Chicago GPs charged with misleading investors

Advanced Equities co-founders Dwight Badger and Keith Daubenspeck have both been charged in connection with two private equity offerings made in 2009 and 2010.

On Tuesday the Securities and Exchange Commission (SEC) charged Advanced Equities co-founder Dwight Badger for using false figures to entice investors into an unnamed energy portfolio company.

According to the SEC, Badger told investors in 2009 and 2010 that the energy company had some $2 billion of orders in the pipeline when in fact the backlog never exceeded $42 million. Badger also allegedly claimed the US Department of Energy granted the company a loan worth up to $300 million when actually the loan was still in the approval process and for a figure worth one third that amount. 

During sales calls with prospective investors Advanced Equities co-founder Keith Daubenspeck remained silent about Badger’s inaccuracies and failed to take any action that would prevent future misstatements, the SEC order said.

In what could serve as a warning to GPs’ personal liabilities when confronted by a colleague’s misdoings, he was charged with “supervisory failures related to the offerings”. 

“Daubenspeck supervised Badger and had the ability and authority to affect Badger’s conduct, including hiring and firing authority. Daubenspeck also had final approval for all management decisions within Advanced Equities,” the SEC said. 

The SEC was not available to comment on what sparked its investigation by press time.

Badger, Daubenspeck, and Chicago-based Advanced Equities agreed to settle the SEC's charges, according to a SEC statement on the matter. For its part, Advanced Equities will pay a $1 million penalty and hire an independent consultant to review its sales policies and procedures.  

“The SEC will continue to be vigilant in uncovering fraud in private securities offerings and holding registered securities professionals accountable,” said Merri Jo Gillette, director of the SEC's Chicago office.