Advanced Equities, Inc., Badger and Daubenspeck settle fraud charges with SEC

September 28, 2012 by Thomas F. Burke, P.C.

The Securities and Exchange Commission ("SEC") has accepted the Offer of Settlement from Advanced Equities, Inc. ("AEI"), Dwight Badger ("Badger") and Keith Daubenspeck ("Daubenspeck"), which consented to an Order Instituting Administrative and Cease-and-Desist Proceedings pursuant to Section 8A of the Securities Act of 1933, Section 15(b) of ;the Securities Exchange Act of 1934 and Sections 203(e) and 203(f) of the Investment Advisors Act of 1940. The SEC found that in 2006, after AEI completed a private equity offering for Company A, they were allowed by Company A to attend its board of directors meetings, whereby they were privy to hear and view confidential information

At Company A's December 2008 Board Meeting, Badger and Daubenspeck made a presentation to the board to allow them to raise $150 Million in a Series F offering. They told Company A that they hoped to complete the Series F Offering during the month of January 2009 by targeting a small number of high-net-worth individuals. They intended to raise the funds by offering shares of stock at $18.52.

Badger and Daubenspeck began their efforts to raise capital for Company A in December of 2008. By mid-January of 2009, they realized that they would not be able to meet their stated goals and began targeting smaller investors. Since Company A did not accept direct investments of less than $2 Million, AEI formed two limited liability companies, Greentech III and Greentech IV, on January 23, 2009. These companies would allow accredited investors (Greentech III) and qualified purchasers (Greentech IV) to invest as little as $25,000 in Company A. These investors would deal with AEI, rather than with Company A.

Company A placed strict restrictions on information that AEI could provide to potential investors. Badger took personal control of contacts with potential investors in the Greentech companies. He alleged that he made over 200 personal calls to investors. Daubenspeck, along with several AEI brokers and investment bankers traveled to Company A's headquarters. Between early January and late March of 2009, AEI raised approximately $122 Million from 609 investors.

Badger made misrepresentations about Company A to AEI brokers in an email when he stated that Company A had an order for the sale of 2,000 units to the CIA. This order would have generated approximately $2 Billion in revenue for Company A. In reality, Company A did not have any orders with the CIA. Badger and Daubenspeck also misrepresented Company A's projected revenue to AEI brokers during an internal sales call on February 2, 2009. They stated that Company A had projected revenue from contracts and backorders of $2 Billion when in fact Company A had between $10 Million and $42 Million under contract as order backlog.

Badger continued to make fraudulent misrepresentations to AEI brokers in February and March of 2009. During one internal sales call, he stated that Company A had a $1 Billion contract with a well- known national grocery chain when the actual contract number was $2 Million. He also stated that Company A was getting funded by the Department of Energy with $300 Million of revenue when Company A had only applied for a loan of $96.8 Million but had not even received notice if its application would be granted. Daubenspeck remained silent during the call.

Between January and March of 2009, Badger made the same misrepresentations to investors in the Greentech Funds that he had made to AEI salesmen. These misrepresentations were also repeated to potential investors by AEI brokers, in emails and telephone calls.

In early 2010, AEI began soliciting prior investors in an effort to raise additional capital. During a March 5, 2010 telephone sales presentation, Badger misstated that Company A had applied for a $400 Million loan from the Department of Energy, which had approved a drawdown of the first $100 Million. In fact, the loan applied for by Company A was for $96.8 Million and the Department of Energy had never approved any amount for a drawdown.

Among Daubenspeck's duties at AEI, was the duty to supervise Badger and other AEI brokers and to obtain information on Company A. He knew or should have known that Badger was making misrepresentations to investors and potential investors.

As a result of the SEC accepting the Offer of Settlement, AEI agreed to pay a civil monetary penalty of $1 Million and other sanctions, Badger agreed to be barred from the industry for one year, pay a $100,000 penalty and other sanctions, and Daubenspeck agreed to pay a penalty of $50,000 and other sanctions.