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"This tactic allegedly resulted, this person said, in tens of hundreds of millions of dollars in phantom revenue." SolarCity had revenues of ~$480M in 2016 [0]

by shafyy 8y ago

"This tactic allegedly resulted, this person said, in tens of hundreds of millions of dollars in phantom revenue." SolarCity had revenues of ~$480M in 2016 [0]. "Tens of hundreds of millions" would mean billions of dollars of phantom revenue. Even if that fake revenue would be distributed over a couple of years, it would have been a significant proportion of SolarCity's revenue. Just seems unrealistic that the SEC or any other agency didn't realize that. Or what do they mean by "Tens of hundreds of millions?". Did they mean to write "Tens OR hundreds of millions?". Even then the same logic applies. [0] https://www.statista.com/statistics/505770/revenue-of-solarcity-corp-breakdown/ https://www.statista.com/statistics/505770/revenue-of-solarc...

adamson 8y ago
That construction is so weird that I'm going to assume it was a typo and that they meant "tens or hundreds"
- shafyy 8y ago
  Ok. So it could be either $40M or $400M - that's a huge range. Let's assume something in the middle, like $200m. Does it seem credible to you guys that nobody except the three plaintiffs noticed that SolarCity faked half of their 2016 revenue?
  - tango24 8y ago
    I would wager that anything in a range 10%-50% of missing revenue, for a publicly traded company, would be caught by external auditor. And I’d im not mistaken, external auditors are required. If I’m wrong on either of those accounts, then I’d be seriously concerned about our stock market.
    - TheOtherHobbes 8y ago
      This shouldn’t have me laugh out loud, but it did.
  - mistercow 8y ago
    Well first off, I don’t see a time range here. This could easily be stretched over multiple years. Secondly, if someone says “tens or hundreds of millions”, I assume that they’re giving a rough estimate based on incomplete information. If I’m evaluating the credibility of such an estimate, then I’ll consider the most conservative end of the range, which in this case is $20M. If we suppose that that was spread over three years, then we’re talking about 1-2% of total revenue. That doesn’t sound so implausible, right? Finally, SolarCity’s 2016 revenue was $730M, not $400M.
    - shafyy 8y ago
      That does sound plausible and also not newsworthy :-)
redlorry 8y ago
I'm assuming 'tens or hundreds of millions'
amarant 8y ago
i would guess it's a typo, and it's supposed to be "tens or hundreds of millions" tens of hundreds is a pretty silly way to describe numbers edit: darnit I got duble-ninjad!
jsight 8y ago
The way that I read it was that it was a huge guess and that it was largely in reference to bookings, rather than billings. It wouldn't be booked at revenue at that point, so it would show up as inaccurate revenue forecasting. Of course, the statements themselves were so hand-wavy that its hard to say for sure.
dathmar 8y ago
Not only this, but they state "'thousands' of bogus SolarCity accounts may have been created". The average install is $15K-29K [0]. So even is there was 1000 fake accounts at $15k that's $15 million in missing sales? Add to that even though SolarCity's revenues were about $480M it looks like almost half of that was from leases and incentives [1]. So on the lowest end we are saying 5% of all revenue was faked? [0] https://www.sunrun.com/solar-lease/cost-of-solar https://www.sunrun.com/solar-lease/cost-of-solar [1] https://www.statista.com/statistics/505770/revenue-of-solarcity-corp-breakdown/ https://www.statista.com/statistics/505770/revenue-of-solarc...
Nelson69 8y ago
I'm not trying to pass premature judgment on anything here but the article spans several broad categories. There is various verbal harassment mentioned, age discrimination is mentioned, perhaps some missing overtime pay or a misunderstanding about exempt employment, some cut backs on certain office benefits that a struggling company might normally do and then there is the "piece de resistance," outright financial fraud. Harassment is bad, period, I don't know what the girl running in her underwear had to do with anything, but it doesn't sound like something you want circulating in your workplace, these sound like really valid beefs. So this company was bought and presumably some audits happened and there was some due diligence. From my personal experience, people who tend to get really wound up about not being paid overtime tend not to be the most knowledgeable about this sort of fraud. I might be wrong, but I think maybe some upset folks had some real complaints and they may have mixed in some rumors. If the fraud is remotely true, there is tons of missing money, companies tend to notice that.
TheCoelacanth 8y ago
From what I can tell, prior to mid-2017 (which would include most or all of the period that the lawsuit covers) SolarCity's residential products were actually 20-30 year leases rather than outright purchases. Following GAAP accounting rules, the revenue from the lease payments would need to be spread out along the whole length of the contract, so a lot of the fake revenue that they are talking about might actually be anticipated future revenue spread across the next 20-30 years rather than revenue when the sale was made. 50-500 million spread across 25 years would be 2.5-25 million per year, which seems much more reasonable as a proportion of revenue that could potentially be faked.
- shafyy 8y ago
  Yeah this seems like a reasonable thing that might have happened. Putting it this way, it's still a bad thing but it's nothing of significance to SolarCity's overall performance or bottom line.

by shafyy 8y ago

adamson 8y ago

That construction is so weird that I'm going to assume it was a typo and that they meant "tens or hundreds"

shafyy 8y ago
Ok. So it could be either $40M or $400M - that's a huge range. Let's assume something in the middle, like $200m. Does it seem credible to you guys that nobody except the three plaintiffs noticed that SolarCity faked half of their 2016 revenue?
- tango24 8y ago
  I would wager that anything in a range 10%-50% of missing revenue, for a publicly traded company, would be caught by external auditor. And I’d im not mistaken, external auditors are required. If I’m wrong on either of those accounts, then I’d be seriously concerned about our stock market.
  - TheOtherHobbes 8y ago
    This shouldn’t have me laugh out loud, but it did.
- mistercow 8y ago
  Well first off, I don’t see a time range here. This could easily be stretched over multiple years. Secondly, if someone says “tens or hundreds of millions”, I assume that they’re giving a rough estimate based on incomplete information. If I’m evaluating the credibility of such an estimate, then I’ll consider the most conservative end of the range, which in this case is $20M. If we suppose that that was spread over three years, then we’re talking about 1-2% of total revenue. That doesn’t sound so implausible, right? Finally, SolarCity’s 2016 revenue was $730M, not $400M.
  - shafyy 8y ago
    That does sound plausible and also not newsworthy :-)

redlorry 8y ago

I'm assuming 'tens or hundreds of millions'

amarant 8y ago

i would guess it's a typo, and it's supposed to be "tens or hundreds of millions" tens of hundreds is a pretty silly way to describe numbers edit: darnit I got duble-ninjad!

jsight 8y ago

The way that I read it was that it was a huge guess and that it was largely in reference to bookings, rather than billings. It wouldn't be booked at revenue at that point, so it would show up as inaccurate revenue forecasting. Of course, the statements themselves were so hand-wavy that its hard to say for sure.

dathmar 8y ago

Not only this, but they state "'thousands' of bogus SolarCity accounts may have been created". The average install is $15K-29K [0]. So even is there was 1000 fake accounts at $15k that's $15 million in missing sales? Add to that even though SolarCity's revenues were about $480M it looks like almost half of that was from leases and incentives [1]. So on the lowest end we are saying 5% of all revenue was faked? [0] https://www.sunrun.com/solar-lease/cost-of-solar https://www.sunrun.com/solar-lease/cost-of-solar [1] https://www.statista.com/statistics/505770/revenue-of-solarcity-corp-breakdown/ https://www.statista.com/statistics/505770/revenue-of-solarc...

Nelson69 8y ago

I'm not trying to pass premature judgment on anything here but the article spans several broad categories. There is various verbal harassment mentioned, age discrimination is mentioned, perhaps some missing overtime pay or a misunderstanding about exempt employment, some cut backs on certain office benefits that a struggling company might normally do and then there is the "piece de resistance," outright financial fraud. Harassment is bad, period, I don't know what the girl running in her underwear had to do with anything, but it doesn't sound like something you want circulating in your workplace, these sound like really valid beefs. So this company was bought and presumably some audits happened and there was some due diligence. From my personal experience, people who tend to get really wound up about not being paid overtime tend not to be the most knowledgeable about this sort of fraud. I might be wrong, but I think maybe some upset folks had some real complaints and they may have mixed in some rumors. If the fraud is remotely true, there is tons of missing money, companies tend to notice that.

TheCoelacanth 8y ago

From what I can tell, prior to mid-2017 (which would include most or all of the period that the lawsuit covers) SolarCity's residential products were actually 20-30 year leases rather than outright purchases. Following GAAP accounting rules, the revenue from the lease payments would need to be spread out along the whole length of the contract, so a lot of the fake revenue that they are talking about might actually be anticipated future revenue spread across the next 20-30 years rather than revenue when the sale was made. 50-500 million spread across 25 years would be 2.5-25 million per year, which seems much more reasonable as a proportion of revenue that could potentially be faked.

shafyy 8y ago
Yeah this seems like a reasonable thing that might have happened. Putting it this way, it's still a bad thing but it's nothing of significance to SolarCity's overall performance or bottom line.