In their most recent bankruptcy filings, DC Solar states it wants to use the Chapter 11 process for a “fresh restart”.
In a declaration filed in Nevada Bankruptcy court, Seth Freeman, the debtors’ proposed chief restructuring officer, said after a December FBI raid DC Solar owners Jeff and Paulette Carpoff, “through its advisors, immediately engaged in dialogue with the government in an attempt to continue the DC Solar’s business operations.”
DC Solar tried to negotiate with the government to seek a return of its seized assets and documents, but a speedy resolution failed to materialize, Freeman said. Although the company “proposed the appointment of an independent fiduciary (under court supervision if necessary) to oversee the company and to avoid a bankruptcy filing, the government rejected such proposals.”
Freeman said, “the company commenced these Chapter 11 cases in order to restart its business, absent the cooperation of the government, in order to maximize value for all creditors and parties in interest and to get its employees back to work.”
“Just days before Christmas, on December 18, 2018, the federal government seized funds from all bank accounts associated with the DC Solar businesses (as well as other accounts unrelated to the Company’s core businesses),” Freeman wrote.
“DC Solar was also forced to lay off approximately 100 employees the week before Christmas,” Freeman said. “Former employees are owed approximately $310,000 in unpaid back wages, which the company was unable to pay due to its inability to access any accounts.”
Freeman wrote that to date the company, established in 2009, has grossed more than $2 billion in sales, and Freeman detailed less than $1.62 million in secured debt in his declaration. DC Solar has produced over 13,000 mobile solar units, which are located in approximately 20 states nationally.
DC Solar has been involved with several tax disputes with the IRS and Freeman wrote “a settlement conference was held on October 10, 2018, with IRS Appeals. At the end of the conference, a tentative settlement agreement was reached that would resolve each of the foregoing disputes, two of which are docketed in the United States Tax Court. The parties are in the process of finalizing and documenting the settlement agreement.”
Freeman said, when the agency began looking into what it considered to be suspect tax-related practices, namely using improper accounting methods to maximize tax credits.
Specifically, Freeman said, the IRS audit alleged that some of the funds used by DC Solar do not “constitute bona fide partnerships” and must be dissolved. The agency also argued that “the sales prices for MSG (mobile solar generator) systems were overstated, thus reducing the amount of claimed investment tax credits.”
Freeman explained that the “genesis” of the December raids and government seizures are “unknown” to the Carpoffs. But in the declaration Freeman offered a possible explanation.
A disgruntled employee, that was first introduced to the Carpoffs through a previous transaction, demanded a large payment from the company in early 2018.
The employee in question joined DC Solar in March 2017 at a salary of $200,000 per year plus commissions, Freeman said, and left less than a year later after earning approximately $2 million in compensation.
Freeman said that in February 2018 the employee sent DC Solar a letter via counsel demanding “a payment of $5 million in settlement of alleged claims of fraudulent inducement.” The letter claimed the employee had uncovered a “fraudulent financial scheme.”
According to Freeman, DC Solar attorneys responded denying and refuting the allegations in their entirety. The former employee nor his counsel responded further to DC Solar.
“It remains unclear whether the employee contacted the government and whether such contact, if it did occur, was the cause of the government’s ill-timed raid,” Freeman said.