Class Sues Over Failed Electric Car Venture

     (CN) — Now-defunct Chicago investment bank Advanced Equities Inc. raised millions in venture capital for Fisker Automotive to build a high-end hybrid electric car despite knowing the car would likely never make it to market, an investor class action claims.
     Orgone Capital III sued AEI founder Keith Daubenspeck, executive Peter McConnell, and two venture capital firms in Cook County Court on Friday.
     Fisker Automotive was a green energy “media darling” startup, backed by a $528 million loan from the U.S. Department of Energy, with a goal of producing luxury hybrid electric cars.
     It intended to go public and become a viable rival of Tesla Motors, a Palo Alto, Calif.-based automaker that rolled out its first electric sports car in 2008, and its first electric luxury sedan four years later.
     But after raising more than $1.3 billion in private capital, Fisker folded in 2012 in the “largest venture capital-backed debacle in U.S. history,” according to the complaint.
     The company declared bankruptcy, and a whistleblower complaint revealed that Fisker deceived the government to get the DOE grant by knowingly understating the cost of producing its cars, the complaint claims.
     Orgone, which purchased approximately $7 million in Fisker Automotive securities, says it never would have invested in the company if it had not received the federal grant.
     The investment firm purchased its preferred shares through AEI, which raised approximately $800 million for Fisker Automotive between August 2009 and September 2012.
     However, AEI also had a large stake in the company itself, owning 18 percent of its preferred stock as of December 2011, and therefore had a substantial interest in the outcome of the fundraising process, the complaint says.
     Orgone says AEI knew that the production schedule of Fisker’s $100,000 “Karma” sports car had been repeatedly delayed due to faulty parts and last-minute engineering changes, and that the company lied to the Energy Department when it claimed to have met a key milestone under the terms of the loan.
     AEI allegedly also knew when the department discovered the lie, and froze the loan, creating a cash crisis at Fisker, which had wasted hundreds of millions on useless parts due to the engineering changes.
     “Fisker Automotive and defendants were trapped,” Orgone says. “If Fisker Automotive’s suppliers were not paid, the manufacturing assembly line would fall apart, thereby forcing Fisker Automotive into bankruptcy. Thus, defendants never disclosed the aforementioned material facts to plaintiffs and the class, as the company and defendants raised hundreds of millions of dollars from unsuspecting outside investors to prevent Fisker Automotive from collapsing immediately.”
     At the same time, the DOE did not publicly disclose Fisker’s true financial state because it would “cause a huge political embarrassment,” Orgone claims.
     From Sept. 2011 to Sept. 2012, Fisker Automotive remained alive by raising more than $500 million from investors when it knew the company was on the brink of collapse, the complaint says.
     The Financial Industry Regulatory Authority fined AEI $250,000 in 2014 for its role in misleading investors with regards to Fisker Automotive, Orgone says.
     With its lawsuit, Orgone seeks to recoup the total loss of its investment and the losses of other class members from AEI directors. AEI no longer exists, and is not a party to the lawsuit. Orgone seeks damages for negligent misrepresentation, fraud, fraudulent concealment, and breach of fiduciary duty.
     The investment firm is represented by Kenneth Wexler with Wexler Wallace LLP.
     Kleiner Perkins did not immediately return a request for comment.

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