VSLR: Fiddler on the Roof
IMPORTANT – Please read this Disclaimer in its entirety before continuing to read our research opinion. The information set forth in this report does not constitute a recommendation to buy or sell any security. This report represents the opinion of the author as of the date of this report. This report contains certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential,” “outlook,” “forecast,” “plan” and other similar terms. All are subject to various factors, any or all of which could cause actual events to differ materially from projected events. This report is based upon information reasonably available to the author and obtained from sources the author believes to be reliable; however, such information and sources cannot be guaranteed as to their accuracy or completeness. The author makes no representation as to the accuracy or completeness of the information set forth in this report and undertakes no duty to update its contents. The author encourages all readers to do their own due diligence.
You should assume that as of the publication date of his reports and research, Marcus Aurelius and possibly any companies affiliated with him and their members, partners, employees, consultants, clients and/or investors (the “Marcus Aurelius Affiliates”) have a short position in the stock (and/or options, swaps, and other derivatives related to the stock) and bonds of Vivint Solar. They therefore stand to realize significant gains in the event that the prices of either equity or debt securities of Vivint Solar decline. Marcus Aurelius and the Marcus Aurelius Affiliates intend to continue transactions in the securities of Vivint Solar for an indefinite period after his first report on a subject company at any time hereafter regardless of initial position and the views stated in Marcus Aurelius’ research. Marcus Aurelius will not update any report or information on this website to reflect such positions or changes in such positions.
Please note that Marcus Aurelius, the author of this report, and the “Marcus Aurelius Affiliates” are not in any way associated with Aurelius Capital Management, LP, a private investment firm based in New York, and any affiliates of or funds managed by the latter company.
You should assume that all persons and entities referenced in lawsuits or government actions have denied the allegations referenced herein.
We are short Vivint Solar (NYSE: VSLR). Vivint appears to have largely concealed a growing pattern of undisclosed lawsuits alleging the company has engaged in a nationwide fraud involving forged customer contracts. The lawsuits specifically allege that Vivint has forged the signatures of homeowners, complete strangers, relatives, neighbors, and even a dead person onto sham solar contracts. Court documents suggest Vivint’s corporate office even has spreadsheets keeping track of the fraud allegations via an internal system.
Various victims of this alleged fraud, including elderly, handicapped, and non-English speaking families, state that Vivint resorted to outright fraud and forgery to close deals. Lawsuits allege that “Vivint, as a pattern and practice, regularly forges signatures” on customer contracts in states including California (which accounts for approximately 34% of Vivint’s business). Lawsuits identify senior sales employees currently at the company as being involved in the alleged fraud and “It is a corporate policy and culture at Vivint Solar to look the other way and dismiss these numerous complaints and to overtly or tacitly encourage their sales agents to hide important sales details from consumers, forge and falsify authorization documents…Vivint promotes its employees for this conduct.” One of the attorneys suing Vivint told a judge earlier this year that, according to his investigation, the percentage of Vivint representatives “doing these fraudulent acts”, such as “forging contracts, opening bogus accounts, using bogus email addresses to hide this from the unsuspecting consumer”, is “high”.
The malfeasance at Vivint, in our opinion, is a classic story of perverse incentives. Vivint is unique among listed peers in that it directly employs its own large army of door to door salespeople who can earn cash windfalls, typically ranging between $2,500-$7,000 per sale, by canvassing neighborhoods across the country to entice customers into signing residential solar contracts with Vivint. We’re told that productive door to door reps can earn $150k-$170k per year, with a few top sales performers earning as much as $500k-$1 million. Pursuit of quick cash appears to have fueled elaborate tactics that, according to a lawsuit filed by Southern California Edison, include Vivint going “so far as to use counterfeit Edison logos and trademarks on their clothing” to dupe homeowners by impersonating Edison employees.
We see a distinct risk that Vivint’s alleged misdeeds have been deployed to mask weakness in the underlying business, especially considering that Vivint has missed revenue estimates in four of the last five quarters. Since 2016, “at least 11 former residential solar market leaders have been shuttered, entered into bankruptcy, or have been acquired for pennies on the dollar of capital raised”, according to Bloomberg. Vivint’s own 10-K admits that “we believe the solar industry is becoming increasingly commoditized”, which is particularly unsettling considering that Vivint has already burned more than $230 million in cash from operations since 2016, and now carries more than $1.3 Billion in total debt. Like the subprime mortgage originators who went bust during the financial crisis, Vivint has also become dependent on financing from a limited number of institutional investors who participate in Vivint’s funds and securitizations. We wonder if Vivint’s investors could simply walk away if they were to determine the solar contracts are polluted by fraud?
We therefore see substantial downside potential.
Note: This report references numerous lawsuits and you should assume that Vivint and the referenced defendants or individuals deny all allegations. Some of the referenced lawsuits may also have been settled, dismissed, or otherwise removed.
Vivint’s Solar Contracts Are Allegedly Contaminated by Forgery and Fraud.
We found 28 undisclosed lawsuits that specifically allege Vivint forged customer contracts or otherwise engaged in fraud or deception (a detailed index is provided in the appendix). Not only do lawsuits argue that Vivint “regularly forges signatures” on bogus solar contracts but that, despite being “routinely placed on notice about its sales agents committing forgery, fraud, and impermissible credit pulls”, Vivint continues to prey on consumers and even “promotes its employees for this conduct”.
Left: Case No. 18-CV-12356-NLH-JS, New Jersey District Court
Right: Case No. RG18914129, Alameda County Superior Court
One of the attorneys suing Vivint told a judge earlier this year that the percentage of Vivint representatives “doing these fraudulent acts”, such as “forging contracts, opening bogus accounts, using bogus email addresses to hide this from the unsuspecting consumer”, is “high”.
Case No. 18-CV-12356-NLH-JS Document 25
It is difficult for us to believe that the alleged malfeasance is merely the product of “rogue employees” or just a few bad apples since some of the lawsuits specifically identify or accuse senior sales employees of being directly involved in the misconduct. For example, a lawsuit filed last year by an eighty-seven-year-old California woman says Vivint forged her deceased husband’s signature on a contract and removed the solar panels only after she informed Vivint her husband had DIED years before he purportedly signed the sham contract. Notably, the document also bears the signature of a high-profile Vivint Regional VP of Sales, who appeared in a podcast which states that he “built and manages over 500 sales reps in the West Coast” , was featured in a company sponsored TV spot, and is identified as leading sales training sessions in a different podcast.
Case No. 37-2018-00039688-CL-FR-CTL Superior Court of California, County of San Diego
A different lawsuit accuses the same Regional VP of Sales of lying to an elderly California woman during a door-to-door sale that resulted in a contract with allegedly forged signatures, including the homeowner’s daughter, who says she was not present and does not even reside at the home (below).
Case No. RG18915535 Alameda County Superior Court
The same Regional VP’s signature appears in another allegedly forged contract that is the subject of a third lawsuit. In that case, a California woman says she was approached by a Vivint employee who impersonated San Diego Gas & Electric and falsely claimed she was qualified to receive free solar panels. That employee is identified as a Vivint District Manager who appeared on a podcast posted earlier this month, which stated he “quickly climbed the ladder to be one of the top producers around”.
Case No. 37-2018-00016438-CU-MC-CTL, Exhibits, California Superior Court, County of San Diego
In our opinion, the allegedly forged signature of the homeowner looks nothing like the valid signature that we pulled from a police report.
A lawsuit filed by a Spanish-speaking family states they were defrauded by Vivint, who forged the signature of an elderly woman’s daughter onto a sham contract related to a home she neither lives in or owns. The allegedly forged contract contains the signature of a Vivint employee, subsequently promoted to Director of Sales, who the lawsuit says solicited the elderly victim with a number of false statements. In our opinion, the allegedly forged signature of the homeowner looks nothing like the valid signature that we pulled from a public mortgage filing on the home.
Case no. RG18914129 Alameda County California Superior Court
A lawsuit filed last year states that a Vivint District Sales Manager falsely claimed he was doing a survey for the local utility company then sent the homeowner a bogus contract with a forged signature.
Case No. RG18891702 Alameda County California Superior Court
A different Vivint Director of Sales falsely told a South Carolina homeowner “he was with a government program” to fraudulently induce the homeowner to sign an iPad, according to a lawsuit (Jones). Similarly, a lawsuit filed earlier this year in Connecticut states that a Vivint Sales Manager forged the homeowner’s signature on another bogus Solar contract (below).
Case No. HHB-CV-19-6051481-S, State of Connecticut Superior Court, Judicial District of Meriden
Lawsuits repeatedly accuse Vivint of forging signatures of homeowners, including elderly, disabled, and non-english speaking families onto contracts the potential customers never reviewed or agreed to. For example, a lawsuit filed in March 2019 (below) states that Vivint approached a deaf couple renting a California home pretending to be affiliated with San Diego Gas & Electric. Vivint then allegedly forged the signature of the elderly homeowners (who were not present) onto the solar contract and installed the system on the property without their permission.
Case No. 37-2019-00012511-CU-BT-CTL, California Superior Court, County of San Diego
In our opinion, the allegedly forged signature of the homeowner looks nothing like the valid signature that we pulled from a public mortgage filing on the home.
Case No. 37-2019-00012511-CU-BT-CT Superior Court of California, County of San Diego
A lawsuit filed in January 2019 states that Vivint’s forgery of a Spanish speaking homeowner’s signature was so sloppy they didn’t even get her name right:
Case No. 37-2019-00001757-CU-BT-CTL, Superior Court of California, County of San Diego
An instance of “blatant forgery” is described in a different lawsuit alleging that Vivint was so careless it inserted the wrong initials of the homeowner into the sham contract:
Case No. 30-2017-00952409-CU-FR-CJC, Superior Court of California, County of Orange
Vivint even scammed a 94 year-old South Carolina woman with Alzheimer’s disease who, “would be recognized as incompetent to all who meet and speak with her”, according to a lawsuit. The Vivint sales rep allegedly induced her to enter a “digital signature” and created an email address for her (Davenport vs VSLR). Vivint also preyed on an elderly man “being pushed in a wheelchair by his caregiver”, according to a different lawsuit (Luckett vs VSLR).
Case No. 2017-CP-38-01689, State of South Carolina, County of Orangeburg
Lawsuits also accuse Vivint of inserting forged signatures of complete strangers, neighbors, renters, and relatives onto sham contracts. For instance, according to a lawsuit filed last year, Vivint forged the signature of an elderly woman onto a contract tied to the home of her neighbor, effectively hijacking her credit so that her neighbor, who had poor credit, could qualify (below). We therefore wonder if some of the alleged forgeries might be used by Vivint to falsify the stated credit quality of its solar contracts.
Case No. 37-2018-00042289-CU-BT-CTL, Superior Court of California, County of San Diego
In a lawsuit filed last year, a New Jersey homeowner states that the Vivint rep induced her to sign an iPad by offering a bogus roof survey, then inserted her signature into a fraudulent contract sent to an altered email address. Vivint also inserted a forged signature of the former homeowner as cosigner, even though he was a stranger and had sold the home nearly a decade ago, according to the lawsuit.
Case No. LCV20181340486 Superior Court of New Jersey Law Division Camden County
Court documents filed in a different case involving the same Vivint rep reveal that Vivint was aware of “six other instances of fraud alleged to have been committed” by the rep from 2016-2017. Yet the rep appears to have remained employed at Vivint until 2019. In our view, this gives credibility to allegations that Vivint tacitly condones or encourages this behavior.
Case No. 18-CV-12356-NLH-JS, Docket no 16, District Court of New Jersey
We are also troubled by the uniformity in tactics allegedly deployed across Vivint’s sales network. We struggle to understand how Vivint employees across the country could resort to virtually identical corrupt practices, during multiple years, without senior management either directing or, at minimum, being aware of such activities? We learned that an attorney suing Vivint told a judge that Vivint internally archives complaints via an internal system (below):
Case No. 18-CV-12356-NLH-JS, Docket no 25, District Court of New Jersey
Southern California Edison obtained a permanent injunction last year after suing to stop Vivint’s employees “throughout Southern California” who “regularly hold themselves out as Edison employees, partners, or affiliates to gain customer’s trust”. Edison said Vivint has “gone so far as to use counterfeit Edison logos and trademarks on the clothing”, leading to “numerous complaints from customers who have been confused and, in some cases, intimidated and frightened”.
Case No. 2:17-cv-08388-JAK-SK, United States District Court Central District Of California. Vivint made no admission of guilt in the permanent injunction order
Edison’s allegations mirror many other lawsuits and complaints we’ve reviewed stating that Vivint has deceived consumers by falsely claiming to be affiliated with utilities or government programs. Vivint is accused of later forging signatures, presumably to conceal the true costs and terms of the agreements from homeowners who have been misled. We found complaints that Vivint has falsely claimed to be affiliated with five other utilities in addition to Edison, including Pacific Gas & Electric (previously mentioned),
And Atlantic City Energy:
The New Mexico Attorney General May Have Only Scratched the Surface
The detailed allegations contained in lawsuits only exacerbate last year’s accusations from New Mexico’s Attorney General that Vivint has been “engaging in unfair and unconscionable business practices including clouding titles to consumers’ homes, fraud, and racketeering”, through “high pressure and illegal door-to-door sales; making false, misleading and fraudulent statements”.
New Mexico states that Vivint has been “falsely assuring that consumers will save 10%-30%, 20%-40%, or even more, on their utility bills compared to their prior utility rates when, in fact, they will likely pay more”. Even though Vivint’s contracts specifically promise not to file property liens, New Mexico explains that Vivint does so anyways, and “as a result, reasonable consumers are led to believe that this erroneous UCC filing is in fact a lien on their home, and potential buyers of those homes are misled about any encumbrances on the real property”. Vivint denied the allegations and filed a countersuit in December 2018 against the Attorney General.
Evidence suggests that online complaints and media reports about Vivint’s misdeeds are attracting increased public scrutiny in other areas of the country. For instance, in October 2018, a nonprofit watchdog, Campaign for Accountability (“CfA”), called for Nevada’s Attorney General investigate Vivint after a local news outlet reported that Vivint salespeople had distributed fliers falsely claiming to be from the area utility company and touting a fake program (below):
Note: CfA reported that “Vivint denied its employees were involved”.
CfA has authored numerous other letters calling for regulators to investigate Vivint after having released the results of an extensive investigation in 2017 into deceptive industry practices. CfA concluded that Vivint and SolarCity “are the industry’s leading bad actors” and were responsible for approximately 56% of the complaints submitted to the FTC about all solar companies. But after Tesla acquired Solar City, Elon Musk abruptly shuttered the company’s door-to-door sales division. According to our research, the bulk of these employees subsequently began selling door-to-door for Vivint.
Evidence suggests that other regulators have opened formal investigations into Vivint that have not been disclosed to investors. In fact, a July 2018 registration form (below) that Vivint filed with the New York State Public Service Commission admitted to being a party to formal investigations conducted by regulatory entities in New York, New Jersey, and Hawaii, none of which are disclosed in Vivint’s SEC filings.
Vivint’s Business Model Appears Particularly Vulnerable to Collapse
Vivint must constantly generate large amounts of new solar contracts each quarter to sustain itself. The fundamental problem, in our opinion, is that a pattern of undisclosed lawsuits allege that the company’s contracts are a product of fraud and outright forgery. We see a distinct risk that these alleged misdeeds have been deployed to mask weakness in the underlying business, especially considering that Vivint has missed revenue estimates in four of the last five quarters. Since 2016, “at least 11 former residential solar market leaders have been shuttered, entered into bankruptcy, or have been acquired for pennies on the dollar of capital raised”, according to Bloomberg, which also found that industry-wide “the share of [solar] systems that were financed using a PPA or lease has declined from over 60% in 1Q 2016 to under 40% today. More customers are choosing to buy their systems outright from local installers”. Vivint’s own 10-K admits that “we believe the solar industry is becoming increasingly commoditized”, which is particularly unsettling considering that Vivint has already burned more than $230 million in cash from operations since 2016, and now carries more than $1.3 Billion in total debt.
Farcically, Vivint’s financials appear to anticipate nearly zero customer defaults, with the company having set aside only a mere $6.9 million in provisions against $2.1 Billion in gross contractual value. Vivint retains large stakes in the investment funds it sells solar contracts to, which is why Vivint consolidates these funds into its financial statements. We therefore believe that any incremental increase in contractual defaults, including from any forged, invalidated, and unenforceable contracts, would lead directly to losses that would be magnified by the leverage created by Vivint’s debt load.
We also see a significant risk coming from Vivint’s dependence on financing from a limited number of institutional tax credit investors who participate in Vivint’s funds and securitizations. If the solar tax credits paid by the government to Vivint and its investors are tied to bogus contracts, is this money at risk? Furthermore, how long would these institutions stick around if they determine that the contracts are polluted by fraud? We note that the company’s 10-K also warns that “for example, if we experience higher customer defaults rates than we are currently experiencing in our existing investment funds, it could be more difficult or costly to attract future financing”.
We Therefore See Substantial Downside Potential
All investors are encouraged to conduct their own due diligence into these factors.
Note: This table references numerous lawsuits and you should assume that Vivint and the referenced defendants or individuals deny all allegations. Some of the referenced lawsuits may also have been settled, dismissed, or otherwise removed.
|Lawsuit||Date||State||Summary of Allegations|
|Alavardo||7/25/18||CA||Vivint forged Alvarado’s daughter’s signature on the PPA contract.|
|August||8/22/18||CA||Vivint forged August’s signature onto her neighbor’s PPA contract.|
|Belanger||4/9/19||CT||Vivint installed 33 solar panels on Belanger’s roof without his consent. Upon review, Belanger’s signature was forged multiple times on the PPA contract.|
|Cormier||3/6/19||CA||Vivint forged Cormier’s signature and installed solar panels at his property without his knowledge.|
|Davenport||12/13/17||SC||Vivint coerced a 94-year-old Alzheimer’s patient into signing a 20-year PPA.|
|Droney||5/30/19||NJ||Vivint solar forged the Droney’s signature on the PPA agreement and never provided a copy of the contract.|
|Elizalde||1/11/19||CA||Vivint forged the signature of Elizalde on the PPA agreement using the wrong name.|
|Fisher||8/6/18||CA||Vivint lied to the 86-year-old customer about the benefits of the solar panels and forged her signature along with her daughter’s signature on the PPA agreement.|
|Garcia||6/27/18||CA||Vivint impersonated SDG&E and forged the homeowner’s signature on the PPA agreement.|
|Gorin||4/24/19||MD||Vivint deployed deceptive sales tactics.|
|Harrision||9/10/18||NJ||The customer was never provided a copy of their contract. The contract had someone else’s contact information on it and their names were misspelled. The contract was possibly forged|
|Hewapthirana||4/3/18||CA||Vivint impersonated SDG&E and forged the homeowner’s signature on the PPA agreement.|
|Ibrahim||10/30/17||CA||Vivint forged the homeowner’s initials and signatures on the PPA agreement. The agreement included the wrong initials and only the homeowner’s first name.|
|Jones||4/2/18||SC||Vivint tricked the homeowner into signing the PPA agreement by falsely claiming his signature was only being used as authorization to check his credit.|
|Knight||8/2/18||NJ||The homeowner’s signature was forged onto a PPA agreement along with the signature of a total stranger.|
|Linehan||6/27/18||CA||Vivint impersonated SDG&E and forged the homeowner’s signature on the PPA agreement.|
|Littlejohn||12/22/16||NJ||Vivint fraudulently typed in Littlejohn’s name on a permission form and ran his credit report.|
|Luckett||10/9/15||CA||Vivint fraudulently induced the homeowners into signing the PPA agreement.|
|Mees||3/6/19||CA||Vivint pulled the homeowner’s credit under false pretenses.|
|Morken||8/7/18||CA||Vivint pulled Morken’s credit and forged her signature on her mother’s PPA agreement.|
|Muro||6/27/18||CA||Vivint impersonated SDGE, forged the homeowner’s signature, and used someone else’s contact information on the contract.|
|Pulipati||2/2/18||CA||Vivint impersonated PG&E and forged the homeowner’s signature.|
|Rasmussen||6/20/18||FL||Vivint tricked the consumer into signing a form on the company’s iPad and illegally pulled the consumer’s credit report.|
|Reilly||5/29/19||NJ||“Vivint forged plaintiff’s signature on a document and then treated the forged signature as Plaintiff’s ‘consent’ to obtain his credit reports”|
|Ritter||8/9/18||CA||Vivint forged the signature of William Ritter, the deceased spouse of the surviving homeowner.|
|Rutledge||4/2/19||AZ||Vivint convinced the homeowner and his daughter to sign their iPad to prequalify them for solar panels, but instead used the signature on a PPA contract.|
|Shackleford||3/29/19||MD||Vivint tricked the consumer into signing a form on the company’s iPad and illegally pulled the consumer’s credit report.|
|Southern California Edison||11/16/17||CA||Vivint used misleading sales tactics by falsely using Edison’s name and logo in their marking as an attempt to legitimize their product.|