The Securities and Exchange Commission has notified the brokers who raised most of the private financing for taxpayer-backed electric automaker Fisker Automotive that charges may be brought against them, in connection with a private offering in 2009.
The co-founders of Advanced Equities, Inc., Keith Daubenspeck and Dwight Badger, were served in January with Wells Notices by enforcement staff from the SEC’s Chicago office. The warning informs defendants of the preliminary results of an investigation, and that findings mean a recommendation for a full hearing before the commission is likely. The subjects of the investigation are given the opportunity to submit a response to the allegations before a hearing is commenced. Crain’s Chicago Business first reported the news.
Advanced Equities, also based in the Windy City, has raised venture capital for Fisker. The investment bank specializes in late-stage equity financing, raising funds to “bridge the gap between venture money and traditional corporate finance.” Fisker announced 65 layoffs and a work stoppage at a former General Motors plant in Delaware in early February, after the Department of Energy suspended payments out of its $529 million loan guarantee.
Last month an investor, Daniel Wray, sued Fisker and Advanced Equities for their alleged failure to perform fiduciary duties and for fraud. He alleged that after he bought $210,000 of preferred stock between 2009 and 2011, in January Fisker and Advanced Equities demanded more than $83,000 “due to Fisker’s urgent need for equity capital,” or else he would lose privileges that came with his purchase of earlier stock.
“The lawsuit says Fisker and…Advanced Equities Inc., knew their promises to him were false all along,” reported the Orange County Register. “The suit seeks restitution, compensatory and punitive damages from Fisker and Advanced Equities.”
It is not known whether Wray’s lawsuit or a related complaint was the reason the Wells Notices were served on Daubenspeck and Badger. Advanced Equities’ attorney, Amal Amin, told Crain’s, “It’s confidential and we’re not going to discuss it.” Both of the investment firm’s partners denied wrongdoing.
“I am addressing the (SEC) staff’s concerns, and I am prepared to aggressively defend myself should it become necessary” they each wrote in their respective disclosures.
Daubenspeck and Badger were the subject of a scathing 2008 article in Forbes which accused the company of “foisting junky startups on investors.” The article cited the rapid rise of Advanced Equities in the technology venture capital environment, but accused Daubenspeck and Badger of leaning heavily on the credibility and recognition of bigger firms like Kleiner Perkins to impress investors to buy in on still-shaky tech prospects at later stages.
“The problem with this picture is that in vaulting (Advanced Equities) to its high perch in the VC world, Daubenspeck and Badger have left a wake of aggrieved customers, furious former employees, lawsuits and more than their share of busted startups,” Forbes reported. “At least 18 former clients have filed arbitration complaints accusing the firm of wrongdoing. Separately, six brokers have alleged that AE stiffed them for millions of dollars.”
Has Advanced Equities cast a poor reflection upon Fisker, thus contributing to concerns the Department of Energy might have about the EV-maker’s ability to raise private funds? The reason given when the loan suspension was announced last month was that Fisker – maker of the $102,000 luxury Karma model, which last week inexplicably stopped working during a Consumer Reports test – failed to reach “milestones” in its agreement with DOE.
It seems every week taxpayers learn something new about the clean energy “bets” the Obama administration has demanded they finance – especially Fisker. So far, before the loan was halted, $193 million in public money poured into the maker of an EV that only rich people can afford, who also get a $7,500 tax credit (plus whatever California is handing out lately) per vehicle purchase to boot. The reported numbers vary, but no more than a couple thousand of the Karmas have been delivered to the U.S. market (including to customers Leonardo DiCaprio, Al Gore, and Justin Bieber). We have been asked to subsidize the toys of the affluent.
Beyond that the taxpayer support for Fisker enhanced the stock of its political allies like Kleiner Perkins (where Gore is a senior partner), and also helped pay for connected lobbyists to get the loan, while crony lawyers got paid to work inside DOE to see the loan to completion.
And now we discover The Chicago Way may have been behind Fisker’s private fundraising, and the SEC plans to find out more. This dog has a lot of fleas.
Paul Chesser is an associate fellow for the National Legal and Policy Center.