Markell’s Fisker Folly, Fraud? Or Failure?

FiskerBack in 2009 Vice Pres. Joe Biden came back to Delaware to announce that Finland based automotive company, Fisker, would be taking over the former General Motors Boxwood Road Plant near Wilmington, Delaware.

Of course no announcement such as this by our own “Scranton Joe” could come alone, surely V.P. Biden had bigger news.

At the announcement of the take over of the plant, an announcement attended by Delaware Governor Jack Markell (D), Republican Alan Levin, head of Delaware’s Department of Economic Development  it was announced that the federal government would be guaranteeing a loan for $529 million .  Which as of now they have received approximately $193 million, and still not a single car has been produced.

Not to be out done by the federal government in its attempt to socialize a private industry, our own Gov. Jack Markell, guaranteed another loan of $12 million to Fisker, which becomes a grant, if, Fisker spends $175 million renovating the old GM plant and shows that they created 2,495  jobs over a five-year period.

In addition to that $12 million, The Governor promised another $9 million of Delaware tax payer’s money in a grant to offset utility bills for Fisker during retrofitting of the plant. As of now Fisker has received around half of that grant. This brings Delaware’s portion of the government funding of this private enterprise to $21 million, and still not a single car has rolled off the assembly line.

In February 2012 it was announced that Fisker would be laying off around 26 employees at the Boxwood Plant, and even more at their plant in California.  These lay-offs were due to the fact that the federal money had come to a stop, due to the fact that Fisker was unable to meet set sales goals agreed upon to receive the rest of the public funding.

Fisker stated that if the federal government did not renegotiate the terms of the agreement allowing the company to receive the money without meeting the set goals, then Fisker would be forced to move operations elsewhere.

In late 2011 Fisker had raised $850 million in private equity, and even after the announced lay-offs, Fisker raised another $392 million which was announced in April of 2012. And still not a single car has rolled off the line in Delaware.

In April 2012 when it was announced that Fisker had raised another $392 million, Fisker spokesman, Roger Ormisher was quoted as saying, “we are always in the market for equity”.

This brings me to the point of this article. Has the Fisker deal here in Delaware been a failure? Or has it been a fraud played out on the people and tax payers of the state? And what was the original intention of the deal? Was it to actually produce cars and jobs in the state of Delaware? Or was it simply a Ponzi scheme to move both public and private equity around and funnel it back into the pockets of shady equity dealers and politicians?

For right now I will focus on the way this deal has worked and those who have worked it, attempting to show the connections and the way in which this deal has gone down.

At the center of this venture would seem to be a company known as Advanced Equities which is located in Chicago, Il. Take note of that for later!

Advanced Equities (AE) is a late stage investment company.   A late stage investment company works by coming into a venture situation after traditional venture capital companies have invested, and usually after the company has been in start-up for quite some time.  A company like AE will then go out and find individuals to buy into tech companies before they go public.

These individuals are usually not sophisticated investors, this allows AE to use the names of the known and reputable venture capital companies like Lehman Bros., Oppenheimer and Bear Sterns, to entice these buyers into believing they are getting in on a special deal.

This allows the start-ups to find public money without going through the IPO process.

Now some may be saying is any of this illegal?

Well let’s look at the history of Advanced Equities, which was founded in 1999 by Keith G. Daubenspeck and Dwight Badger. The two met while working as brokers for the securities firm Oppenheimer in 1991.They formed a bond that continued  at Stifel Nicolaus, Lexington Securities and Madison Securities.

While Daubenspeck was with Stifel Nicolaus the firm was ordered to pay a client $20,000 after she accused Daubenspeck of churning her account and selling her unsuitable investments. In 1993 Oppenheimer fired Daubenspeck for buying client leads stolen from a rival firm, which Daubenspeck blamed on office politics.

While with the firm of Lexington, Badger and another broker were accused of pumping up stocks and a court ordered the defendants to pay $975,000.

In AE’s first deal they raised $28 million for Pixelon. The video firm went bankrupt 18 months later after chief executive Michael Fenne blew $11 million on a party. Fenne was actually David Stanley, a con man wanted in two states for fraud. Pixelon’s insurer paid $2.6 million to settle claims.

In 1999, AE was ordered to pay back  $327,00 of a $330,000 investment made by 73-year-old Constance Kamberos, who had invested in a company Hymarc. When Hymarc could not pay back the investment, Kamberos visited AE and had it out with Keith G. Daubenspeck, co-founder and chairman, who had her arrested. Kamberos accused AE of misrepresentation and arbitrators ordered AE to pay her the $327,000. AE then fired her broker.

In 2002, eight months after AE put $4.5 million of client money into the video graphics firm Vision Tek, it went bust. AE was sued and, AE, and a supplier paid $3 million to settle the suit.

Vision Tek investors were offered stock in AE backed Alien Technology if they wouldn’t sue, however they retained the right to sue, if Alien Technology did not go public by 2008, which it was unable to do, even at $6 a share. Former Vision Tek investors have filed arbitration claims against Daubenspeck and Badger claiming that they knew that  Alien’s finances were questionable from the start. AE has dumped over $150 million investor money into Alien and are still collecting more.

AE’s fortunes seemed to take a turn for the better when in 2003 the company was asked by the firm Kleiner, Perkins, Caulfield and Byers (remember this name also for later), to raise money for a storagemaker Agami. AE raised over $45 million for Agami and five months later the company was bust and even its employees couldn’t tell you where the money went.

So this is how it seems to work with AE, they pump up the value of the investment, one way, by trading on the names of the earlier stage venture capital investors, and also buy these early stage investors selling their shares as part of the investment. The money from these sales would go directly to the earlier investors rather than to the companies. This allows the earlier investors a positive return on their investment, even as the companies go broke. It is the private late stage investors that are left holding the bag, these investors are known as the “last suckers in”.

Now let us come forward in time to 2010.  Less than a year after V.P. Biden announced the take over of the Boxwood GM plant by Fisker Automotive and the fact that both the federal and state of Delaware governments would be forking over tax payer money to fund it. This is the year that AE established “Clean Tech LLC” to allow clients to invest in not only Fisker, but also Serious Energy and Bloom Energy. That’s right, Bloom Energy, which anyone in Delaware knows is another of Gov. Markell’s pet projects to force green energy down the throats of the citizens and in doing so, costing the tax payers and energy rate payers a small fortune.

AE’s involvement should have been a big red flag to all involved, including the Obama administration and Gov. Jack Markell. By this time AE had a reputation within the equity industry that gave pause to traditional established investors.  Between 1999 and 2008 AE’s track record was around a 3.9% rate of success. In that time only six out of sixty-five of AE’s investments had been sold or gone public.

Also in a 2008 Forbes article it was pointed out that at that time,  eighteen former AE clients, had filed arbitration complaints and separately, six brokers had alleged that AE had failed to pay them millions that they were owed.

One has to ask how the federal Department of Energy and the state of Delaware could have missed all of this and could allow such a company to participate. I mean if you put Advanced Equities into a search engine the majority of what you get is about law suits and failures.

In 2012 co-founder Dwight Badger was removed as CEO of AE due to a Financial Industry Regulatory Authority (FIRA) and a Security and Exchange Commission finding. AE was also ordered to pay a former broker $4.5 million.

This decision involved Fisker, it also involved Kleiner, Perkins, Caulfield and Byers, a firm with close ties to the Obama administration. (Told you to remember that name, but wait there is more)

The complainant in the case sought relief for commissions he was owed after raising funds for Bloom Energy among others. Bloom was Kleiner, Perkins, Caulfield and Byers first green tech investment and the two remain close even now.

Again in 2012 an investor sued AE and Fisker for failure to perform fiduciary duties and for fraud.

The suit alleged that after buying $210,00 of preferred stock between 2009-2011, that in January of 2011, Fisker and AE demanded more than $83,000, “due to Fisker’s urgent need for equity capital”, or else the investor would lose privileges that came with his purchase of earlier stock.

Now remember that this is right around the time that Fisker was about to lose the funding from the federal loan due to failing to meet set goals for raising capital.

Now pay attention because we are getting close to the payoff, (pun intended).

Fisker may be just the tip of the iceberg.  It seems as though the law firm of Debevoise and Plimpton that was  charged with oversight of the Fisker loan and another $5.9 million guarantee to Ford Motor Co. by the Dept. of Energy, well it seems as if that firm and its employees have a long history of support for Pres. Obama and Democrats.

According to data compiled by the Center for Responsive Politics, employees of the law firm gave $199,994 to Sen. Obama for his 2008 presidential campaign.  Over the last three congressional cycles (two-cycles for president including this year), the firm has donated $746,535 to Democrats and PACs, including $284,420 to Pres. Obama.

The firms media relations manager is a former DNC fundraiser. One of the firm’s top lawyers served on Pres. Obama’s National Finance Committee, even hosted a fund-raiser for Obama at his home.

Also over time Kleiner, Perkins, Caulfield and Byers have donated $2.6 million to candidates, favoring Democrats by a wide margin.

So I ask again, is the Fisker deal a failure or a fraud? Or both? Was it an intended failure which constitutes a fraud?

Advanced Equities seems to be the hub of a Ponzi scheme that in the end has nothing to do with successful investments, but is more about sending money to the pockets of the political power bosses that create the demand for a green tech industry that would not exist without the legislation that they pass.

I will be researching further in the future to see just who received donations from who and for how much. But I can tell you right now in my opinion there seems to be quite a few questionable ties between quite a few questionable people.

We have an investment company, Advanced Equities, who has ties with a law firm Debeviose and Plimpton which has ties to the Obama administration,charged with overseeing the money that they raise. You have another VC firm Kleiner, Perkins,that has ties to the Obama administration which includes V.P. Biden, and Bloom Energy, which our Senator, Chris Coons is involved with through family relations. Kleiner, Perkins is also tied to Fisker.

And while Advanced Equities seems to be the vehicle to launder private money back to the politicians and their cronies, the common factor here really is Delaware and Gov. Jack Markell.

As governor, Mr. Markell is tasked with being the executive that should have his eye on the entire field of play. Gov. Markell has held up both Fisker and Bloom as shining jewels of both his administration and his goal of turning green tech jobs into the job creators that will move Delaware forward.

When in reality they are neither. So it is up to the voters of the state of Delaware to ask this question. Was Gov. Markell a part of a con game to bilk private investors out of millions ? Just to have it end up in the campaign war chest of Democrats? Or was he asleep at the wheel as the investors and the tax payers were robbed of millions?

Either way, Gov. Jack Markell has not earned a return trip to the state capital. He has either participated in one of the biggest shell games ever played on the citizens of Delaware, or he is completely incompetent. The one should earn him a trip to jail, the other should earn him a trip back to private life.

And still, not a single Fisker car has rolled off of the assembly line!!

5 Comments on "Markell’s Fisker Folly, Fraud? Or Failure?"

  1. kavips says:

    You ask a question in your title: folly, fraud, or failure… All begin with F.

    I think that is a subjective question, and what actually happened was we got sold out.

    Not by Fisker, but by the big financiers who were putting up the money for this. Like a bad lawyer writing an old ladies will, they wrote themselves in at the top.

    We were outroxed.

  2. Frank Knotts says:

    Kavips, you are correct that the big money investors took advantage of the situation, the other point here is that Gov. Markell’s administration was either complicit in the money grab, or completely incompetent.

  3. kavips says:

    There is a difference between making decisions in real time and seeing how they panned out afterwards.

    We were shysted and we got tricked out of our money, but I don’t believe it was due to complicity or incompetence…. Is there a spot for getting robbed?

    Like if you stop by and put gas in your car, and someone comes up and robs you of your wallet, … well you kick yourself and say you shouldn’t have gotten gas at that station, but really, how would you know?

    Is this a standard practice with investment houses? We learned with Bain Capital that is was, but beforehand, I think everyone trusted these big investment conglomerates After all, they fund most of the state’s bonds.

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