Financial pyramid in the solar sector: precautions and recommendations

Recently, the program “Domingo Espetacular”, broadcast on Rede Record de Televisão, released a report on Original Energy. The company, which operates in the solar sector, is being investigated for practicing a pyramid scheme, considered a crime in Brazil. On its social media, the company claims to offer a great possibility of extra income in times of crisis with renewable energy, through the purchase of photovoltaic kits and leasing of the equipment to the company itself.

In a statement, the 3rd Criminal Prosecutor's Office of PetroLina (PE) informed to Canal Solar who requested the Civil Police of Pernambuco to open a police investigation (no. 03.26.0214.00855/2020-1.3) to investigate the facts related to Original Energy. Contacted by the reporter of Canal Solar, Original Energy reported that the company has been acting with total transparency with respect to landlords and that since the suspension of activities it has been taking all legal measures to settle outstanding issues and resume its activities.

“In March last year, upon becoming aware of supposed inconsistencies in some operations, the company requested a police investigation and registered a police report in São Paulo. Evidence of fraud committed against Original Energy led to the blocking of invoiced amounts. In September, the group began an audit to check the possibility of fraud in contracts, making it necessary to temporarily suspend rental payments for solar panels. In December, Original Energy requested the judicialization of a proposal to meet the demands of all lessors. With court authorization, it will be possible to resume payments. The company is awaiting the judge's opinion. All of this shows the incessant search to repair the damage”, informs the note.

Regarding the report published on Record, Original Energy stated that it was not contacted by the broadcaster. “The production of the program Domingo Espetacular did not even contact our company as stated by the reporter. Such conduct violates a basic premise of journalism, which is to be impartial. Serious journalism always listens to all sides, investigates, and takes care not to make mistakes. Record's television journalism made a huge mistake by disregarding our arguments and mentioning that we are part of a financial pyramid”, says Rodrigo Mesquita, CEO of Original Energy.

“We are a solid company that has been operating in the photovoltaic market since 2014, whose business model is based exclusively on the sale and installation of photovoltaic projects. We are not part of any fraudulent scheme”, he adds.

According to the company, Record has already been asked for a right of reply. “We demand, within 48 hours, the same space given to those who participated in the interview so that Original Energy reaffirms its usual commitment on a national network”, concludes the note.

Origina Energy also clarifies that the rental of solar panels is done through a power plant expansion program, the responsibility of Solargy, one of the group's companies, which operates everything through contracts. Furthermore, it states that the Power Plant PetroThe power line is ready, connected to the Celpe (Companhia Energética de Pernambuco) grid, and awaiting authorization to generate clean and renewable energy on a large scale. Regarding the police investigation, the company clarified that its representatives are aware of and cooperating by providing all necessary documents and information.

But after all, what is a financial pyramid?

O Canal Solar heard experts to explain what a financial pyramid is, how it can be identified, what the difference is between a pyramid and multi-level marketing and what to do if you are a victim of this type of crime.

How does the financial pyramid scheme work?

According to attorney Pedro Henrique Dante, an expert in the electricity sector and a partner at Lefosse Advogados, this scheme is an unsustainable business model. “In general terms, a pyramid scheme works by referring new members to maintain the business. In this way, each investment made by a new member pays the older members. The scheme breaks down when investors request to withdraw their financial contributions,” he explains.

This practice is a crime in Brazil and the penalty for those who practice this scheme is imprisonment from six months to two years, in accordance with Article 2, IX, of the Law 1.521 / 51 (Law on Crimes against the Popular Economy):

IX – obtain or attempt to obtain illicit gains to the detriment of the people or an indeterminate number of people through speculation or fraudulent processes (“snowball”, “chains”, “pichardism” and any other equivalent);

According to a technical note from the Ministry of Justice, the main features of this scheme are:

• Little or no information about the company behind the scheme;
• Promise of extremely high returns that are out of step with the reality of the financial market;
  High commission payments for recruiting new members to the scheme.

The CVM (Securities Commission) also highlights the signs of a financial pyramid scheme:

• The promise of high earnings, usually in a short time, but without there being clarity regarding a real effort by the participant in selling products and without any risks involved being properly clarified;
• The absence of a real effort to effectively sell the product by associates, which makes little sense for sales, has no economic value or could be carried out automatically by computer programs.

Dante also highlights that this scheme, in general, is attractive business, with promises of extraordinary gains with returns above the market standard. “The energy sector is attractive for new investors, but this does not represent high and immediate financial gains, especially when we are talking about energy projects that have inherent complexities in their viability”, highlights the lawyer.

“Consumers must be aware of several signs to avoid falling into the trap of the financial pyramid. Always be wary of business offers that offer little information about the product sold, the company and its owners. I always recommend researching the company’s credentials in the energy sector and its owners”, advises Dante.

Bernardo Marangon, an expert in electricity markets and director of Exata Energia, emphasizes that investors should be aware of the offers. “There is no type of project that gives 100% return per year, I believe not even 50% per year. The investment in solar energy have lower risk and, consequently, lower returns, in addition to being considered long-term investments. The SELIC at 2% makes the profitability of investments available on the market lower and not the other way around, and it is at this time that pyramid schemes appear, as people look for other alternatives to invest their money”, comments Marangon.

“My recommendation is that if an opportunity arises that has a return above 20%, or that presents a payback of less than three years, be suspicious, research, get information from people who understand the subject, and don't lose your money”, he adds.

Investment in solar energy is not synonymous with a financial pyramid

Original Energy's business model consisted of selling solar panels to investors and then leasing them from the company itself, which guaranteed that the purchased modules would be installed in its own plant within 365 days. According to the company, investors could remove their solar panels from the Original Energy plant or sell them to the company for an agreed price.

Each panel was sold for R$900. The monthly rental fee for each module was R$150. After the 365-day period, investors could sell the panel to Original for R$150. Lawyer Matheus Santos, a specialist in corporate law and contracts at Tribuci, explains that the investigation launched to investigate Original Energy aims to determine whether the company engaged in a fraudulent pyramid scheme and not because it is a company operating in the DG (distributed generation) market.

“It is important that investors and customers of companies in the photovoltaic solar DG sector are aware that the investigation focuses exclusively on the way Original Energy operates, which everything indicates would be a financial pyramid scheme, and not on the sector in which said company operated, and that investment in solar energy is not synonymous with a financial pyramid scheme”, he explains.

“In any branch of economic activity, investors' main defenses against financial pyramid schemes are information and caution, and the distributed electricity generation market is no different,” adds Santos.

He also highlights that there are several investments that can be made by investors in reliable and safe companies. “Distributed solar energy generation by reputable companies with technical capacity is currently a safe investment with good profitability if done correctly and consciously by investors, whether through direct investment, investment funds, or investment crowdfunding,” concludes the lawyer.

Econ Energy

Another company accused of adopting a pyramid scheme is Econ Energia, which changed its name to Econ Global. The company sold shares in solar power plants with the promise of profits of up to 30% per month on the amount invested. According to a statement from the CVM (Brazilian Securities and Exchange Commission), the company is not authorized to operate in the financial market.

On the Reclame Aqui website, there are more than 600 complaints about the company. One of the investors, a resident of Diadema (SP), stated that in September 2019 the company came up with plans for anyone to invest R$1 and receive R$30 in interest for 100 days. He invested R$00 and the company disappeared with the money without giving any news. Many of the investors complain about the difficulty of accessing the system and that the company does not return messages and calls.