In February, the SEC announced charges against an Arizona-based private equity fund manager and his advisory firm in connection with a scheme to misallocate their expenses to the funds they managed. In an order against Scott A. Brittenham (Brittenham) and Clean Energy Capital (CEC) (the Order) the SEC Enforcement Division alleged that Brittenham and CEC improperly allocated more than $3 million of CEC’s expenses to 19 private equity funds that invest in private ethanol production plants. The Order charges CEC and Brittenham with willfully violating the antifraud provisions of the federal securities laws and also assets additional violations with respect to disclosure, compliance, custody and reporting.
According to the Order, in addition to the misallocation of expenses, CEC and Brittenham engaged in a variety of fraudulent behaviors, including (i) misallocating CEC’s rent, salaries and other employee benefits, including tuition costs, retirement and bonuses; (ii) using fund assets to pay to Brittenham 70 percent of a $100,000 bonus he awarded to himself; (iii) making unauthorized loans to the funds at exorbitant interest rates (up to 17%) in order to continue paying the improper expenses with fund assets; (iv) profiting at the expense of fund investors by unilaterally changing how CEC calculated distributions to investors in order to pay out less money; and (v) substantially inflating the amount that Brittenham and CEC’s co-founder had each invested in a fund. The Order is available here.