A private equity fund manager in Tucson, Ariz., with a history of mortgage brokerage violations is facing SEC allegations that he used $3 million of investors’ money to pay his firm’s business expenses.
Scott A. Brittenham, co-founder and CEO of Clean Energy Capital (CEC) LLC, allegedly took the money from 19 private equity funds run by his firm that invest in ethanol production plants, according to administrative charges filed by the U.S. Securities and Exchange Commission.
The complaint notes that regulators charged Brittenham with "unfair and deceptive practices" in 2004 when he was a mortgage broker in Seattle. "In 2005, Brittenham consented to the entry of an order that prohibited him from participating in the conduct of the affairs of any mortgage broker in Washington for 10 years and ordered restitution to 11 consumers," the SEC complaint stated.
The CEC investor funds were taken on top of the fund’s normal administrative charges, and were not disclosed in any fund documents, according to the SEC.
Moreover, the use of the funds to pay CEC’s rent, salaries and other employee benefits depleted the funds’ reserves, the SEC said. Brittenham and CEC allegedly took advantage of this by loaning money to the funds at rates as high as 17 percent, according to the SEC.
The complaint also alleges that Brittenham failed to disclose to his investors that his partner, who is not identified in SEC documents, has a history of SEC violations.
In another alleged securities violation, Brittenham is accused of changing, without disclosure to investors, the formula for dividend distributions of some of his funds in a way that reduced payouts.
Brittenham used about $70,000 of the $3 million to give himself a bonus, the SEC alleged.
“Brittenham betrayed investors in the funds he managed by burdening them with more than $3 million in expenses that his firm should have paid and the funds could not afford,” Marshall S. Sprung, co-chief of the SEC Enforcement Division’s asset management unit, said in a prepared statement. “Private equity advisors can only charge expenses to their funds when they clearly spell that out for investors.”
The SEC also alleged in the complaint that Brittenham lied about his “skin in the game” when it came to the funds managed by CEC. He claimed he and his co-founder each put $100,000 of their money into one of the funds, but the amount was $25,000 each, the SEC alleged.