The Securities and Exchange Commission recently charged the co-founder of a Chicago-based investment firm with misleading investors in two private equity offerings, and charged the other co-founder with supervisory failures related to the offerings.
Advanced Equities Inc. – a broker-dealer and investment advisory firm – and co-founders Dwight O. Badger and Keith G. Daubenspeck were charged in connection with private offerings in 2009 and 2010 on behalf of an alternative energy company in Silicon Valley, Calif. According to the SEC release, Badger led the sales effort for the offerings and made misstatements about the energy company’s finances that Advanced Equities failed to correct, thus failing to reasonably supervise Badger.
According to the SEC’s order on this matter, Badger made a variety of misstatements in selling the alternative energy company investment. Specifically, the SEC stated that Badger (1) said in the 2009 offering that the energy company had more than $2 billion of order backlogs when the backlog never exceeded $42 million, (2) that it had a $1 billion order from a national grocery store chain even though the store only had placed a $2 million order and signed a non-binding letter of intent for future purchases, (3) that the company had been granted a U.S. Department of Energy loan exceeding $250 million when it had applied for a $96.8 million loan, and (4) he misstated the information about the loan application during the follow-up offering in 2010.
According to the SEC’s order, Daubenspeck participated in at least two internal sales calls with Advanced Equities brokers during the 2009 offering and remained silent after he heard Badger make misstatements about the company’s order backlog, grocery store order, and Department of Energy loan application. Despite the red flags raised by the misstatements and the obvious risk that false information would be repeated to investors, the SEC claimed that Daubenspeck did not take reasonable steps to correct the misstatements and thus failed reasonably to supervise Badger.
In resolving the SEC’s investigation, Advanced Equities agreed to pay a $1 million penalty, and agreed to be censured and to cease and desist from committing or causing any future violations of the securities laws it was found to have violated. The firm also agreed to numerous undertakings including hiring an independent consultant to review its sales policies and procedures. Badger agreed to pay a $100,000 penalty and be barred for one year from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent. Daubenspeck agreed to pay a $50,000 penalty and a one-year supervisory suspension. Advanced Equities, Badger, and Daubenspeck consented to the entry of the cease-and-desist order without admitting or denying the SEC’s charges.
Although the SEC notice fails to identify the alternative energy company, other reports indicate that Advanced Equities was served in January with a Wells Notice related to its sale of a Fisker Automotive offering in 2009.
The White Law Group is investigating the liability that Advanced Equities may have for losses sustained by investors in the alternative energy company. Investors may be able to recover those losses through FINRA arbitration.
To speak with a securities attorney regarding the litigation options, please call The White Law Group’s Chicago office at 312/238-9650 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida. The firm represents investors in disputes with their financial professional or brokerage firm.
For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.