Updated: Advanced Equities, the Chicago investment group that has raised hundreds of millions of dollars for cleantech startups in recent years, is shutting down its broker-dealer operations, reports Fortune’s Dan Primack. Advanced Equities recently agreed to settle charges from the SEC that it misled investors while raising funds for an alternative energy company, later revealed to be Bloom Energy. The settlement included paying out $1 million, and Advanced Equities’ CEO and co-founder also resigned earlier this year.
Advanced Equities has looked like a train about to wreck for the past six months. My big question is not why would the firm close up its broker shop. Rather, why did venture firms with solid reputations, like NEA and Kleiner Perkins, choose to associate with an investment firm with a questionable reputation? Advanced Equities raised funds for NEA and Kleiner’s portfolio companies electric car maker Fisker Automotive and fuel cell maker Bloom Energy, among other companies.
I’m also not exactly sure what Advanced Equities’ demise means for the startups it raised funding for, like Fisker and Bloom. I’ve reached out to these companies and am waiting to hear back. It’s unclear what will happen to any deals in progress, like potentially this one.
Update: Fisker says the event “is not expected to have a material impact on Fisker or the several Fisker investment funds previously established and administered by AEI,” and also says that the management of the investment funds will likely “be transferred to another investment group.” Fisker adds: “While AEI will, obviously, no longer be able to assist Fisker with financings, Fisker has strong investor support and plans to work with other qualified investment advisors to raise equity funding to support its business plans. . .”
The SEC charges were originally over statements made by Advanced Equities co-founder Dwight Badger, who said Bloom Energy had more deals and had hit more milestones than it actually had in 2009. Badger told investors that Bloom Energy had an order for “2,000 [units] from the CIA,” which would have generated $2 billion in revenue for the company. But in reality Bloom Energy didn’t have any orders from the CIA at that time.
As part of the settlement, Advanced Equities also sent letters to all investors in its funds Greentech III and Greentech IV — which raised money for Bloom Energy — explaining the charges and the settlement from the SEC and asking the investors if they want to sell their securities in the company.