The venture finance operation that raised money for crony capitalist investors Kleiner, Perkins, Caufield and Byers, and their green tech firms like electric car company Fisker Automotive ($193 million paid in stimulus loan guarantees) and fuel cell manufacturer Bloom Energy, is shutting down, according to a Fortune report.
Advanced Equities, Inc. had recently been reprimanded by the Securities and Exchange Commission and by the Financial Industry Regulatory Authority (FINRA) for misleading investors and for breach of contract with its brokers. Fortune cited sources that said AEI brokers were told last week that Monday would be their last day. Crain’s Chicago Business confirmed that AEI was shutting down its broker-dealer business following its regulatory troubles, which “made it difficult to run the business.”
The co-founders of the Chicago-based firm, Dwight Badger and Keith Daubenspeck, received a sharp reprimand and severe fines from the SEC in September for delivering allegedly false information to potential funders in attempts to gain private equity investment. In two separate offerings in 2009 and 2010, Badger (who left the firm in June) was accused of boasting to investors that the financial condition and business orders for an Advanced Equities’ client – revealed by Crain’s to be Bloom Energy – far exceeded reality.
And in June this year Advanced Equities was ordered by a FINRA arbitration panel to pay $4.5 million to one of its former brokers, John Galinsky, over breach of contract claims. Bloom Energy was one of the companies that Galinsky raised capital for, without receiving commission, according to FINRA. After the ruling was announced, Advanced Equities reached an agreement with Badger for him to leave the firm.
“The panel finds that Respondents (including Badger and Daubenspeck) exhibited a reckless disregard for the warrant rights of the broker and breached their fiduciary duties to the broker,” the FINRA dispute resolution said.
AEI, according to GreentechMedia.com, has been sometimes referred to as a “bucket shop,” which is not complimentary. The co-founders were also accused in a 2008 Forbes Magazine article of “foisting junky startups on investors.”
“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.”
In February an investor sued Fisker and Advanced Equities for their alleged failure to perform fiduciary duties and for fraud. Daniel Wray alleged that after he bought $210,000 of preferred stock between 2009 and 2011, 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, which would be diluted.
“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.”
Why Silicon Valley venture capital firm Kleiner Perkins would have anything to do with Badger and Daubenspeck as it sought to raise money for pet projects like Fisker and Bloom Energy is unknown. Kleiner’s best-known partner is former Vice President Al Gore, who is also a supporter of Fisker and purchased one of its first Karma models. In news reports Fisker has boasted raising more than $1 billion in private funds, and Bloom has been closely allied with Kleiner Perkins with hundreds of millions of dollars raised.
Another linchpin between Kleiner, Bloom and Fisker is John Doerr, who serves on President Obama’s Council on Jobs and Competitiveness. Doerr and his Kleiner Perkins colleagues have donated well over $2.6 million to candidates and political action committees, favoring Democrats over Republicans by a very wide margin, according to the Center for Responsive Politics. Doerr also hosted a dinner for President Obama at his estate in February 2011 with several other high-tech executives, according to ABC News.
Somehow amidst these dubious actors and Obama cronies the analysts at the Department of Energy found Fisker worthy of a $529-million stimulus loan guarantee. Ever since the car company has experienced an almost comical (it would be hilarious, if taxpayer money wasn’t at stake) series of blunders, including: two recalls; layoffs; vehicle fires; an unfulfilled promise to manufacture cars at a former General Motors plant in Delaware; state taxpayers paying the utility bills for that empty plant; and the aforementioned investor lawsuit and investigation of Advanced Equities, Fisker’s primary fundraiser. The crowning blow was Consumer Reports’ determination in September that the Fisker Karma is the worst luxury sedan on the U.S. market.
And now Fortune has also reported that subpoenas of Advanced Equities may exist with regard to its fundraising efforts for “another well-known clean tech company.” Considering that pretty much every other company Badger and Daubenspeck helped is “unknown,” those troubles could involve Fisker.
Obviously the who, how and why of stimulus loan applicants’ private fundraising practices were not part of the due diligence review process by DOE. Advanced Equities is now shutting down, and DOE cut off Fisker’s loan after paying out $193 million due to its shortcomings, yet President Obama has promised more government money for renewable schemes in his second term.
Watch for more cronies and those from the bottom of the “bucket shops” to capitalize.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.