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Judge issues $50M judgment against ‘abusive’ Utah solar scheme

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This solar "tree" is one of several that were built west of Delta in Millard County that are part of solar project under action by the U.S. Department of Justice. Federal authorities say the International Automated Systems/RaPower3 "solar lenses" deprived

FILE - This solar “tree” is one of three that were put in west of Delta in Millard County.

Courtesy photo

SALT LAKE CITY — A federal judge has issued a $50 million judgment against a pair of Utah men and their solar energy companies, leveling an injunction that prohibits any more business dealings of that nature.

The injunction and order issued by U.S. District Judge David Nuffer on Thursday holds defendants RaPower-3, International Automated Systems, R. Gregory Shepard and Neldon Johnson responsible both jointly and severally, for $50,025,480.

That amount is what the court said the U.S. Treasury was defrauded out of through an extensive multilevel marketing scheme perpetuated over 10 years in which no solar energy was produced.

Rather, Nuffer said the intent of solar lens transactions was to take advantage of renewable energy tax credits offered by the federal government as well as compensation for depreciation.

"From the start, defendants have told their customers that they can 'zero out' their federal income tax liability by buying enough solar lenses and claiming both a depreciation deduction and solar energy tax credit for the lenses," Nuffer wrote.

The Deseret News first reported concerns about the project in 2013.

The two men through their companies asserted the development of revolutionary technology with patented inventions that produced concentrated solar heat, according to multiple press releases over the years and website information.

Shepard recruited people for tours he led in Millard County at a solar energy “plant," featuring towers with lenses and dangling wires. Those tours were highlighted on the RaPower website.

In the order, Nuffer noted that Johnson testified that he has “generated electricity” using lenses on the research and development site a “hundred times,” but no one other than him has seen it happen.

The court arrived at the $50 million figure because records indicate the defendants sold 49,415 lenses. If all customers paid the $1,050 down payment, the defendants' own transaction documents put gross receipts at nearly $52 million, according to the court.

Nuffer added that despite the more than decadelong promotion of the solar lenses, the men "each knew or had reason to know that their statements about tax benefits purportedly related to buying the solar lenses were false or fraudulent."

The judge added, "Defendant showed no remorse, recognition of culpability, or likelihood of stopping this abusive conduct without a court order."

Moreover, he said Johnson never sold power to Rocky Mountain Power, although he assured a potential purchaser that such agreements were "tentatively" in place with other companies that agreed to purchase power once the system was operational.

The solar energy promotion relied on claims of making "progress" toward power production at various times during the venture, Nuffer said.

"Assembling components for a system that has not been shown to work is not progress," Nuffer wrote. "Rather, it is a convenient facade for defendants' ongoing fraud. They are savvy enough to inject just enough purported reality into the solar energy scheme to convince willing believers," Nuffer wrote.

The U.S. Department of Justice sought an injunction in 2015 against the men and companies to stop the solar lens advertising in conjunction with tax benefits after an IRS investigation.

A 12-day bench trial played out over April and June, in which Nuffer expressed frustration over Johnson's testimony on the stand.

"Johnson’s inability to communicate coherently or answer questions posed challenges for his counsel but also demonstrates his lack of coherent thought. His conclusions are not supported by valid reasoning, rendering his tax analysis, engineering analysis, financial analysis, marketing analysis and business analysis, all suspect," the judge wrote.

In June, Nuffer issued a narrow injunction against the companies and both men.

That injunction was broadened Thursday and comes with a list of requirements, including providing a list of solar lens purchasers within 56 days and the removal of any tax benefit information from company websites.

In addition, the defendants must report every year, by Jan. 15, for 10 years to the IRS any sales transactions involving lenses or solar energy technology and what amount of money was paid. That would include customers' identifying information, such as taxpayer identification numbers.

For a period of 10 years, both Shepard and Johnson must report to the IRS any entity they form and do so within 28 days of its organization.

After the initial injunction, RaPower-3 filed for bankruptcy, a request that Nuffer denied.

Defendants are also appealing an order to freeze assets.