Berkshire Hathaway Loses $340 Million to Ponzi Scheme

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Warren Buffett’s views on Bitcoin are well documented, so it was with ill-disguised glee that many in the crypto community reacted to the news that his investment firm, Berkshire Hathaway, has apparently lost $340 million to a Ponzi scheme involving a fraudulent solar power company. Having referred to Bitcoin in the past as a gambling device, a delusion, and, famously, rat poison squared, it is ironic that his firm was forced to admit that they fell prey to a “Ponzi-type investment fraud scheme” that operated between 2015 and 2018, and has led to the massive write-down.

DC Solar Can’t Generate Legal Returns

The scam and resulting loss came to light in the firm’s quarterly investment filing during the annual shareholders meeting, where Buffett last year made the ‘rat poison squared’ comment. In the filing the loss was seemingly played down, with no reference made to the company involved:

The income tax expense adjustment relates to investments that we made between 2015 and 2018 in certain tax equity investment funds. Our investments in these funds aggregated approximately $340 million. In December 2018 and during the first quarter of 2019, we learned of allegations by federal authorities of fraudulent income conduct by the sponsor of these funds. As a result of our investigation into these allegations, we now believe that it is more likely than not that the income tax benefits that we recognized are not valid.

Despite Berkshire Hathaway apparently trying to obscure the finer details of the loss, Buffett assistant Debbie Bosanek told Bloomberg and CNBC that the investment was with DC Solar, who had their bank accounts frozen by the FBI last year following raids on both DC Solar’s headquarters in San Francisco and the CEO’s home. It emerged in February this year that the action was over fraud and money laundering allegations following suspicions that DC Solar was engaging in a Ponzi-style scheme where new investor money was used to pay old investor withdrawals. The company went bankrupt in late 2018, leaving Berkshire Hathaway, and Buffet, with egg on their faces given the insistence by him and his contemporaries, that Bitcoin is a Ponzi scheme. The reaction within the crypto community was, as expected, unkind:

Buffett Didn’t Buy the Dip

The other irony of course is that, in a world of infinite liquidity, if Buffett had invested his $340 million in Bitcoin in 2015 instead of bashing it, it would have been worth $5.4 billion at the time of DC Solar’s bankruptcy. Still, at least he knows what it feels like to be part of an actual Ponzi-scheme now.