SALT LAKE CITY — The Department of Justice filed a complaint this week seeking an injunction against two Utah businesses' alleged false promises to customers that their purchases will give them substantial tax breaks.
R. Gregory Shepard and Neldon Johnson, both from Utah, are accused of using RaPower-3 LLC and International Automated System Inc. to sell solar technology to customers under a false premise that the equipment is groundbreaking.
"According to the complaint, the defendants’ so-called technology is a sham," the Department of Justice said in a statement Monday.
The Deseret News was the first to report in December of 2014 the questionable business practices of International Automated System's decade-long practice of promising solar energy in arrangements that never came to fruition.
In a months-long investigation, the newspaper uncovered projects in multiple states that never produced energy, despite claims by company officials that the technology was revolutionary. The federal government claims products sold by RaPower-3 and International Automated System, called "solar thermal lenses," don't qualify customers for tax breaks as the companies claim.
"The lenses … do not and will not produce solar energy that could be collected and used for any purpose that Congress intended to encourage through tax credits," the Department of Justice stated.
Nevada-based company LTB1 LLC and Oregon man Roger Freeborn are also named in the federal complaint. In all, about 70 customers of the three companies have filed tax cases regarding their rejected deduction claims, costing the federal government about $4 million in legal fees.
“The Department of Justice and the IRS work aggressively to detect, investigate and shut down schemes that purport to allow others to avoid paying their proper federal income tax,” acting Assistant U.S. Attorney General Caroline D. Ciraolo, who oversees the Tax Division for the Department of Justice, said in a statement. “If a tax scheme sounds too good to be true, it probably is.”
The case against the men and their businesses also states the distribution of the solar equipment was done in part using a multilevel marketing scheme. Federal lawyers are seeking a repayment of the three men's alleged illicit profits, a legal injunction against the defendants' ability to prepare tax returns for others and a halt to the promotion of their supposed multilevel marketing scheme.
International Automated System Inc. installed so-called solar towers on land in Millard County, after promising officials there the company would deliver utility-scale solar energy to Southern California. That was in 2008. Despite years of requests from Millard County officials, the company never obtained the appropriate permits or a business license, casting further doubt on the viability.
Despite claims about the "revolutionary" solar technology, neither the national trade association for solar companies nor the Governor's Office of Energy Development had heard of the company's technology.
Before the solar thermal lenses the RaPower3 website said he developed with assistance of Hubble Space Telescope scientists, there was a new communications system called Digital Wave Modulation, which Johnson was promoting heavily from 1995-96.
A complaint by the U.S. Securities and Exchange Commission detailed that Johnson was behind the publication of eight separate news releases about Digital Wave Modulation disseminated 55 times and that he conducted a national news conference in Orem as well.
The news releases claimed, among other things, that the machine could transmit 1.8 billion bytes of information per second and network with up to 1,000 computers at a time, according to the SEC filing in federal court in Salt Lake City.
During the 12-month period the news releases were going out, the SEC noted that stock of International Automated Systems rose from $3.50 a share to $40 a share.
The claims of Digital Wave Modulation's abilities were simulated on a computer, and Johnson never "physically" built a machine or an operational prototype, the SEC said.
The federal agency brought a civil action of securities fraud in 1998 against Neldon Johnson and International Automated Systems, a case that was ultimately settled in 2005 with an order issued by Judge Dee Benson.
Johnson was allowed to settle the case with the SEC absent an admission of guilt. A payment of $1.3 million in profits gained from the alleged activity and $1.2 million in interest, which Johnson was ordered to pay to the court, was waived because of Johnson's sworn statement of his financial assets, according to the judgment.