Tuesday, March 13, 2012

Al Gore (and Kleiner) no Score? Advanced Equities Execs Under SEC Investigation for 2009 Private Placement

Gloating about spotting this back in 2008 aside (links below), digging into Advanced Equities could reach into the highest politico-financial circles.

From the Chicago Tribune:
Chicago pair may face SEC enforcement action
The co-founders of Advanced Equities Inc., a Chicago investment firm, may face federal enforcement action related to a 2009 private offering.

Keith Daubenspeck and Dwight Badger recently disclosed in public filings that they had received Wells notices in January from the Securities and Exchange Commission. The notices generally indicate that the SEC plans to bring charges or take other enforcement action against a company or individual. The notice is not required but provides an individual with the chance to argue why the action shouldn't be taken.

Daubenspeck and Badger reported the notices to the Financial Industry Regulatory Authority, which regulates brokers. The SEC's Chicago office served the notices on them. In their statements, they both said that they are "addressing the staff's concerns" and are "prepared to aggressively defend" themselves "should it become necessary."....MORE
A young writer at Registered Rep's Yield of Dreams blog has the link to the National Legal Policy Center story:
Could Fisker Be to Blame for Advanced Equities’ Troubles?
The co-founders of Advanced Equities were served up Wells notices related to a private offering in 2009. It’s unclear from FINRA filings what private offering they’re being investigated for. Could Fisker Automotive, a manufacturer of hybrid electric cars, be the culprit?

Fisker is one private offering that AE and its former IBD First Allied highly touted to investors, I’ve heard. Fisker also received significant government funding. But the company is now burning through cash and not meeting the government’s so-called “milestones.” And these days, who has the money to buy electric cars? That can’t be good for investors, and it’s certainly not good for AE. In fact, last month an investor sued Fisker and AE.

Paul Chesser of the National Legal and Policy Center writes:
Perhaps of greater concern is the trouble surrounding the broker that has raised the private financing for Fisker, Advanced Equities, Inc. The Chicago-based venture capital investment bank says it specializes in late-stage equity financing, raising funds to “bridge the gap between venture money and traditional corporate finance.” Last week an investor 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, Fisker and Advanced Equities last month 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.”
I don’t think it’s any coincidence that the founders received the Wells notices just days before this investor sued the firm for alleged fraud. Back in 2008, one AE broker told Forbes that the firm was “a stereotypical bucket shop.”...MORE
Here's the NLPC's February 14 post:
Integrity of Fisker Capital Funding is Questioned
Advanced Equities is co-led by its founders, Keith Daubenspeck and Dwayne Badger. The pair 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 AE 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.” 

The magazine cited several examples, and noted the “humble origins” of Daubenspeck (a community college graduate) and Badger (a college dropout). Daubenspeck was fired in 1993 by Oppenheimer Securities for buying client lists from another firm, and in 2002 Badger was accused of accepting under-the-table money to inflate the value of stocks. Both have attracted brokers to Advanced Equities by promising higher commissions than their competitors. But some former and current (at the time) unidentified employees criticized the firm....
And here's the March 12 NLPC story:

Now, the Wells Notice may not be about a Fisker offering. 
These guys were trying to do a lot of deals in 2009.

These are politically connected companies and are worth keeping tabs on for that reason alone if for no other.

For example, Serious Materials' VP of projects and policy is married to Assistant Secretary of Energy Cathy Zoi who is overseeing the 16.8 Bil. weatherization program under the stimulus bill. Bloom's largest investor is Kleiner Perkins whose John Doerr is on President Obama's Economic Advisory Board. Kleiner is also an investor in Fisker. At the time of their $529 Mil. loan from the federales the Wall Street Journal headlined the story "Gore-Backed Car Firm Gets Large U.S. Loan"

It looks as if Advanced is making a deliberate attempt to crash the highest circles of political capitalism....MORE
Our Aug. 19, 2008 post linked to the Forbes article: 
From Forbes:

A late-stage venture funding outfit is foisting junky startups on investors--much to the benefit of the Sand Hill Road crowd.

It's just the sort of improbable success that Silicon Valley adores. Two young entrepreneurs have, in a mere five years, turned an obscure Chicago venture capital firm into a presence visible from Sand Hill Road. This year Keith Daubenspeck and Dwight Badger's Advanced Equities Financial is on track to raise $1 billion for startups previously backed by industry Brahmins like Kleiner Perkins Caufield & Byers, Benchmark Capital, New Enterprise Associates and Vinod Khosla.
In the process, closely held AE earned operating income (Ebitda) of $26 million last year on $300 million in revenue. Daubenspeck is ranked 72nd on the 2008 FORBES Midas 100 list of top tech dealmakers. He hopes to take AE public within 18 months....MUCH MORE
HT: Valleywag who write...
This could get interesting.

Here's the Wray v. Fisker, Advanced Equities complaint.

In a bit of irony, Daubenspeck is on the board of MetricStream which says it is in the Governance, Risk, Compliance and Quality Management business.

I'll be back in the next day or two with more.