINT

Plaintiff Securities and Exchange Commission (“SEC”) alleges:
JURISDICTION AND VENUE
1. The Court has jurisdiction over this action pursuant to Sections 20(b),
20(d)(1) and 22(a) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C.
§§ 77t(b), 77t(d)(1) & 77v(a), and Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27(a) of
the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78u(d)(1),
78u(d)(3)(A), 78u(e) & 78aa(a).
2. Defendant has, directly or indirectly, made use of the means or
instrumentalities of interstate commerce, of the mails, or of the facilities of a national
securities exchange in connection with the transactions, acts, practices and courses of

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business alleged in this complaint.
3. Venue is proper in this district pursuant to Section 22(a) of the Securities
Act, 15 U.S.C. § 77v(a), and Section 27(a) of the Exchange Act, 15 U.S.C. § 78aa(a)
because certain of the transactions, acts, practices and courses of conduct constituting
violations of the federal securities laws occurred within this district.  Defendant
committed many of the acts set forth in this Complaint in this district.  For example,
Karmann maintained an office at Company S and initiated bank transfers and sent
emails from his office computer at Company S, which is located in this district.
SUMMARY
4. This case involves fraudulent securities offerings and a massive Ponzi
scheme that raked in over $910 million in investor funds.  This Ponzi scheme was
orchestrated by Individual 1 and Individual 2 through companies they controlled, and
which they used to enrich themselves at investors’ expense.  The Defendant in this
action, Robert Karmann, played an important role in this scheme to sell investment
opportunities offered by certain solar energy companies in the business of making,
leasing, and operating mobile solar generators (“Generators”) -- investments that
were touted as presenting gains in the form of tax benefits, guaranteed lease
payments, and the resulting profits from the operation of the Generators.  In reality,
the vast majority of “revenue” sent to investors came from investor money, not from
actual lease payments from end-users of the Generators.  Beginning in approximately
late 2014, Karmann advanced the scheme by transferring and/or coordinating the
transfer of funds among various bank accounts to hide the lack of legitimate lease
revenue.  Karmann also provided reports and financial statements that he knew
contained false information to brokers, investors, and/or prospective investors.
5. In 2011, Individual 1 and Individual 2 began selling investment contracts
through their privately-held alternative energy companies Company S and Company
D (collectively with Individuals 1 and 2 “the Company”).  Through December 2018,
the Company raised around $910 million from purchasers of the investment contracts.

COMPLAINT
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The Company designed the investments to take advantage of tax credits that were
available to certain alternative energy related projects.  To that end, investors
purchased Generators from Company S and then immediately leased them to
Company D.  Company D was then supposed to sub-lease the Generators to end-
users.  The Company touted itself as a major player in its industry, with thousands of
Generators in the field, lucrative contracts with big customers yielding a track record
of consistent revenue, and extensive experience in making and maintaining the
Generators and finding customers for them.
6. That was all a sham.  The Company had manufactured and put into
service far fewer Generators than it claimed, and made hardly any of its revenue from
leasing Generators.  In fact, Company S did not actually manufacture about two-
thirds of the Generators that it purportedly sold to investors.  Recent intensive efforts
by investors to locate the Generators have identified just 5,858 of the approximately
17,600 Generators for which the Company entered into investor contracts.  Investors
paid hundreds of millions of dollars for Generators that never existed.  And,
legitimate lease income from actual end-users of the Generators represented a tiny
fraction -- less than 5% -- of Company D’s revenue.  The vast majority of Company
D’s revenue was comprised of investor funds transferred from Company S.  In
reality, the vast majority of investor funds was not being used to manufacture, place
into service, and maintain the thousands of Generators that the Company was using as
the basis for investment contracts, but was instead being pilfered by Individuals 1 and
2 for their personal benefit, such as the purchase of luxury vehicles and real estate,
and used to make lease payments and distributions to earlier investors.
7. Defendant Karmann played a key role in the scheme by helping to create
the false appearance that Company D was generating legitimate lease revenue.
Karmann is a certified public accountant who ultimately served as the Chief Financial
Officer of Company S.  As Company D did not have its own CFO and was closely
affiliated with Company S, Karmann performed essentially the same CFO duties for

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Company D as well.  Throughout much of the scheme, because Company D was
generating minimal amounts of legitimate lease revenue from end-users of the
Generators, Karmann transferred money from the bank account of Company S to the
bank account of Company D each month.  These transfers allowed Company D to
make the lease payments that it owed to investors and conceal the fact that it was
generating hardly any revenue from sub-leasing the Generators to end-users.
Karmann also provided false information to investors concerning the source of
Company D’s revenue and the sub-leases of their Generators.
8. As a result of the conduct alleged herein, Defendant has violated the
antifraud provisions of the Securities Act and the Exchange Act.  The SEC brings this
action and seeks entry of permanent injunctions against Defendant as well as
disgorgement of ill-gotten gains and prejudgment interest thereon and civil penalties.
THE DEFENDANT
9. Robert A. Karmann is a resident of Clayton, CA.  He was the CFO and
prior to that, the Controller, of Company S from late 2014 through 2018.  He holds a
CPA license in California.
RELATED INDIVIDUALS AND ENTITIES
10. Company S is a California corporation headquartered in Benicia, CA.  It
was owned by Individual 1.  Company S is not registered with the SEC in any
capacity.  It filed for bankruptcy protection in early 2019 and is currently in Chapter 7
proceedings.
11. Company D is a California corporation headquartered in Benicia, CA.  It
was owned by Individual 2.  Company D is not registered with the SEC in any
capacity.  It filed for bankruptcy protection in early 2019 and is currently in Chapter 7
proceedings.
12. Individual 1 was a resident of Martinez, CA during the relevant time
period.  In addition to owning Company S, Individual 1 was the President and a
Director of Company S and the Vice President and a Director of Company D.

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13. Individual 2 was a resident of Martinez, CA during the relevant time
period.  In addition to owning Company D, Individual 2 was the President, Secretary,
Treasurer, and a Director of Company D and the Secretary, Treasurer and a Director
of Company S.
14. Ronald J. Roach is a resident of Walnut Creek, California.  Roach was a
certified public accountant and the owner of Ronald J. Roach Accountancy
Corporation.  He has held Series 6, 7, 63 and 65 securities licenses and was a
registered investment adviser and a registered representative.
FACTUAL ALLEGATIONS
A. Background on the Company
15. Individuals 1 and 2 are the owners and principals of Company S and
Company D.  To investors, the Company claimed that it “design[ed], manufacture[d]
and lease[d] renewable energy products to serve the off-grid needs of a broad and
diverse marketplace – while providing investors with access to the renewable energy
asset class.”
B. The Company Offerings
(1) The Solicitation of Investors
16. Since at least 2011 and continuing to December 2018, the Company
offered securities to investors.  The securities took the form of two types of
investment contracts: (1) Investment Fund Contracts and (2) Sale-Leaseback
Contracts.  Under both arrangements, the investors paid to purchase Generators from
Company S, while simultaneously leasing them to Company D.  Company D would
then arrange to sub-lease the Generators to end-users.  The investors expected to
profit from the investments due to tax credits, depreciation on the Generators, and
lease payments.  Investors thus played an entirely passive role:  the success of the
venture, and thus the profits to investors and the Company, turned entirely on the
efforts of the Company to make, maintain, market, and lease the Generators.
17. Over the course of the offerings, the Company raised approximately

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$910 million in investor money.  These deals had face values of more than $2.7
billion because investors in the Investment Fund Contracts financed approximately 70
percent of the amount of their investments through promissory notes.
18. The Company, directly and indirectly, solicited investors through
brokers and salespeople using various methods, including email, conference calls and
in-person meetings.  The Company offered and sold Investment Fund Contracts and
Sale-Leaseback Contracts through interstate commerce to investors across the United
States.
19. The Company marketed itself as having extensive experience and
capabilities in the renewable energy field and in executing successful transactions for
investors.  For example, pitch-books for investors, which were prepared by a broker
working on behalf of the Company using information provided by the Company,
emphasized that the Company had thousands of Generators deployed and
manufacturing capabilities of 900 Generators per month.  They also highlighted that
the Company had closed many prior investment funds with “headline” or “notable”
investors, including funds with fair market values near or over $100 million, and that
the “performance of each of the funds remains in good standing.”  In addition, the
materials claimed the Company had “customer relationships with leading companies
in the telecommunications, entertainment and construction industries” and provided
case studies of the established leasing arrangements with many of those customers.
Finally, certain of the pitch-books provided a “Summary of Investor Returns” with
estimated internal rates of return ranging from 40 to as high as 50 percent.
(2) The Terms of the Investment Fund Contract Offerings
20. Investment Fund Contract investors executed a standard package of
agreements, including:  (i) a Limited Liability Company Agreement (“LLC
Agreement”); (ii) a Solar Equipment Purchase Agreement (“Purchase Agreement”);
(iii) a Secured Promissory Note (“Promissory Note”); and (iv) a Mobile Solar
Equipment Lease (“Equipment Lease”) (together the “Investment Fund Contracts”).

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The documents were executed at or around the same time, with Individual 1 signing
the Purchase Agreements on behalf of Company S and Individual 2 typically signing
the Equipment Leases on behalf of Company D.  While the Investment Fund
Contracts for certain deals had minor variations in wording, they largely had the same
substantive terms.
21. Under the terms of the LLC Agreement, an investor became the
“Investor Member” of the Investment Fund Limited Liability Company (“Investment
Fund”), an entity created specifically for the purpose of the investment.  This
Investment Fund then purchased Generators from Company S at a price of $150,000
per Generator under the Solar Equipment Purchase Agreement.  The Purchase
Agreement specified the total number of Generators being purchased as well as the
total purchase price.  An Exhibit to the Purchase Agreement contained a blank space
for the Vehicle Identification Numbers (“VINs”) for the Generators or stated that
“VIN for each Generator to be Supplied at Delivery.”  In exchange for the payment,
Company S agreed to deliver the Generators by a certain date or dates and warranted
“to Buyer that all Equipment shall be in good working order in conformity with the
Specifications for a period” of five or ten years.
22. The delivery dates for tranches of Generators specified in the Purchase
Agreements were often scheduled in stages.  Likewise, the Purchase Agreements
dictated that payments would be due to Company S in stages according to a schedule
in part dictated by capital contributions being made by the investor under the terms of
the LLC Agreement.  Those capital contributions were contingent on the investor
receiving confirmation that the Generators were “Placed in Service” as evidenced by
an “IE [Independent Engineer] Certificate.”
23. Investors generally contributed about thirty percent of the purchase price
in cash and financed the balance pursuant to a Promissory Note or Notes executed by
the Investment Fund in favor of Company S.  The Promissory Note was an exhibit to
the Purchase Agreement.  The Company told investors, and arranged for a tax

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opinion letter from a law firm confirming, that the Generators qualified for the
Energy Credit under Internal Revenue Code § 48.  That provision allows for a thirty
percent tax credit for certain energy-related investments.  Thus, investors expected to
be able to take a tax credit for roughly the same amount as their cash contribution to
the investment.
24. Under the Investment Fund Contracts, the Generator business was left
entirely to the Company.  At the time the Investment Funds executed the Purchase
Agreement with Company S, the Investment Funds also executed the Mobile Solar
Equipment Lease with Company D for at least the first batch of Generators being
purchased.  Depending on the size of the transaction, as additional tranches of
Generators were manufactured, additional Equipment Leases were executed.  Under
the Equipment Leases, the Investment Funds leased their Generators to Company D
for terms ranging up to 120 months.  The Equipment Leases provided that Company
D shall use “the Solar Equipment in a careful and proper manner” and “shall comply
with all laws, regulations and ordinances.”  Moreover, the Equipment Leases stated
that Company D shall be “solely responsible for the maintenance and repair of the
Solar Equipment” and “shall ensure the Solar Equipment is operational and capable
of producing solar energy at all times.”  The Equipment Leases required Company D
to “obtain, maintain and keep” insurance coverage on the Generators in the amount of
the replacement cost as well as “liability insurance.”  In addition, the Equipment
Leases required Company D to “promptly pay when due, all license fees, registration
fees, sales taxes, use and property taxes, assessments, charges and other taxes”
imposed upon the Generators.
25. The Equipment Leases further provided for a set amount of “Base Rent”
to be paid to the Investment Fund in advance in monthly installments for the term of
the lease as well as payment to the Investment Fund of “Additional Rent” or
“Variable Rent” to the extent Company D received revenue from subleasing the
Generators in excess of a certain amount.  The amount of additional or variable rent

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due to the Investment Fund varied depending on the deal and the calculation was
specified in the Equipment Lease.
26. The Investment Fund Contracts were structured such that there was a
flow of money between the Investment Funds and the Company, all of which was
contingent on the Generators generating significant sub-lease revenue from legitimate
end-users.  Company D owed monthly lease payments to the Investment Funds
purportedly to be paid with the sub-lease revenue it received from third-party
customers.  The Investment Funds would then use the lease payments they received
from Company D under the terms of the Equipment Leases to make monthly
payments due to Company S under the terms of the Promissory Notes.  Investors
expected several benefits under the arrangement, including the thirty percent energy
tax credit and the ability to claim significant depreciation on the Generators.  In
addition, investors expected to receive yearly cash distributions from the Investment
Funds.  In general, the LLC Agreements stated that “Distributable Cash,” defined as
the amount of cash from lease revenue remaining after loan payments and operating
expenses, would be paid out to investors on an annual basis.  Based on financial
projections for the Investment Funds that were provided to investors, investors
expected to receive these cash distributions.
27. From December 2011 through December 2018, the Company closed 34
Investment Fund Contracts, involving 13 investors, totaling about $2.57 billion in
face value.  The investors made roughly $759 million in cash contributions to their
Investment Fund Contracts.  Twenty-four of these Investment Fund Contracts,
involving investor cash contributions of $651 million, were closed after Karmann
joined Company S in 2014.
(3) The Terms of the Sale-Leaseback Contract Offerings
28. The Company began offering the second type of security, the Sale-
Leaseback Contracts, in around 2017.  Investors in the Sale-Leaseback Contracts
typically executed several agreements including: (i) a Sale Agreement; (ii) an

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Equipment Lease Agreement; and (iii) a Schedule (collectively the “Sale-Leaseback
Contracts”).  Individual 1 typically signed the Sale Agreement on behalf of Company
S, or in one instance on behalf of another affiliate of the Company, and Individual 2
typically signed the Lease Agreement and the Schedule on behalf of Company D.
While the Sale-Leaseback Contracts for certain deals had minor variations in
wording, they largely had the same substantive terms.
29. The Sale-Leaseback Contracts differed from the Investment Fund
Contracts in that investors purchased the Generators outright from Company S, or in
one instance another affiliate of the Company, without executing a Promissory Note.
Under the Sale Agreement, investors paid $150,000 for each Generator they
purchased.  The Generators were identified by VIN in an exhibit attached to that
Agreement.  In exchange for the purchase price, Company S agreed to convey to the
investors “all right, title and interest in” the Generators.
30. One Sale-Leaseback Contract transaction differed from the others in that
the investor purchased used Generators and paid $82,500 for each.  As the Generators
were used, they did not qualify for the tax credit.  However, the investment worked
the same as the other Sale-Leaseback Contracts with the investor immediately leasing
the Generators to Company D and being entirely reliant on Company D to maintain
and sub-lease the Generators.
31. Just as was done in the Investment Fund Contracts, under the Sale-
Leaseback Contracts the investors immediately leased the Generators back to
Company D (or another affiliate of the Company) in return for monthly payments
purportedly to be made from sub-lease payments.  Under the Lease Agreement,
Company D committed to keeping the Generators “in good repair” and operating
condition and to “maintain” insurance coverage on the Generators as well as “liability
insurance.”  The Lease Agreement also required Company D to pay, or reimburse the
investor for, all taxes, fees, and assessments imposed on the Generators.
32. Like the Investment Funds, most investors in the Sale-Leaseback

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Contracts received an “IE Certificate,” or “IE Commissioning Report,” for each new
Generator that they purchased.
33. The Schedule to the Lease Agreement set forth the term of the lease and
a set lease payment due to the investors from Company D each month.  An
attachment to the Schedule again identified the Generators by VIN.  In addition to the
monthly lease payments, most Sale-Leaseback Contract investors expected to be able
to take the 30 percent energy tax credit as well as depreciation on the Generators they
purchased.  In fact, the Schedules in certain of the Sale-Leaseback Contracts
specifically referenced the energy tax credit and depreciation and required Company
D to use the Generators so as to remain eligible for those tax benefits.  Based on the
combination of tax benefits and lease revenue, the Sale-Leaseback Contract investors
expected to earn a positive return and profit from these transactions.
34. From 2017 through 2018, the Company completed seven Sale-
Leaseback Contracts, involving four investors, in transactions worth nearly $151
million.  All seven Sale-Leaseback Contracts were completed after Karmann joined
Company S.
(4) The Company’s Offerings Are Securities
35. The Company offered and sold the Investment Fund Contracts and Sale-
Leaseback Contracts through interstate commerce to investors located in multiple
states.
36. The Company’s Investment Fund Contracts and Sale-Leaseback
Contracts are securities in the form of investment contracts.  They represented an
investment of money, in a common enterprise, with the expectation of profits to be
derived from the efforts of a third party.  Investors provided money to the Company
for investment purposes.  Because the terms of the Investment Fund Contracts and
Sale-Leaseback Contracts tied the fortunes of the investors to those of the Company
and its ability to manufacture the Generators and then sub-lease them at optimal rates,
investors were investing in a common enterprise.  And, because the terms of the

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Investment Fund Contracts and Sale-Leaseback Contracts made investors entirely
dependent on the Company to manufacture, operate and maintain their purported
Generators, the Company’s efforts were essential to the failure or success of the
common enterprise.  Investors also had an expectation of profits from the tax benefits
and payment stream to be generated from the enterprise.
C. Karmann Committed Deceptive Acts in Furtherance of the Fraud
37. Unbeknownst to investors, most of the lease revenue paid to investors
consisted of investor funds, rather than lease income from legitimate end-users of the
Generators.  Karmann knowingly took part in hiding these facts from investors and
perpetuating the Company’s fraud.
(1) Karmann Moved Funds Among Accounts
38. Lease revenue from end-users of the Generators was critical to the
success of the investments because it would be the source of the funds that Company
D needed to make lease payments to the Investment Funds and Sale-Leaseback
Contract investors.  Although Company D purported to be earning millions each
month in lease revenue from end-users of the Generators, bank records demonstrate
that Company D generated minimal lease revenue from sub-leases to end-users.  In
fact, the vast majority of funds flowing into Company D’s bank accounts consisted of
transfers of investor funds from Company S.
39. For example, during the period of January 2013 through December
2018, a total of about $409,930,000 was deposited to Company D’s bank accounts.
Of that amount, approximately $383,347,000 -- or 93.5% -- consisted of transfers
from Company S’s bank accounts.  And, another $8,268,000 -- or 2.0% -- consisted
of transfers from the bank accounts of different Investment Funds.  At most,
$18,316,000 -- or 4.5% -- of the deposits to Company D’s bank accounts during the
time period represented sub-lease payments from end-users of the Generators.
40. But, during this period, Company D paid about $347,800,000 to various
Investment Funds and Sale-Leaseback Contract investors, most of which took the

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form of “lease payments” owed under the operative Equipment Lease Agreements.
Accordingly, Company D’s payments were not funded by legitimate sub-lease
revenue, but instead by investor funds cycled through Company S.
41. Karmann played a key role in the monthly transfers of funds from
Company S to Company D throughout his time working with DC Solar.  Karmann
was introduced to the Company in 2013, when he was hired by Roach as a consultant
for Roach’s accounting firm to work on various tax and book-keeping matters for the
Company.  During this period, Karmann became aware of the monthly transfers of
funds between Company S and Company D and was part of communications with
employees of Company S, including Individuals 1 and 2, about the amounts that
needed to be transferred so that Company D could make its lease payments to the
Investment Funds.
42. In approximately August 2014, Karmann was hired as the Controller of
Company S.  When he first started as an employee of Company S, Karmann did not
have the ability to initiate bank transfers himself.  However, he calculated the
amounts that were owed by Company D to the Investment Funds each month and the
amounts owed by the Investment Funds to Company S under the terms of the
Promissory Notes.  He also calculated the amount that needed to be transferred from
Company S to Company D each month so that Company D could make the lease
payments owed to the Investment Funds and created spreadsheets that specified the
exact amounts that needed to be transferred among the various entities and in what
order.  After making these calculations, Karmann provided the information to
Individual 2 or other employees, who would then make the transfers.
43. In early 2015, Karmann gained the ability to initiate transfers between
the bank accounts of Company S, Company D, and the Investment Funds himself.
Near the end of 2015, he became the CFO of Company S.  He continued to have the
ability to make transfers between the bank accounts of Company S, Company D and
the Investment Funds from early 2015 through the end of 2018.  Once he gained this

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ability, Karmann became the person responsible for the cycling of the funds between
the bank accounts of those entities to mask the lack of legitimate lease revenue from
end-users of the Generators being earned by Company D.  Karmann, or other
Company S employees working under Karmann, continued to calculate the amounts
that were owed by Company D to the Investment Funds (and to some of the Sale-
Leaseback Contract investors after those investments began in 2017) each month and
the amounts owed by the Investment Funds to Company S under the terms of the
Promissory Notes, as well as the amount that needed to be transferred from Company
S to Company D to make all of these payments possible.  Each month, once the
calculations were made, Karmann made the transfers between the various accounts.
44. There were times when Company S had sufficient money in its bank
account to fund all of the payments that Company D needed to make to the
Investment Funds and the Sale-Leaseback Contract investors simultaneously.
However, there were months when Company S did not have sufficient money in its
bank account to fund all of the lease payments that Company D needed to make.  As
a result, transfers of money needed to be staggered to allow money to be cycled back
to Company S from certain Investment Funds in payments under the Promissory
Notes before additional transfers could be made from Company S to Company D to
fund lease payments to different Investment Funds.  There also were instances when
Company D missed making timely lease payments due to insufficient money being
available in the bank account of Company S.  Due to the risk of there being
insufficient money, Karmann’s role in the determination of the transfer order was of
critical importance.
45. Karmann made the transfers of money in order to perpetuate the
Company’s fraudulent scheme and to give the false appearance to investors that
Company D was generating sufficient lease revenue from end-users of the Generators
for the investments to be profitable.  As the Controller and then CFO, Karmann had
access to the bank accounts and the accounting records maintained in QuickBooks of

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both Company S and Company D.  He knew Company D was collecting minimal
lease revenue from end-users of the Generators.  He also knew that Company S was
subsidizing Company D each month, mostly using investor funds, so that Company D
could make the lease payments due to the Investment Funds and Sale-Leaseback
Contract investors.  And, he knew that investors were not informed of this
arrangement.  His actions helped to keep the scheme running as new and existing
investors purchased additional Investment Fund Contracts or Sale-Leaseback
Contracts during the years he was cycling money through the various accounts.
(2) Karmann Provided False Information to Investors
46. In addition to cycling money to perpetuate the scheme, at various points
during his tenure as an employee of Company S from mid-2014 through late 2018,
Karmann provided false information to investors about the actual amount of lease
revenue generated from end-users of the Generators, the true source of the funds
coming into Company D, and the status and performance of their investments.
47. Prospective investors routinely requested financial statements from
Company D and Company S before investing.  In response, the Company often
provided investors with financial statements, including financial statements
accompanied by “Accountants’ Compilation Reports” for Company D and Company
S covering various periods between 2011 through July 2018 and financial statements
accompanied by “Independent Auditor’s Reports” for Company S for each year from
2012 through 2017.  The financial statements accompanying these reports contained
false and misleading information.
48. The income statements for Company D accompanying the compilation
reports falsely stated that Company D generated hundreds of millions of dollars of
revenues in “Rental Income.”  In reality, the overwhelming majority of purported
“Rental Income” consisted of intercompany transfers from Company S.  The income
statements were intended to mislead investors and potential investors into believing
that Company D made hundreds of millions of dollars in “Rental Income” from end-

COMPLAINT
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users of the Generators.
49. Similarly, the financial statements in the various compilation reports and
independent auditor’s reports for Company S also contained false information.  The
cash infusions of hundreds of millions of dollars from Company S to Company D
were hidden in the “Direct Costs” category of Company S’s income statements.  In
reality, these payments had nothing to do with the costs of manufacturing the
Generators.  Company S categorized the payments in this manner to conceal from
investors the fact that Company S funded Company D’s “Rental Income.”
50. At various points between 2014 and 2018, Karmann sent certain of the
financial statements and the accompanying reports via email to brokers to be passed
on to investors or prospective investors and, on at least one occasion in 2015, directly
to an existing investor which later made additional investments.  As the Controller
and then CFO, Karmann had access to the accounting records for Company S and
Company D, and was fully aware that Company D had very little actual lease revenue
and that Company S infused it with cash.  Karmann therefore knew that the various
compiled and audited financial statements contained false information.  Karmann
never told investors, prospective investors or brokers that information contained in
these financial statements was false or inaccurate, but he recognized that such
information would be important to them.
51. Karmann also provided false information to an investor (together with
affiliates “Investor DV”) about the details of the leases for the Generators owned by
the Investment Funds in which Investor DV had invested.  Investor DV invested in
four Investment Funds between 2013 and 2015.  After making these investments,
Investor DV required quarterly reports for each of its Investment Funds.  Beginning
at least as early as the start of 2016, Karmann, or other employees of Company S
working under and at the direction of Karmann, prepared these quarterly reports and
provided them to Investor DV via email or through an online portal.  The reports
prepared for one of the Investment Funds contained the VIN, location, name of

COMPLAINT
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company sub-leasing the Generator, lease term, and lease amount in dollars for each
Generator owned by the Investment Fund.  The reports prepared for the other
Investment Funds contained similar information but were not as detailed because all
of the Generators owned by those Investment Funds were purportedly allocated to a
single lessee.
52. The information provided to Investor DV in these quarterly reports,
including information about the companies sub-leasing the Generators and the
amounts of the leases, was false.  Although Karmann relied on a member of the
operations department at the Company and Individual 1 to provide the information
about the Generators that he and/or his team then placed into the quarterly reports,
Karmann knew that the information contained in the reports was false.  Karmann had
access to the bank accounts and the accounting records in QuickBooks of Company
D and, as a result, he knew that Company D was collecting virtually no money from
the companies identified as the sub-lessees of the Generators.  And, he came to learn
from an employee in the operations department that the Company could not track the
locations of the Generators.
53. Karmann, and/or members of his team acting at his direction, provided
the quarterly reports to Investor DV for each quarter at least as early as the start of
2016 through the third quarter of 2018.  During those years, numerous additional
investors purchased Investment Fund Contracts and Sale-Leaseback Contracts.  In
providing these reports to Investor DV, Karmann assisted in keeping the fraudulent
scheme afloat by lulling Investor DV into believing that its investments were
performing as intended.  Karmann understood that had investors discovered that their
Generators were not actually sub-leased to end-users and were not generating lease
revenue, they likely would have taken action to protect their interests, the scheme
would have been uncovered, and the Company would not have been able to defraud
additional investors.
54. Karmann profited from his work for the Company over the years,

COMPLAINT
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earning at least $1.4 million in salary, bonuses, and other compensation between
August 2014 and December 2018.
FIRST CLAIM FOR RELIEF
Fraud in Connection With the Sale of Securities
Violations of Section 10(b) of the Exchange Act
and Rules 10b-5(a) and (c) Thereunder

55. The SEC realleges and incorporates by reference paragraphs 1 through
54 above.
56. Defendant Karmann, by engaging in the conduct described above,
directly or indirectly, in connection with the purchase or sale of a security, by the use
of means or instrumentalities of interstate commerce, of the mails, or of the facilities
of a national securities exchange, with scienter:
a. employed devices, schemes, or artifices to defraud; or
b. engaged in acts, practices, or courses of business which operated
or would operate as a fraud or deceit upon other persons.
57. By engaging in the conduct described above, Defendant Karmann
violated, and unless restrained and enjoined will continue to violate, Section 10(b) of
the Exchange Act, 15 U.S.C. § 78j(b), and Rules 10b-5(a) and (c) thereunder, 17
C.F.R. §§ 240.10b-5(a) & 240.10b-5(c).
SECOND CLAIM FOR RELIEF
Fraud in the Offer and Sale of Securities
Violations of Sections 17(a)(1) and (3) of the Securities Act
58. The SEC realleges and incorporates by reference paragraphs 1 through
54 above.
59. Defendant Karmann, by engaging in the conduct described above, in the
offer or sale of securities by the use of means or instruments of transportation or
communication in interstate commerce or by use of the mails, directly or indirectly:
a. with scienter, employed devices, schemes, or artifices to defraud;

COMPLAINT
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or
b. engaged in transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon the purchaser.
60. By engaging in the conduct described above, Defendant Karmann
violated, and unless restrained and enjoined will continue to violate, Sections 17(a)(1)
and (3) of the Securities Act, 15 U.S.C. § 77q(a)(1) and (3).
PRAYER FOR RELIEF
WHEREFORE, the SEC respectfully requests that the Court:
I.
Issue judgments, in forms consistent with Fed. R. Civ. P. 65(d), permanently
enjoining Defendant, and his agents, servants, employees, and attorneys, and those
persons in active concert or participation with any of them, who receive actual notice
of the judgment by personal service or otherwise, and each of them, from violating
Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the
Exchange Act, 15 U.S.C. §§ 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-
5.
II.
Upon motion of the Commission, order Defendant to disgorge all ill-gotten
gains he received, together with prejudgment interest thereon.
III.
Upon motion of the Commission, order Defendant to pay civil penalties under
Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d)(3) of the
Exchange Act, 15 U.S.C. § 78u(d)(3).
IV.
Retain jurisdiction of this action in accordance with the principles of equity and
the Federal Rules of Civil Procedure in order to implement and carry out the terms of
all orders and decrees that may be entered, or to entertain any suitable application or
motion for additional relief within the jurisdiction of this Court.

COMPLAINT
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V.
Grant such other and further relief as this Court may determine to be just and
necessary.

Dated:  December 17, 2019

/s/ Dean M. Conway
Dean M. Conway
Sarra Cho
Christopher Nee
Attorneys for Plaintiff
Securities and Exchange Commission

COMPLAINT 1  

 

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DEAN M. CONWAY 
(counsel for service) 
SARRA CHO 
CHRISTOPHER NEE 
Email:  [email protected] 
 
 
Attorneys for Plaintiff 
Securities and Exchange Commission 
100 F Street NE 
Washington, DC 20549 
Telephone: (202) 551-4412 
Facsimile: (202) 772-9245 
 

UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF CALIFORNIA 

SECURITIES AND EXCHANGE 
COMMISSION, 

Plaintiff, 
 

vs. 

ROBERT A. KARMANN, 

Defendant. 
 

 Case No. 
 
COMPLAINT 
 

 
 
Plaintiff Securities and Exchange Commission (“SEC”) alleges: 

JURISDICTION AND VENUE 

1. The Court has jurisdiction over this action pursuant to Sections 20(b), 

20(d)(1) and 22(a) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. 

§§ 77t(b), 77t(d)(1) & 77v(a), and Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27(a) of 

the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78u(d)(1), 

78u(d)(3)(A), 78u(e) & 78aa(a). 

2. Defendant has, directly or indirectly, made use of the means or 

instrumentalities of interstate commerce, of the mails, or of the facilities of a national 

securities exchange in connection with the transactions, acts, practices and courses of 

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COMPLAINT 2  

 

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business alleged in this complaint. 

3. Venue is proper in this district pursuant to Section 22(a) of the Securities 

Act, 15 U.S.C. § 77v(a), and Section 27(a) of the Exchange Act, 15 U.S.C. § 78aa(a) 

because certain of the transactions, acts, practices and courses of conduct constituting 

violations of the federal securities laws occurred within this district.  Defendant 

committed many of the acts set forth in this Complaint in this district.  For example, 

Karmann maintained an office at Company S and initiated bank transfers and sent 

emails from his office computer at Company S, which is located in this district.     

SUMMARY 

4. This case involves fraudulent securities offerings and a massive Ponzi 

scheme that raked in over $910 million in investor funds.  This Ponzi scheme was 

orchestrated by Individual 1 and Individual 2 through companies they controlled, and 

which they used to enrich themselves at investors’ expense.  The Defendant in this 

action, Robert Karmann, played an important role in this scheme to sell investment 

opportunities offered by certain solar energy companies in the business of making, 

leasing, and operating mobile solar generators (“Generators”) -- investments that 

were touted as presenting gains in the form of tax benefits, guaranteed lease 

payments, and the resulting profits from the operation of the Generators.  In reality, 

the vast majority of “revenue” sent to investors came from investor money, not from 

actual lease payments from end-users of the Generators.  Beginning in approximately 

late 2014, Karmann advanced the scheme by transferring and/or coordinating the 

transfer of funds among various bank accounts to hide the lack of legitimate lease 

revenue.  Karmann also provided reports and financial statements that he knew 

contained false information to brokers, investors, and/or prospective investors. 

5. In 2011, Individual 1 and Individual 2 began selling investment contracts 

through their privately-held alternative energy companies Company S and Company 

D (collectively with Individuals 1 and 2 “the Company”).  Through December 2018, 

the Company raised around $910 million from purchasers of the investment contracts.  

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COMPLAINT 3  

 

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The Company designed the investments to take advantage of tax credits that were 

available to certain alternative energy related projects.  To that end, investors 

purchased Generators from Company S and then immediately leased them to 

Company D.  Company D was then supposed to sub-lease the Generators to end-

users.  The Company touted itself as a major player in its industry, with thousands of 

Generators in the field, lucrative contracts with big customers yielding a track record 

of consistent revenue, and extensive experience in making and maintaining the 

Generators and finding customers for them.   

6. That was all a sham.  The Company had manufactured and put into 

service far fewer Generators than it claimed, and made hardly any of its revenue from 

leasing Generators.  In fact, Company S did not actually manufacture about two-

thirds of the Generators that it purportedly sold to investors.  Recent intensive efforts 

by investors to locate the Generators have identified just 5,858 of the approximately 

17,600 Generators for which the Company entered into investor contracts.  Investors 

paid hundreds of millions of dollars for Generators that never existed.  And, 

legitimate lease income from actual end-users of the Generators represented a tiny 

fraction -- less than 5% -- of Company D’s revenue.  The vast majority of Company 

D’s revenue was comprised of investor funds transferred from Company S.  In 

reality, the vast majority of investor funds was not being used to manufacture, place 

into service, and maintain the thousands of Generators that the Company was using as 

the basis for investment contracts, but was instead being pilfered by Individuals 1 and 

2 for their personal benefit, such as the purchase of luxury vehicles and real estate, 

and used to make lease payments and distributions to earlier investors.   

7. Defendant Karmann played a key role in the scheme by helping to create 

the false appearance that Company D was generating legitimate lease revenue.  

Karmann is a certified public accountant who ultimately served as the Chief Financial 

Officer of Company S.  As Company D did not have its own CFO and was closely 

affiliated with Company S, Karmann performed essentially the same CFO duties for 

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COMPLAINT 4  

 

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Company D as well.  Throughout much of the scheme, because Company D was 

generating minimal amounts of legitimate lease revenue from end-users of the 

Generators, Karmann transferred money from the bank account of Company S to the 

bank account of Company D each month.  These transfers allowed Company D to 

make the lease payments that it owed to investors and conceal the fact that it was 

generating hardly any revenue from sub-leasing the Generators to end-users.  

Karmann also provided false information to investors concerning the source of 

Company D’s revenue and the sub-leases of their Generators.   

8. As a result of the conduct alleged herein, Defendant has violated the 

antifraud provisions of the Securities Act and the Exchange Act.  The SEC brings this 

action and seeks entry of permanent injunctions against Defendant as well as 

disgorgement of ill-gotten gains and prejudgment interest thereon and civil penalties.   

THE DEFENDANT 

9. Robert A. Karmann is a resident of Clayton, CA.  He was the CFO and 

prior to that, the Controller, of Company S from late 2014 through 2018.  He holds a 

CPA license in California. 

RELATED INDIVIDUALS AND ENTITIES 

10. Company S is a California corporation headquartered in Benicia, CA.  It 

was owned by Individual 1.  Company S is not registered with the SEC in any 

capacity.  It filed for bankruptcy protection in early 2019 and is currently in Chapter 7 

proceedings. 

11. Company D is a California corporation headquartered in Benicia, CA.  It 

was owned by Individual 2.  Company D is not registered with the SEC in any 

capacity.  It filed for bankruptcy protection in early 2019 and is currently in Chapter 7 

proceedings. 

12. Individual 1 was a resident of Martinez, CA during the relevant time 

period.  In addition to owning Company S, Individual 1 was the President and a 

Director of Company S and the Vice President and a Director of Company D. 

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COMPLAINT 5  

 

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13. Individual 2 was a resident of Martinez, CA during the relevant time 

period.  In addition to owning Company D, Individual 2 was the President, Secretary, 

Treasurer, and a Director of Company D and the Secretary, Treasurer and a Director 

of Company S. 

14. Ronald J. Roach is a resident of Walnut Creek, California.  Roach was a 

certified public accountant and the owner of Ronald J. Roach Accountancy 

Corporation.  He has held Series 6, 7, 63 and 65 securities licenses and was a 

registered investment adviser and a registered representative. 

FACTUAL ALLEGATIONS 

A. Background on the Company 

15. Individuals 1 and 2 are the owners and principals of Company S and 

Company D.  To investors, the Company claimed that it “design[ed], manufacture[d] 

and lease[d] renewable energy products to serve the off-grid needs of a broad and 

diverse marketplace – while providing investors with access to the renewable energy 

asset class.”     

B. The Company Offerings 

(1) The Solicitation of Investors 

16. Since at least 2011 and continuing to December 2018, the Company 

offered securities to investors.  The securities took the form of two types of 

investment contracts: (1) Investment Fund Contracts and (2) Sale-Leaseback 

Contracts.  Under both arrangements, the investors paid to purchase Generators from 

Company S, while simultaneously leasing them to Company D.  Company D would 

then arrange to sub-lease the Generators to end-users.  The investors expected to 

profit from the investments due to tax credits, depreciation on the Generators, and 

lease payments.  Investors thus played an entirely passive role:  the success of the 

venture, and thus the profits to investors and the Company, turned entirely on the 

efforts of the Company to make, maintain, market, and lease the Generators.    

17. Over the course of the offerings, the Company raised approximately 

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COMPLAINT 6  

 

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$910 million in investor money.  These deals had face values of more than $2.7 

billion because investors in the Investment Fund Contracts financed approximately 70 

percent of the amount of their investments through promissory notes.   

18. The Company, directly and indirectly, solicited investors through 

brokers and salespeople using various methods, including email, conference calls and 

in-person meetings.  The Company offered and sold Investment Fund Contracts and 

Sale-Leaseback Contracts through interstate commerce to investors across the United 

States.   

19. The Company marketed itself as having extensive experience and 

capabilities in the renewable energy field and in executing successful transactions for 

investors.  For example, pitch-books for investors, which were prepared by a broker 

working on behalf of the Company using information provided by the Company, 

emphasized that the Company had thousands of Generators deployed and 

manufacturing capabilities of 900 Generators per month.  They also highlighted that 

the Company had closed many prior investment funds with “headline” or “notable” 

investors, including funds with fair market values near or over $100 million, and that 

the “performance of each of the funds remains in good standing.”  In addition, the 

materials claimed the Company had “customer relationships with leading companies 

in the telecommunications, entertainment and construction industries” and provided 

case studies of the established leasing arrangements with many of those customers.  

Finally, certain of the pitch-books provided a “Summary of Investor Returns” with 

estimated internal rates of return ranging from 40 to as high as 50 percent.   

(2) The Terms of the Investment Fund Contract Offerings 

20. Investment Fund Contract investors executed a standard package of 

agreements, including:  (i) a Limited Liability Company Agreement (“LLC 

Agreement”); (ii) a Solar Equipment Purchase Agreement (“Purchase Agreement”); 

(iii) a Secured Promissory Note (“Promissory Note”); and (iv) a Mobile Solar 

Equipment Lease (“Equipment Lease”) (together the “Investment Fund Contracts”).  

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COMPLAINT 7  

 

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The documents were executed at or around the same time, with Individual 1 signing 

the Purchase Agreements on behalf of Company S and Individual 2 typically signing 

the Equipment Leases on behalf of Company D.  While the Investment Fund 

Contracts for certain deals had minor variations in wording, they largely had the same 

substantive terms. 

21. Under the terms of the LLC Agreement, an investor became the 

“Investor Member” of the Investment Fund Limited Liability Company (“Investment 

Fund”), an entity created specifically for the purpose of the investment.  This 

Investment Fund then purchased Generators from Company S at a price of $150,000 

per Generator under the Solar Equipment Purchase Agreement.  The Purchase 

Agreement specified the total number of Generators being purchased as well as the 

total purchase price.  An Exhibit to the Purchase Agreement contained a blank space 

for the Vehicle Identification Numbers (“VINs”) for the Generators or stated that 

“VIN for each Generator to be Supplied at Delivery.”  In exchange for the payment, 

Company S agreed to deliver the Generators by a certain date or dates and warranted 

“to Buyer that all Equipment shall be in good working order in conformity with the 

Specifications for a period” of five or ten years.   

22. The delivery dates for tranches of Generators specified in the Purchase 

Agreements were often scheduled in stages.  Likewise, the Purchase Agreements 

dictated that payments would be due to Company S in stages according to a schedule 

in part dictated by capital contributions being made by the investor under the terms of 

the LLC Agreement.  Those capital contributions were contingent on the investor 

receiving confirmation that the Generators were “Placed in Service” as evidenced by 

an “IE [Independent Engineer] Certificate.” 

23. Investors generally contributed about thirty percent of the purchase price 

in cash and financed the balance pursuant to a Promissory Note or Notes executed by 

the Investment Fund in favor of Company S.  The Promissory Note was an exhibit to 

the Purchase Agreement.  The Company told investors, and arranged for a tax 

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COMPLAINT 8  

 

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opinion letter from a law firm confirming, that the Generators qualified for the 

Energy Credit under Internal Revenue Code § 48.  That provision allows for a thirty 

percent tax credit for certain energy-related investments.  Thus, investors expected to 

be able to take a tax credit for roughly the same amount as their cash contribution to 

the investment. 

24. Under the Investment Fund Contracts, the Generator business was left 

entirely to the Company.  At the time the Investment Funds executed the Purchase 

Agreement with Company S, the Investment Funds also executed the Mobile Solar 

Equipment Lease with Company D for at least the first batch of Generators being 

purchased.  Depending on the size of the transaction, as additional tranches of 

Generators were manufactured, additional Equipment Leases were executed.  Under 

the Equipment Leases, the Investment Funds leased their Generators to Company D 

for terms ranging up to 120 months.  The Equipment Leases provided that Company 

D shall use “the Solar Equipment in a careful and proper manner” and “shall comply 

with all laws, regulations and ordinances.”  Moreover, the Equipment Leases stated 

that Company D shall be “solely responsible for the maintenance and repair of the 

Solar Equipment” and “shall ensure the Solar Equipment is operational and capable 

of producing solar energy at all times.”  The Equipment Leases required Company D 

to “obtain, maintain and keep” insurance coverage on the Generators in the amount of 

the replacement cost as well as “liability insurance.”  In addition, the Equipment 

Leases required Company D to “promptly pay when due, all license fees, registration 

fees, sales taxes, use and property taxes, assessments, charges and other taxes” 

imposed upon the Generators.   

25. The Equipment Leases further provided for a set amount of “Base Rent” 

to be paid to the Investment Fund in advance in monthly installments for the term of 

the lease as well as payment to the Investment Fund of “Additional Rent” or 

“Variable Rent” to the extent Company D received revenue from subleasing the 

Generators in excess of a certain amount.  The amount of additional or variable rent 

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COMPLAINT 9  

 

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due to the Investment Fund varied depending on the deal and the calculation was 

specified in the Equipment Lease. 

26. The Investment Fund Contracts were structured such that there was a 

flow of money between the Investment Funds and the Company, all of which was 

contingent on the Generators generating significant sub-lease revenue from legitimate 

end-users.  Company D owed monthly lease payments to the Investment Funds 

purportedly to be paid with the sub-lease revenue it received from third-party 

customers.  The Investment Funds would then use the lease payments they received 

from Company D under the terms of the Equipment Leases to make monthly 

payments due to Company S under the terms of the Promissory Notes.  Investors 

expected several benefits under the arrangement, including the thirty percent energy 

tax credit and the ability to claim significant depreciation on the Generators.  In 

addition, investors expected to receive yearly cash distributions from the Investment 

Funds.  In general, the LLC Agreements stated that “Distributable Cash,” defined as 

the amount of cash from lease revenue remaining after loan payments and operating 

expenses, would be paid out to investors on an annual basis.  Based on financial 

projections for the Investment Funds that were provided to investors, investors 

expected to receive these cash distributions.   

27. From December 2011 through December 2018, the Company closed 34 

Investment Fund Contracts, involving 13 investors, totaling about $2.57 billion in 

face value.  The investors made roughly $759 million in cash contributions to their 

Investment Fund Contracts.  Twenty-four of these Investment Fund Contracts, 

involving investor cash contributions of $651 million, were closed after Karmann 

joined Company S in 2014. 

(3) The Terms of the Sale-Leaseback Contract Offerings 

28. The Company began offering the second type of security, the Sale-

Leaseback Contracts, in around 2017.  Investors in the Sale-Leaseback Contracts 

typically executed several agreements including: (i) a Sale Agreement; (ii) an 

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COMPLAINT 10  

 

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Equipment Lease Agreement; and (iii) a Schedule (collectively the “Sale-Leaseback 

Contracts”).  Individual 1 typically signed the Sale Agreement on behalf of Company 

S, or in one instance on behalf of another affiliate of the Company, and Individual 2 

typically signed the Lease Agreement and the Schedule on behalf of Company D.  

While the Sale-Leaseback Contracts for certain deals had minor variations in 

wording, they largely had the same substantive terms. 

29. The Sale-Leaseback Contracts differed from the Investment Fund 

Contracts in that investors purchased the Generators outright from Company S, or in 

one instance another affiliate of the Company, without executing a Promissory Note.  

Under the Sale Agreement, investors paid $150,000 for each Generator they 

purchased.  The Generators were identified by VIN in an exhibit attached to that 

Agreement.  In exchange for the purchase price, Company S agreed to convey to the 

investors “all right, title and interest in” the Generators. 

30. One Sale-Leaseback Contract transaction differed from the others in that 

the investor purchased used Generators and paid $82,500 for each.  As the Generators 

were used, they did not qualify for the tax credit.  However, the investment worked 

the same as the other Sale-Leaseback Contracts with the investor immediately leasing 

the Generators to Company D and being entirely reliant on Company D to maintain 

and sub-lease the Generators. 

31. Just as was done in the Investment Fund Contracts, under the Sale-

Leaseback Contracts the investors immediately leased the Generators back to 

Company D (or another affiliate of the Company) in return for monthly payments 

purportedly to be made from sub-lease payments.  Under the Lease Agreement, 

Company D committed to keeping the Generators “in good repair” and operating 

condition and to “maintain” insurance coverage on the Generators as well as “liability 

insurance.”  The Lease Agreement also required Company D to pay, or reimburse the 

investor for, all taxes, fees, and assessments imposed on the Generators.   

32. Like the Investment Funds, most investors in the Sale-Leaseback 

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COMPLAINT 11  

 

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Contracts received an “IE Certificate,” or “IE Commissioning Report,” for each new 

Generator that they purchased. 

33. The Schedule to the Lease Agreement set forth the term of the lease and 

a set lease payment due to the investors from Company D each month.  An 

attachment to the Schedule again identified the Generators by VIN.  In addition to the 

monthly lease payments, most Sale-Leaseback Contract investors expected to be able 

to take the 30 percent energy tax credit as well as depreciation on the Generators they 

purchased.  In fact, the Schedules in certain of the Sale-Leaseback Contracts 

specifically referenced the energy tax credit and depreciation and required Company 

D to use the Generators so as to remain eligible for those tax benefits.  Based on the 

combination of tax benefits and lease revenue, the Sale-Leaseback Contract investors 

expected to earn a positive return and profit from these transactions.   

34. From 2017 through 2018, the Company completed seven Sale-

Leaseback Contracts, involving four investors, in transactions worth nearly $151 

million.  All seven Sale-Leaseback Contracts were completed after Karmann joined 

Company S. 

(4) The Company’s Offerings Are Securities 

35. The Company offered and sold the Investment Fund Contracts and Sale-

Leaseback Contracts through interstate commerce to investors located in multiple 

states. 

36. The Company’s Investment Fund Contracts and Sale-Leaseback 

Contracts are securities in the form of investment contracts.  They represented an 

investment of money, in a common enterprise, with the expectation of profits to be 

derived from the efforts of a third party.  Investors provided money to the Company 

for investment purposes.  Because the terms of the Investment Fund Contracts and 

Sale-Leaseback Contracts tied the fortunes of the investors to those of the Company 

and its ability to manufacture the Generators and then sub-lease them at optimal rates, 

investors were investing in a common enterprise.  And, because the terms of the 

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COMPLAINT 12  

 

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Investment Fund Contracts and Sale-Leaseback Contracts made investors entirely 

dependent on the Company to manufacture, operate and maintain their purported 

Generators, the Company’s efforts were essential to the failure or success of the 

common enterprise.  Investors also had an expectation of profits from the tax benefits 

and payment stream to be generated from the enterprise.   

C. Karmann Committed Deceptive Acts in Furtherance of the Fraud 

37. Unbeknownst to investors, most of the lease revenue paid to investors 

consisted of investor funds, rather than lease income from legitimate end-users of the 

Generators.  Karmann knowingly took part in hiding these facts from investors and 

perpetuating the Company’s fraud. 

(1) Karmann Moved Funds Among Accounts 

38. Lease revenue from end-users of the Generators was critical to the 

success of the investments because it would be the source of the funds that Company 

D needed to make lease payments to the Investment Funds and Sale-Leaseback 

Contract investors.  Although Company D purported to be earning millions each 

month in lease revenue from end-users of the Generators, bank records demonstrate 

that Company D generated minimal lease revenue from sub-leases to end-users.  In 

fact, the vast majority of funds flowing into Company D’s bank accounts consisted of 

transfers of investor funds from Company S.   

39. For example, during the period of January 2013 through December 

2018, a total of about $409,930,000 was deposited to Company D’s bank accounts.  

Of that amount, approximately $383,347,000 -- or 93.5% -- consisted of transfers 

from Company S’s bank accounts.  And, another $8,268,000 -- or 2.0% -- consisted 

of transfers from the bank accounts of different Investment Funds.  At most, 

$18,316,000 -- or 4.5% -- of the deposits to Company D’s bank accounts during the 

time period represented sub-lease payments from end-users of the Generators. 

40. But, during this period, Company D paid about $347,800,000 to various 

Investment Funds and Sale-Leaseback Contract investors, most of which took the 

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COMPLAINT 13  

 

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form of “lease payments” owed under the operative Equipment Lease Agreements.  

Accordingly, Company D’s payments were not funded by legitimate sub-lease 

revenue, but instead by investor funds cycled through Company S. 

41. Karmann played a key role in the monthly transfers of funds from 

Company S to Company D throughout his time working with DC Solar.  Karmann 

was introduced to the Company in 2013, when he was hired by Roach as a consultant 

for Roach’s accounting firm to work on various tax and book-keeping matters for the 

Company.  During this period, Karmann became aware of the monthly transfers of 

funds between Company S and Company D and was part of communications with 

employees of Company S, including Individuals 1 and 2, about the amounts that 

needed to be transferred so that Company D could make its lease payments to the 

Investment Funds. 

42. In approximately August 2014, Karmann was hired as the Controller of 

Company S.  When he first started as an employee of Company S, Karmann did not 

have the ability to initiate bank transfers himself.  However, he calculated the 

amounts that were owed by Company D to the Investment Funds each month and the 

amounts owed by the Investment Funds to Company S under the terms of the 

Promissory Notes.  He also calculated the amount that needed to be transferred from 

Company S to Company D each month so that Company D could make the lease 

payments owed to the Investment Funds and created spreadsheets that specified the 

exact amounts that needed to be transferred among the various entities and in what 

order.  After making these calculations, Karmann provided the information to 

Individual 2 or other employees, who would then make the transfers.   

43. In early 2015, Karmann gained the ability to initiate transfers between 

the bank accounts of Company S, Company D, and the Investment Funds himself.  

Near the end of 2015, he became the CFO of Company S.  He continued to have the 

ability to make transfers between the bank accounts of Company S, Company D and 

the Investment Funds from early 2015 through the end of 2018.  Once he gained this 

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COMPLAINT 14  

 

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ability, Karmann became the person responsible for the cycling of the funds between 

the bank accounts of those entities to mask the lack of legitimate lease revenue from 

end-users of the Generators being earned by Company D.  Karmann, or other 

Company S employees working under Karmann, continued to calculate the amounts 

that were owed by Company D to the Investment Funds (and to some of the Sale-

Leaseback Contract investors after those investments began in 2017) each month and 

the amounts owed by the Investment Funds to Company S under the terms of the 

Promissory Notes, as well as the amount that needed to be transferred from Company 

S to Company D to make all of these payments possible.  Each month, once the 

calculations were made, Karmann made the transfers between the various accounts.   

44. There were times when Company S had sufficient money in its bank 

account to fund all of the payments that Company D needed to make to the 

Investment Funds and the Sale-Leaseback Contract investors simultaneously.  

However, there were months when Company S did not have sufficient money in its 

bank account to fund all of the lease payments that Company D needed to make.  As 

a result, transfers of money needed to be staggered to allow money to be cycled back 

to Company S from certain Investment Funds in payments under the Promissory 

Notes before additional transfers could be made from Company S to Company D to 

fund lease payments to different Investment Funds.  There also were instances when 

Company D missed making timely lease payments due to insufficient money being 

available in the bank account of Company S.  Due to the risk of there being 

insufficient money, Karmann’s role in the determination of the transfer order was of 

critical importance.  

45. Karmann made the transfers of money in order to perpetuate the 

Company’s fraudulent scheme and to give the false appearance to investors that 

Company D was generating sufficient lease revenue from end-users of the Generators 

for the investments to be profitable.  As the Controller and then CFO, Karmann had 

access to the bank accounts and the accounting records maintained in QuickBooks of 

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COMPLAINT 15  

 

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both Company S and Company D.  He knew Company D was collecting minimal 

lease revenue from end-users of the Generators.  He also knew that Company S was 

subsidizing Company D each month, mostly using investor funds, so that Company D 

could make the lease payments due to the Investment Funds and Sale-Leaseback 

Contract investors.  And, he knew that investors were not informed of this 

arrangement.  His actions helped to keep the scheme running as new and existing 

investors purchased additional Investment Fund Contracts or Sale-Leaseback 

Contracts during the years he was cycling money through the various accounts. 

(2) Karmann Provided False Information to Investors 

46. In addition to cycling money to perpetuate the scheme, at various points 

during his tenure as an employee of Company S from mid-2014 through late 2018, 

Karmann provided false information to investors about the actual amount of lease 

revenue generated from end-users of the Generators, the true source of the funds 

coming into Company D, and the status and performance of their investments.   

47. Prospective investors routinely requested financial statements from 

Company D and Company S before investing.  In response, the Company often 

provided investors with financial statements, including financial statements 

accompanied by “Accountants’ Compilation Reports” for Company D and Company 

S covering various periods between 2011 through July 2018 and financial statements 

accompanied by “Independent Auditor’s Reports” for Company S for each year from 

2012 through 2017.  The financial statements accompanying these reports contained 

false and misleading information.   

48. The income statements for Company D accompanying the compilation 

reports falsely stated that Company D generated hundreds of millions of dollars of 

revenues in “Rental Income.”  In reality, the overwhelming majority of purported 

“Rental Income” consisted of intercompany transfers from Company S.  The income 

statements were intended to mislead investors and potential investors into believing 

that Company D made hundreds of millions of dollars in “Rental Income” from end-

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COMPLAINT 16  

 

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users of the Generators.   

49. Similarly, the financial statements in the various compilation reports and 

independent auditor’s reports for Company S also contained false information.  The 

cash infusions of hundreds of millions of dollars from Company S to Company D 

were hidden in the “Direct Costs” category of Company S’s income statements.  In 

reality, these payments had nothing to do with the costs of manufacturing the 

Generators.  Company S categorized the payments in this manner to conceal from 

investors the fact that Company S funded Company D’s “Rental Income.” 

50. At various points between 2014 and 2018, Karmann sent certain of the 

financial statements and the accompanying reports via email to brokers to be passed 

on to investors or prospective investors and, on at least one occasion in 2015, directly 

to an existing investor which later made additional investments.  As the Controller 

and then CFO, Karmann had access to the accounting records for Company S and 

Company D, and was fully aware that Company D had very little actual lease revenue 

and that Company S infused it with cash.  Karmann therefore knew that the various 

compiled and audited financial statements contained false information.  Karmann 

never told investors, prospective investors or brokers that information contained in 

these financial statements was false or inaccurate, but he recognized that such 

information would be important to them.   

51. Karmann also provided false information to an investor (together with 

affiliates “Investor DV”) about the details of the leases for the Generators owned by 

the Investment Funds in which Investor DV had invested.  Investor DV invested in 

four Investment Funds between 2013 and 2015.  After making these investments, 

Investor DV required quarterly reports for each of its Investment Funds.  Beginning 

at least as early as the start of 2016, Karmann, or other employees of Company S 

working under and at the direction of Karmann, prepared these quarterly reports and 

provided them to Investor DV via email or through an online portal.  The reports 

prepared for one of the Investment Funds contained the VIN, location, name of 

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COMPLAINT 17  

 

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company sub-leasing the Generator, lease term, and lease amount in dollars for each 

Generator owned by the Investment Fund.  The reports prepared for the other 

Investment Funds contained similar information but were not as detailed because all 

of the Generators owned by those Investment Funds were purportedly allocated to a 

single lessee.   

52. The information provided to Investor DV in these quarterly reports, 

including information about the companies sub-leasing the Generators and the 

amounts of the leases, was false.  Although Karmann relied on a member of the 

operations department at the Company and Individual 1 to provide the information 

about the Generators that he and/or his team then placed into the quarterly reports, 

Karmann knew that the information contained in the reports was false.  Karmann had 

access to the bank accounts and the accounting records in QuickBooks of Company 

D and, as a result, he knew that Company D was collecting virtually no money from 

the companies identified as the sub-lessees of the Generators.  And, he came to learn 

from an employee in the operations department that the Company could not track the 

locations of the Generators. 

53. Karmann, and/or members of his team acting at his direction, provided 

the quarterly reports to Investor DV for each quarter at least as early as the start of 

2016 through the third quarter of 2018.  During those years, numerous additional 

investors purchased Investment Fund Contracts and Sale-Leaseback Contracts.  In 

providing these reports to Investor DV, Karmann assisted in keeping the fraudulent 

scheme afloat by lulling Investor DV into believing that its investments were 

performing as intended.  Karmann understood that had investors discovered that their 

Generators were not actually sub-leased to end-users and were not generating lease 

revenue, they likely would have taken action to protect their interests, the scheme 

would have been uncovered, and the Company would not have been able to defraud 

additional investors. 

54. Karmann profited from his work for the Company over the years, 

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COMPLAINT 18  

 

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earning at least $1.4 million in salary, bonuses, and other compensation between 

August 2014 and December 2018.   

FIRST CLAIM FOR RELIEF 

Fraud in Connection With the Sale of Securities  
Violations of Section 10(b) of the Exchange Act  

and Rules 10b-5(a) and (c) Thereunder 
 

55. The SEC realleges and incorporates by reference paragraphs 1 through 

54 above. 

56. Defendant Karmann, by engaging in the conduct described above, 

directly or indirectly, in connection with the purchase or sale of a security, by the use 

of means or instrumentalities of interstate commerce, of the mails, or of the facilities 

of a national securities exchange, with scienter: 

a. employed devices, schemes, or artifices to defraud; or 

b. engaged in acts, practices, or courses of business which operated 

or would operate as a fraud or deceit upon other persons. 

57. By engaging in the conduct described above, Defendant Karmann 

violated, and unless restrained and enjoined will continue to violate, Section 10(b) of 

the Exchange Act, 15 U.S.C. § 78j(b), and Rules 10b-5(a) and (c) thereunder, 17 

C.F.R. §§ 240.10b-5(a) & 240.10b-5(c). 

SECOND CLAIM FOR RELIEF 

Fraud in the Offer and Sale of Securities 
Violations of Sections 17(a)(1) and (3) of the Securities Act 

58. The SEC realleges and incorporates by reference paragraphs 1 through 

54 above. 

59. Defendant Karmann, by engaging in the conduct described above, in the 

offer or sale of securities by the use of means or instruments of transportation or 

communication in interstate commerce or by use of the mails, directly or indirectly: 

a. with scienter, employed devices, schemes, or artifices to defraud; 

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COMPLAINT 19  

 

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or 

b. engaged in transactions, practices, or courses of business which 

operated or would operate as a fraud or deceit upon the purchaser. 

60. By engaging in the conduct described above, Defendant Karmann 

violated, and unless restrained and enjoined will continue to violate, Sections 17(a)(1) 

and (3) of the Securities Act, 15 U.S.C. § 77q(a)(1) and (3). 

PRAYER FOR RELIEF 

WHEREFORE, the SEC respectfully requests that the Court: 

I. 

Issue judgments, in forms consistent with Fed. R. Civ. P. 65(d), permanently 

enjoining Defendant, and his agents, servants, employees, and attorneys, and those 

persons in active concert or participation with any of them, who receive actual notice 

of the judgment by personal service or otherwise, and each of them, from violating 

Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the 

Exchange Act, 15 U.S.C. §§ 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-

5.  

II. 

Upon motion of the Commission, order Defendant to disgorge all ill-gotten 

gains he received, together with prejudgment interest thereon. 

III. 

Upon motion of the Commission, order Defendant to pay civil penalties under 

Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d)(3) of the 

Exchange Act, 15 U.S.C. § 78u(d)(3). 

IV. 

Retain jurisdiction of this action in accordance with the principles of equity and 

the Federal Rules of Civil Procedure in order to implement and carry out the terms of 

all orders and decrees that may be entered, or to entertain any suitable application or 

motion for additional relief within the jurisdiction of this Court.  

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COMPLAINT 20  

 

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V. 

Grant such other and further relief as this Court may determine to be just and 

necessary. 

 

Dated:  December 17, 2019  

 /s/ Dean M. Conway 
Dean M. Conway  
Sarra Cho 
Christopher Nee 
Attorneys for Plaintiff 
Securities and Exchange Commission 

 

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