The Securities and Exchange Commission on Tuesday charged a Chicago-based investment advisory firm with misleading investors in connection with a pair of private-equity offerings.
The SEC's order alleged that Advanced Equities presented misleading statements about the financial position of a Silicon Valley alternative energy company over the course of two equity offerings in 2009 and 2010.
Specifically, the agency cited one of the firm's co-founders, Dwight Badger, for presenting a dramatically overstated picture of the firm's finances as he was leading the sales rounds for the equity stakes in the energy company, which the SEC did not name in its order. Then another co-founder, Keith Daubenspeck, was charged with failing to correct those statements, which the SEC said amounted to "supervisory failures."
Without denying or admitting the SEC's allegations, Advanced Equities and the two co-founders have settled the charges. Under that agreement, the firm is to pay a $1 million penalty, with Badger to pay a fee of $100,000 and Daubenspeck consenting to a payment of $50,000.
Advanced Equities also submitted to a series of conditions under the cease-and-desist settlement, including the retention of an independent consultant to evaluate its sales practices and the acceptance of a formal censure.
The settlement bars Badger from maintaining an "association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent" for one year. Daubenspeck submitted to a one-year supervisory suspension, and remains listed as the chairman of Advanced Equities' parent company, Advanced Equities Financial Corp.
The SEC charged Badger with having significantly overstated the financial condition of the energy company involved in the equity offering. Ahead of the 2009 sale, Badger claimed that the energy company had more than $2 billion in its sales pipeline, when the backlog had only ever reached $42 million, according to the agency's order.
Additionally, Badger was accused of inflating an order that a national grocery store chain had placed with the energy company, telling prospective investors that the $2 million order, which included a nonbinding letter of intent for future orders, was actually for $1 billion. He was also charged with misrepresenting the status of a loan the firm had applied for with the Department of Energy in both the 2009 and 2010 equity rounds.
"Dwight Badger misled investors by embellishing key facts about the energy company's sales orders and its loan application to the Department of Energy," Merri Jo Gillette, director of the SEC's Chicago regional office, said in a statement, vowing continued vigilance "in uncovering fraud in private securities offerings and holding registered securities professionals accountable."
An attorney for Advanced Equities did not immediately respond to a request for comment.
The SEC alleged that Daubenspeck was involved in at least two internal sales calls at Advanced Equities before the 2009 equity sale on which Badger made the misleading statements about the energy company's sales pipeline, the grocery store contract and the loan application with the Energy Department.
"Despite the red flags raised by the misstatements and the obvious risk that false information would be repeated to investors, Daubenspeck did not take reasonable steps to correct the misstatements and thus failed reasonably to supervise Badger," the agency charged.
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