Heritage Bank of Commerce in San Jose, California, has agreed to pay $ 4 million to settle claims arising from an alleged Ponzi scheme.
According to a statement released Wednesday, the agreement is with Christine Lovato, trustee for four bankrupted firms linked to DC Solar, a failed manufacturer of mobile solar generators. Heritage Commerce’s payment settles Lovato’s claims arising from the bank’s handling of deposit accounts maintained by the bankrupted firms as well as several related investment funds.
Heritage Commerce has denied all liability.
DC Solar’s owners, Jeff and Paulette Carpoff, pleaded guilty to conspiracy and money laundering charges in January 2020.
DC Solar investors purchased mobile solar generators, purportedly manufactured by the company. Instead of operating the generators themselves, investors leased them back to DC Solar which would in turn lease them to end users. In addition to benefiting from the lease revenue, investors received hundreds of millions of dollars of solar energy tax credits.
According to the government, at least half of the approximately 17,000 mobile solar generators DC Solar claimed to have manufactured never existed, so lease revenue associated with them – as well as tax credits – were fraudulent.
The list of defrauded investors includes several banks, while Heritage Commerce also made two commercial real estate loans to entities linked to DC Solar.
Heritage, which reported $ 11.2 million of net income for the quarter ending March 31, said it would account for the settlement payout as noninterest income in its second-quarter financial results. Heritage Commerce also plans to pursue reimbursement from its insurance carrier.
In a research note Thursday, Tim Coffey, who covers Heritage Commerce for Janney Montgomery Scott, lowered his second-quarter earnings estimate five cents to $ 0.15 per share. Coffey, however, reiterated his buy rating and $ 13.50 fair value estimate on the stock.
“While the settlement is a setback… we do not view it as a long-term impediment to a better valuation,” Coffey wrote.