SEC investigation targets ethanol investment company, CEO

By Holly Jessen | March 05, 2014

The Securities and Exchange Commission investigated and recently alleged misconduct by Clean Energy Capital LLC, a Tucson, Ariz.-based investment company with multiple investments in ethanol production companies.

A Feb. 25 SEC order instituting administrative and cease-and-desist proceedings names CEC and its founder, president, CEO and main portfolio manager, Scott A. Brittenham, in the case. The investigation involved 20 private equity funds sold and managed by CEC, 19 under the name Ethanol Capital Partnership LP and one named Tennessee Ethanol Partners LP. “In total, the 20 ECP funds raised $64 million from hundreds of investors,” a 12-page SEC document said. “The ECP funds did not register with the SEC as investment companies.”

An SEC alleges that, from 2008 to the present, the company and its founder, Brittenham, committed seven violations.

* From at least 2008 to the present, without adequate disclosure to investors, CEC and Brittenham misappropriated more than $3 million from the funds. The money was used to pay CEC expenses, primarily salaries and office expenses.

* In secret, CEC and Brittenham borrowed money for the funds from CEC at unfavorable rates. The funds’ assets were pledged as collateral.

* Dividends received by investors were adversely affected after, starting in August 2011, CEC changed the calculation of dividend distributions for certain funds.

* CEC and Brittenham convinced an investor to invest in a new ECP fund in 2009 by knowingly misrepresenting the amounts of investments by Brittenham and another cofounder in that fund.

* A custody rule was violated.

* The company had an inadequate compliance policy.

* A cofounder’s SEC disciplinary history was not revealed in documents given to investors about funds offered in late 2008 to 2010. The co-founder, who is not named in the document, was censured and ordered to pay a civil penalty of $25,000 for a violation in 2002.

Brittenham, a resident of Tucson, has an 85 percent ownership interest in CEC and a 50 percent voting interest. He is also an investor in two of the ECP funds managed by the company, according to court documents. Previously, Brittenham worked as a mortgage broker in Seattle, Wash., and the Washington State Department of Financial Institutions charged him with misleading borrowers and engaging in unfair and deceptive practices in 2004. The next year he was prohibited from working as a mortgage broker in that state for 10 years and ordered to pay restitution to 11 customers, the document reveals.

A public hearing will be set for no earlier than the end of March and no later than the end of April. CEC and Brittenham have been ordered to file an answer to the allegations within 20 days after Feb. 25. An administrative judge will issue an initial decision no later than 300 days from Feb. 25.

The CEC website lists six ethanol production companies as current investments, including East Kansas Agri-Energy, Granite Falls Energy LLC, Advanced BioEnergy LLC—South Dakota, E Energy Adams, Highwater Ethanol LLC and First United Ethanol LLC. On the website, Brittenham is listed as chairman of the board of Advanced BioEnergy LLC—South Dakota. He was previously a board member of East Kansas Agri-Energy but was not re-elected after a failed attempt to take over the company in July 2013. In addition, CEC has representatives on the boards of E Energy Adams and Highwater Ethanol, the company website said.

Two ethanol companies are listed as exited investments, Ethanol Grain Processors LLC and Advanced BioEnergy Fairmont LLC. The two facilities were later purchased by Green Plains Renewable Energy and Flint Hills Resources LLC, respectively, according to the website.