The Securities and Exchange Commission finally announced long-awaited charges this week against Advanced Equities, a Chicago-based venture capital investment bank, and its co-founders, Keith Daubenspeck and Dwight Badger.
According to the SEC, Badger, who has stepped down from his role, made false statements about an alternative energy company’s finances, a deal which the Chicago firm had helped finance. The SEC did not name the energy company in its proceedings, but Crain’s Chicago Business reported that it was Bloom Energy, a Silicon Valley-based fuel cell maker. Daubenspeck did not correct Badger’s misstatements about Bloom Energy’s financial health, so he was charged for failure to supervise properly.
The firm, which used to own independent broker/dealer First Allied, settled with the SEC for $1 million; it also agreed to be censured and cease and desist from committing any future violations. Badger will pay a $100,000 fine and be barred from the industry for one year. Daubenspeck will pay $50,000, and be subject to a one-year supervisory suspension. From the SEC’s announcement:
According to the SEC's order, Badger said in the 2009 offering that the energy company had more than $2 billion of order backlogs when the backlog never exceeded $42 million. He also said 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. Badger said 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 he again misstated the information about the loan application during the follow-up offering in 2010.
As WealthManagement.com reported in March, the two co-founders received Wells notices from the SEC in January 2012, notifying them that the staff may take enforcement action related to a private offering in 2009.
At first, I speculated that the SEC investigation could be related to Fisker Automotive, another private offering Advanced Equities had been flogging to investors. Just before AE received the Wells notices, an investor sued Fisker and Advanced Equities for their alleged failure to perform fiduciary duties and for fraud.
The SEC charge simply begs the question, what’s next? If the firm was making false statements about one company, could have done the same for other private offerings?