Facing a class-action complaint potentially worth hundreds of millions of dollars, a group of investment bankers accused of misleading investors into pouring funds into a failed electric car venture – described as “the largest venture capital-backed debacle in U.S. history” - have taken the litigation to federal court.
The defendants, Keith Daubenspeck, Peter McDonnell, Kleiner Perkins Caufield & Byers, Ray Lane and John Doerr, filed a notice of removal Nov. 23 in Chicago regarding the Cook County Circuit Court complaint Orgone Capital filed Oct. 14.
Daubenspeck founded the now-defunct Advanced Equities Inc., a Chicago investment bank that sold millions of dollars worth of securities for Fisker Automotive between Aug. 19, 2009, and Sept. 26, 2012. McConnell was a senior managing director, and both worked with venture capital firm Kleiner Perkins and its managing partners, Lane and Doerr.
According to the initial complaint, Fisker at one point secured a $528.7 million U.S. Department of Energy loan to building luxury hybrid electric cars leading to an initial public offering, similar to the precedent of Tesla Motors. The complaint said Fisker raised almost $1.3 billion in private capital and $192 million in public money before shutting down in late 2012.
On Sept. 17, 2013, a complaint filed in federal court in New York by Fisker’s former chief financial officer was unsealed, revealing Fisker “knowingly and materially understated the costs associated with” its first car, the Karma, and second, the Nina, in the business plan provided to the DOE as basis for securing the federal funds. It further said Lane and Daubsenspeck intentionally concealed this information from the DOE to protect their investments. Without that federal loan, Fisker would have been unable to secure additional investments from other investors like the plaintiffs and putative class members.
In addition to Orgone Capital, other named plaintiffs are Lincolnshire Fisker, a limited liability corporation, and David Burnidge, Kenneth A. Steel Jr. and Robert F. Steel. All purchased Fisker stock between October 2009 and September 2012 for a combined total investment of more than $10.2 million.
In addition to selling Fisker stock to investors, Advanced Equities also owned about 18 percent of the company’s shares. The original complaint noted Kleiner Perkins, through Lane and Doerr, “participated in and exercised substantial control over all material decisions regarding Fisker Automotive’s operations and finances before and during the class period.”
The complaint further alleged the people who knew Fisker didn’t have the money to produce its cars on schedule continued to solicit investments in hopes of avoiding bankruptcy. It also said eventually the DOE did not publicly disclose all it knew about Fisker’s financial woes because of negative political attention generated by the similar failing of federal investment in Solyndra. All of that led to collecting an extra $500 million in stock from September 2011 through September 2012. One investor was Illinois’ prepaid college savings fund, which purportedly invested $10 million “at the urging of Advanced Equities.”
In filing to remove the case to federal court, the defendants noted there are more than 100 putative class members and, although denying the plaintiffs are due any relief, the amount at issue easily exceeds $5 million.
Representing the defendants are attorneys from both Stetler, Duffy & Rotert, of Chicago, and Keker & Van Nest, of San Francisco.
Plaintiff and putative class attorneys include lawyers from Wexler Wallace, of Chicago; Klafter Olsen & Lesser, of Washington, D.C.; and Berger & Montague, of Philadelphia.