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Chicago brokerage to pay $1 million for misleading investors

Updated: September 18, 2012 3:32PM

A Chicago-based investment firm and its co-founders will pay more than $1 million in fines to settle accusations by federal regulators of misleading investors in private equity offerings.

Advanced Equities Inc. and co-founders Dwight O. Badger and Keith G. Daubenspeck were charged by the Securities and Exchange Commission over the private offerings in 2009 and 2010 on behalf of an alternative energy company in Silicon Valley, Calif., a statement from the SEC said.

Regulators charge that Badger lied about the company’s finances to investors, and Daubenspeck, while serving as CEO, did nothing to stop him.

Neither the firm, nor the co-founders admitted guilt, but under the SEC order, the firm will pay a $1 million penalty, while Badger will pay $100,000 and Daubenspeck $50,000. The firm also agreed to be censured and to stop the misleading practices, hiring an outside consultant to review sales policies.

Badger will be barred for a year from “association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent,” the order states; while Daubenspeck will be placed on one-year supervisory suspension. 

In 2009, Badger told investors the energy company had more than $2 billion in back orders on its books, including a $1 billion order from a national grocery chain, according to the SEC. In reality, the firm had no more than a $2 million order backlog, and the grocery chain placed a $2 million order with a non-binding letter of intent for future purchases. 

Badger also told clients the firm had been awarded a $250 million Department of Energy loan, when it actually had only applied for a $96.8 million loan, the order alleges.

Daubenspeck was part of at least two internal calls during the 2009 offering and failed to correct Badger’s misstatements at the time or in the future, according to the SEC.

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