The Solyndra scam on taxpayers.
My column this weekend is about the Solyndra scandal, and why I think it should be investigated as a criminal fraud. That would include a significant securities fraud angle: President Obama’s speech at Solyndra on May 26, 2010, was grossly misleading at a time when it was known that independent auditors had issued dire warnings about the failing solar-panel business’s chances of survival and when Solyndra’s Obama-connected backers were trying to sell the company’s stock on market.
Now there’s more: The Daily Caller reports that Solyndra actually sought a second federal loan in the astronomical sum of $469 million (which would have aggregated to well over $1 billion in taxpayer financing, for a company that was gushing red ink and was careening toward inevitable bankruptcy). The Daily Caller got the info from Solyndra’s SEC filing — and the site reports that the filing does not make clear whether the company got the second loan … and that Solyndra did not return the Daily Caller’s call to inquire.
One other thing: I did a ton of research for my column, and Andrew Stiles has done the best reporting you’ll find anywhere. There are links to it on the home-page (start here) and I highly recommend it to anyone who wants to understand what the controversy is all about.
The Solyndra Fraud
The solar-energy company was a con game.
The Solyndra debacle is not just Obama-style crony socialism as usual. It is a criminal fraud. That is the theory that would be guiding any competent prosecutor’s office in the investigation of a scheme that cost victims — in this case, American taxpayers — a fortune.
Fraud against the United States is one of the most serious felony offenses in the federal penal law. It is even more serious than another apparent Solyndra violation that has captured congressional attention: the Obama administration’s flouting of a statute designed to protect taxpayers.
Homing in on one of the several shocking aspects of the Solyndra scandal, lawmakers noted that, a few months before the “clean energy” enterprise went belly-up last week, the Obama Energy Department signed off on a sweetheart deal. In the event of bankruptcy — the destination to which it was screamingly obvious Solyndra was headed despite the president’s injection of $535 million in federal loans — the cozily connected private investors would be given priority over American taxpayers. In other words, when the busted company’s assets were sold off, Obama pals would recoup some of their losses, while you would be left holding the half-billion-dollar bag.
As Andrew Stiles reported here at NRO, Republicans on the Oversight and Investigations subcommittee say this arrangement ran afoul of theEnergy Policy Act of 2005. This law — compassionate conservatism in green bunting — is a monstrosity, under which Leviathan, which can’t run a post office, uses your money to pick winners and losers in the economy’s energy sector. The idea is cockamamie, but Congress did at least write in a mandate that taxpayers who fund these “investments” must be prioritized over other stakeholders. The idea is to prevent cronies from pushing ahead of the public if things go awry — as they are wont to do when pols fancy themselves venture capitalists.
On the Energy Policy Act, the administration’s malfeasance is significant, but secondary. That’s because the act is not a penal statute. It tells the cabinet officials how to structure these “innovative technology” loans, but it provides no remedy if Congress’s directives are ignored.
The criminal law, by contrast, is not content to assume the good faith of government officials. It targets anyone — from low-level swindlers to top elective officeholders — who attempts to influence the issuance of government loans by making false statements; who engages in schemes to defraud the United States; or who conspires “to defraud the United States, or any agency thereof, in any manner or for any purpose.” The penalties are steep: Fraud in connection with government loans, for example, can be punished by up to 30 years in the slammer.
Although Solyndra was a private company, moreover, it was using its government loans as a springboard to go public. When the sale of securities is involved, federal law criminalizes fraudulent schemes, false statements of material fact, and statements that omit any “material fact necessary in order to make the statements made . . . not misleading.” And we’re not just talking about statements made in required SEC filings. Any statement made to deceive the market can be actionable. In 2003, for example, the Justice Department famously charged Martha Stewart with securities fraud. Among other allegations, prosecutors cited public statements she had made in press releases and at a conference for securities analysts — statements in which she withheld damaging information in an effort to inflate the value of her corporation and its stock.
That’s exactly what President Obama did on May 26, 2010, with his Solyndra friends about to launch their initial public offering of stock. The solar-panel company’s California factory was selected as the fitting site for a presidential speech on the virtues of confiscating taxpayer billions to prop up pie-in-the-sky clean-energy businesses.
By then, the con game was already well under way. Solyndra had first tried to get Energy Act funding during the Bush administration, but had been rebuffed shortly before President Bush left office. Small wonder: Solyndra, as former hedge-fund manager Bruce Krasting concluded, was “an absolute complete disaster.” Its operating expenses, including supply costs, nearly doubled its revenue in 2009 — and that’s without factoring in capital expenditures and other costs in what, Krasting observes, is a “low margin” industry. The chance that Solyndra would ever become profitable was essentially nonexistent, particularly given that solar-panel competitors backed by China produce energy at drastically lower prices.
Yet, as Stiles reports, within six days of Obama’s taking office, an Energy Department official acknowledged that the Solyndra “approval process” was suddenly being considered anew. Eventually, the administration made Solyndra the very first recipient of a public loan guarantee when the Energy Act program was beefed up in 2009 — just part of nearly a trillion dollars burned through under the Obama stimulus.
For a while after Solyndra tanked, the administration stonewalled the House subcommittee’s investigation, but we now know that minions in the Energy Department and the Office of Management and Budget had enormous qualms about the Solyndra loan. They realized that the company was hemorrhaging money and, even with the loan, would lack the necessary working capital to turn that equation around. Yet they caved under White House pressure to sign off in time for Vice President Joe Biden to make a ballyhooed announcement of the loan in September 2009. An OMB e-mail laments that the timing of the loan approval was driven by the politics of the announcement “rather than the other way around.”
Why so much pressure to give half a billion dollars to a doomed venture? The administration insists it had nothing whatsoever to do with the fact that Solyndra’s big backers include the George Kaiser Family Foundation. No, of course not. George Kaiser, an Oklahoma oil magnate, just happens to be a major Obama fundraiser who bundled oodles in contributions for the president’s 2008 campaign. Solyndra officers and investors are said to have visited the White House no fewer than 20 times while the loan guarantee was being considered and, later, revised. Kaiser, too, made several visits — but not to worry: Both he and administration officials deny any impropriety. You’re to believe that the White House was just turning up the heat on OMB and DOE because Solyndra seemed like such a swell investment.
Except it didn’t seem so swell to people who knew how to add and subtract, and those people weren’t all at OMB and DOE. Flush with confidence that their mega-loan from Uncle Sam would make the company attractive to private investors, Solyndra’s backers prepared to take the company public. Unfortunately, SEC rules for an initial public offering of stock require the disclosure of more than Obama speeches glowing with solar power. Companies that want access to the market have to reveal their financial condition.
In Solyndra’s case, outside auditors from PricewaterhouseCoopers (PWC) found that condition to be dire. “The company has suffered recurring losses from operations, negative cash flows since inception, and has a net stockholders’ deficit,” the PWC accountants concluded. Even with the gigantic Obama loan, Solyndra was such a basket case that PWC found “substantial doubt about its ability to continue as a going concern.”
The “going concern” language is not boilerplate. As Townhall finance maven John Ransom explains, it is a term of art to which auditors resort when there is an extraordinary need to protect themselves and the company from legal liability. Angry investors who’ve lost their shirts tend to scapegoat the loser company’s accountants. In truth, even if the accountants affixed a neon “going concern” sign to the company’s financial statements, investors would have no one but themselves to blame. But it is unusual: The language is absent from the statements of many companies that actually end up going bankrupt. Auditors reserve it for the hopeless causes — like Solyndra.
With no alternative if they wanted to make a play for market financing, Solyndra’s backers disclosed the auditors’ bleak diagnosis in March 2010. The government had thus been aware of it for two months when President Obama made his May 26 Solyndra speech — the speech Solyndra backers were clearly hoping would mitigate the damage.
As president, Obama had a fiduciary responsibility to be forthright about Solyndra’s grim prospects — in speaking to the American taxpayers whose money he had redistributed, and to the American investors who were about to be solicited for even more funding. Instead, he pulled a Martha Stewart.
The president looked us in the eye and averred that, when it came to channeling public funds into private hands, “We can see the positive impacts right here at Solyndra.” He bragged that the $535 billion loan had enabled the company to build the state-of-the-art factory in which he was then speaking. He said nothing about how Solyndra was continuing to lose money — public money — at a catastrophic pace. Instead, he painted the brightest of pictures: 3,000 construction workers to build the thriving plant; manufacturers in 22 states building an endless stream of supplies; technicians in a dozen states constructing the advanced equipment that would make the factory hum; and Solyndra fully “expect[ing] to hire a thousand workers to manufacture solar panels and sell them across America and around the world.”
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