This article continues my in depth look into how unsuspecting investors are sold speculative private placements.
While investors were told that Fisker Auto’s prospects were fantastic, nothing could have been further from the truth. In February 2012, the DOE loan had been frozen after $192 million had been given to the company because it hadn’t hit certain milestones with its Karma car product. The last payment Fisker had received from the DOE was in May 2011. Yet, according to investors, Advanced Equities and First Allied continued to sell Fisker Auto shares without disclosing that the DOE was no longer backing the venture, presumptively because the auto makers chances of success had grown increasingly slim.
From December 2011 into 2012, Advanced Equities increasing began to run into fundraising problems. As Fisker Auto fell into a increasing number of technical, delivery, and political problems with its cars the car maker’s ability to attract new capital plummeted. Yet, the company still needed money. So the brokerage firms turned to threatening investors by telling them that unless they agreed to invest more money into Fisker Auto their current shares will be diluted and their preferred stock will be converted to common stock.
Ironically, Advanced Equities allegedly assured investors, at the time of sale, that they had anti-dilution protection. Allegedly an audio clip exists from an Advanced Equities’ internal sales call in early 2010, where Advanced Equities leaders say that Fisker Auto will “suffer no dilution,” and was “a dream scenario.”
That dream soon turned into a nightmare for investors. In September 2012, after Fisker Auto closed on a total of $1.2 billion in funding, the SEC charged Advanced Equities with misleading investors when it raised money for Bloom Energy, another of the firm’s ventures. The SEC imposed sanctions against Advanced Equities’ president and chief executive officer Dwight Badger and chairman of the board of directors Keith Daubenspeck for misstatements, omissions, and failure to supervise. The SEC accused Advanced Equities of raising $122 million from approximately 609 investors through misleading statements that fabricated Bloom Energy’s sales volumes in order to continue to induce investors to contribute additional funds. As a result of continuing legal troubles, two months later Advanced Equities closed shop.
Fisker Auto’s troubles continued to mount. Fisker Auto founder Henrik Fisker stepped down as CEO and was replaced by an auto executive from Chrysler. Six months later that executive was also replaced by a third CEO. Fisker Auto also stopped work on its second car and laid off all the workers in its Delaware factory. In the spring of 2012, Consumer Reports reported that the Karma broke down after less than 200 miles and gave it one of the worst reviews in automotive history. One of the problems with the Consumer Reports’ test car involved Fisker Auto’s battery.
The battery issue later turned out to be a widespread defect and Fisker Auto’s battery supplier replaced the car’s faulty battery cells at a cost of $55 million. Later that year, A123 Systems, Fisker Auto’s battery maker, went bankrupt cutting off a crucial supplier to Fisker Auto and costing Fisker Auto $140 million. In March 2013, Fisker Auto hired a law firm to prepare for a possible bankruptcy filing. In April 2013, Fisker Auto laid off 75% of its workforce.
In the final analysis Fisker Auto burned through more than 1 billion dollars and delivered around 2,000 cars to customers. In the process investors have alleged that they were mislead concerning Fisker Auto’s prospects. These investors have claimed that the brokerage firms that were supposed to investigate and evaluate the risks of private placements instead saw an opportunity to sell nearly $1 billion in a high commission product to investors. Even when Fisker Auto’s business flaws should have been obvious the brokerage firms continued to promote Fisker Auto to investors.
Other companies promoted by Advanced Equities include: Ambric, Inc., Teneros, Inc., Motricity, Inc., Xsigo System, Inc., Presto Services, Inc., and Luxtera, Inc., and Serious Energy, Inc. None of these investments have turned a profit or returned even a fraction of shareholder’s investment. All of these companies invested in untested technologies that were far from being late stage equities with a demonstrable business model.
The attorneys at Gana Weinstein LLP are experienced in investigating claims concerning misrepresentation of private placement securities. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.