The growing green energy sector is attracting an increasing number of fraudsters. One recent high-profile case involved Pennsylvania-based Mantria Corporation. The company claimed to be developing “carbon negative” residential communities and producing “biochar” – a form of charcoal made from organic wastes. But a complaint filed by the Securities and Exchange Commission (SEC) in November 2009 tells a different story. The SEC alleged that Mantria was in fact a Ponzi scheme, and its promoters had bilked approximately 300 investors out of $30 million through fraudulent and unregistered securities offerings.
Thanks to this example of green energy fraud and others like it, regulators and investors are taking a more critical look at the claims of promoters of green energy investments today. The Mantria matter (see sidebar below) and other recently uncovered fraud schemes in the green energy sector prompted the Financial Institutions Regulatory Authority (FINRA) to issue an investor alert in the United States advising the public on the signals of green fraud schemes.1
Governments and private investors around the world are spending billions to subsidize green energy projects, but many of the emerging technologies in this industry are unproven and controls often are lax. All too frequently, investors in green energy aren’t motivated by solid business judgment but by hope, hype, and good intentions. The result is an environment ripe for fraud.
This article applies Cressey’s Fraud Triangle to examine characteristics of green investments that make them vulnerable to fraud. It also discusses some high-profile cases and opportunities for CFEs to make a difference in this sector.