Bloomberg News

Solyndra Said to Be Investigated by FBI for Accounting Fraud

September 30, 2011

(Adds auditor warning in March 2010 in 20th paragraph.)

Sept. 30 (Bloomberg) -- Solyndra LLC, the solar-panel maker that filed for bankruptcy protection two months after executives extolled its prospects, is being investigated by the FBI for accounting fraud, an agency official said.

The FBI is examining possible misrepresentations in financial statements submitted to the Energy Department, according to the official, who requested anonymity because the investigation is continuing.

Disclosure of the fraud probe is likely to heighten Republican criticism of the Obama administration for its approval of a $535 million U.S. loan guarantee, which the company used to build a $733 million factory in Fremont, California, that opened in January.

When construction started, the company said it had a $2 billion backlog in orders for its cylindrical solar modules for commercial rooftops.

“The company is not aware of any wrongdoing by Solyndra officers, directors or employees” related to the Energy Department loan guarantees or other actions and “is cooperating fully” with the U.S. Attorney in San Francisco, according to a Sept. 20 statement from Solyndra. David Miller, a company spokesman, didn’t return a phone call and an e-mail seeking comment yesterday.

Solyndra filed for bankruptcy protection on Sept. 6 and fired about 1,100 workers with little notice, two years after it received the loan guarantee. The Federal Bureau of Investigation raided the company’s offices on Sept. 8. The Justice Department hasn’t said why Solyndra is being probed.

White House Pressure

Solyndra’s collapse has prompted congressional scrutiny of President Barack Obama, whose administration issued final approval of the loan that also won support from officials in the administration of George W. Bush.

Republicans on the House Energy and Commerce Committee, which has investigated the loan since February, have said the administration pressured federal loan officers to expedite the review of Solyndra’s application so it could be promoted as a stimulus success story.

Representative Cliff Stearns, a Florida Republican and chairman of the investigations panel, has pointed to connections between Solyndra and George Kaiser, an Obama fundraiser whose foundation invested in the solar company.

Spokesmen for the White House and the foundation have denied Kaiser lobbied for the aid.

Solyndra was the first to receive a guarantee under the stimulus act. Its loan was the largest award given to a solar manufacturer under the program.

CEO, Lawmakers

Democrats, who dispute claims politics played a role, have joined Republicans in criticizing Solyndra Chief Executive Officer Brian Harrison for what they said were misrepresentations of the company’s finances in meetings with lawmakers.

“When Mr. Harrison was in my office in July, he said that Solyndra’s future was bright, with sales and production booming,” Representative Henry Waxman of California, top Democrat on the Energy committee, said at a Sept. 23 hearing at which Harrison was a witness. “I’d like to know why he told me that in July, and then filed for bankruptcy one month later.”

Harrison and Chief Financial Officer Bill Stover invoked their Fifth Amendment rights against self-incrimination and refused to answer questions at the hearing.

Cost Estimates

Companies seeking guarantees were required to estimate project costs, list private investors and provide a model detailing cash flows for the life of the project, according to the 2006 Energy Department solicitation for loan guarantees.

Solyndra submitted an application in 2006 and added details in October 2007 after the company was identified during the Bush administration as a potential candidate for a guarantee.

It is unlawful for applicants for federal loan guarantees to make untrue, misleading or incomplete statements, according to James F. Bowe Jr., an energy regulatory lawyer with Dewey & LeBoeuf in Washington, who isn’t involved in the Solyndra case.

False statements on loan applications are “very common in terms of fraud investigations the FBI looks at, whether it’s bank fraud, which is more common, or it’s government fraud,” said Daniel D. Roberts, a retired FBI assistant director.

Harrison joined Solyndra in July 2010, after Solyndra had received its loan guarantee and its auditor had warned its financial difficulties were deep enough to raise questions about its ability to survive.

‘Substantial Doubt’

PricewaterhouseCoopers LLP, the company’s auditor, wrote in a March 16, 2010, filing to the Securities and Exchange Commission that Solyndra’s “recurring losses” and “negative cash flows” raised “substantial doubt” about its ability to “continue as a going concern.”

Caroline Nolan, a spokeswoman for the New York-based audit company, declined to comment today on the investigation.

The company withdrew a planned initial public offering in June 2010, citing adverse market conditions. A month earlier, Obama toured the new manufacturing factory that U.S. aid helped to build and said Solyndra was a testament to “American ingenuity and dynamism.”

By December, the company was almost out of cash and sought to restructure the loan agreement with the Energy Department. The department at the time knew the company had failed to set aside $5 million in the first of six payments into a reserve fund, Damien LaVera, an agency spokesman, said in an e-mail. The new deal eliminated the payments, he said.

Last-Ditch Bid

The agreement made the government’s debt subordinate to $75 million in private investment. Energy Department officials have said it was a last-ditch effort to save the company. A department official joined Solyndra’s board as part of the deal.

Harrison was preceded as CEO by Solyndra founder Chris Gronet. Gronet remained chairman of the company until Aug. 19, when his departure was announced, 12 days before it halted operations on Aug. 31.

Gronet, a former executive at Applied Materials Inc., expressed anger when action on the loan guarantee was postponed in January 2009 during the final days of the Bush administration, Energy Department e-mails show.

“I was appalled to learn on Friday that our application is being delayed yet again,” Gronet wrote in an e-mail to Steve Isakowitz, the Energy Department’s chief financial officer, in the early morning hours on Jan. 12, 2009.

He later spurned an apology from David Frantz, director of the loan program under Bush, according to an e-mail sent later that day.

“I find the response completely unacceptable,” Gronet wrote. “An apology from David is not enough.”

--Editors: Steve Geimann, Joe Winski

To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net


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