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.