Securities Lawyers Blog
The law offices of Gana Weinstein LLP filed a complaint with the Financial Industry Regulatory Authority (FINRA) on behalf of four investors against First Allied Securities, Inc. (First Allied) concerning broker Amram a/k/a Rami Yahalom’s solicitation and sale of Advanced Equities private placements. According to the complaint, First Allied and Yahalom sold the investors AE Luxtera Investments II, LLC (Luxtera), a private placement in a technology start-up company by misrepresenting Luxtera’s prospects and failing to conduct even basic due diligence on the company before recommending the investment to clients.
In the context of a Regulation D offering, FINRA requires broker-dealers to conduct a reasonable investigation of the issuer and the securities they recommend in offerings. The investors alleged that First Allied failed to meet FINRA’s due diligence requirements and made representations that were misleading. The investors alleged that Yahalom and First Allied marketed Luxtera and other private placements as “late stage equities” that were a mere 12-36 months from going public through an IPO. Luxtera was also allegedly sold to customers under the false premise that the company would provide “Higher near-term investment returns than the public equity markets” while providing “Greater short-term liquidity and lower risk profiles.”
However, according to the complaint, these representations were misleading and false. The complaint alleged that First Allied sought to raise $43 million for Luxtera based on a $175 million valuation that was 22 times Luxtera’s projected 2008 revenues. In addition, the investors alleged that while First Allied knew that Luxtera had only achieved $1 million in sales as of November 30, 2008, their broker provided them with a slide-show presentation that projected 2009 sales as high as $89,447,500 and 2010 sales could reach $341,883,000. The complaint alleged that First Allied lacked a good faith basis to believe that Luxtera would experience 8,945% sales growth in one year and 34,188% sales growth over the next two years when the company was then suffering losses in excess of $30 million a year.
The complaint alleged that while First Allied and its brokers advertised the advanced equities private placements as “late-stage” companies that in fact the private placements are nothing more than traditional venture capital, with all its traditional risks, being cloaked as late-stage investing. In Luxtera’s cased the company was founded in late 2001. From 2006 through present Luxtera has raised at least $129.2 million and, upon information and belief, has never been profitable. In March 2014, Luxtera raised another $37.5 million from an undisclosed investor. The company continues to seek out additional capital to finance its business.
Eventually, Advanced Equities principals’ false and misleading statements to investors concerning other private equity venutures were recorded and the Securities and Exchange Commission (SEC) investigated the firm. In September 2012, the SEC imposed sanctions against the Advanced Equities and its principals. The SEC order accused Advanced Equities of raising $122 million from approximately 609 investors for Advanced Equities GreenTech Investments III, LLC and Advanced Equities GreenTech Investments IV, LLC between January and March 2009 through misleading statements concerning a startup known as Bloom Energy.
The attorneys at Gana Weinstein LLP are experienced in handling claims concerning Advanced Equities private placements including Fisker Automotive, Inc., Alien Technology, Luxtera, Presto, Xsigo, Foveon, Inc., Teneros, Inc., NetXen, Inc., Agami Systems, Inc., eAsic Corporation, Metricstream, Peregrine Semiconductor Corp, EdenIQ, Inc., Suniva, Inc., among other companies. Our consultations are free of charge and the firm is only compensated if you recover.