--- title: AZ Private Equity Fund’s Misallocation Scheme Uncovered, Spurs SEC Charges description: AZ Private Equity Fund’s Misallocation Scheme Uncovered, Spurs SEC Charges --- [![Jacko Law Group, PC - Securities Law](https://resources.jackolg.com/hubfs/Jackolawgroup%20February2018/image/brand.png)](http://www.jackolg.com/) Call Today for a Consultation San Diego 619-298-2880 San Francisco 415-766-3599 Los Angeles 213-631-2549 Menu [Contact](http://www.jackolg.com/Contact.shtml) - [Home](http://www.jackolg.com/) - [Firm Overview](http://www.jackolg.com/Firm-Overview/) - [Professionals](http://www.jackolg.com/Professionals/) - [Events](http://www.jackolg.com/Events.shtml) - [News](http://www.jackolg.com/News-Room/) - [Blog](http://www.jackolg.com/blog/) - [Videos](http://www.jackolg.com/Videos.shtml) - [Contact](http://www.jackolg.com/Contact.shtml) # Understand. Define. Achieve. 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View Our Practice Areas - [SEC/FINRA Regulatory Counsel](http://www.jackolg.com/Regulatory-Examinations-and-Inquiries-SEC-and-FINRA/) - [Private Equity & Hedge Fund Counsel](http://www.jackolg.com/Private-Equity-Counsel/) - [Investment Adviser Services](http://www.jackolg.com/Legal-Considerations-for-Breaking-Away/Investment-Adviser-Counsel.shtml) - [Breakaways And Transitions](http://www.jackolg.com/Legal-Considerations-for-Breaking-Away/) - [General Corporate Counsel](http://www.jackolg.com/Corporate-Counsel/) - [Broker- Dealer Counsel](http://www.jackolg.com/Broker-Dealer-Counsel/) #### News - [Legal Tips](http://www.jackolg.com/News-Room/) - [Publications](http://www.jackolg.com/News-Room/Publications.shtml) - [Blog](http://www.jackolg.com/blog/) # Jacko Law Group Blog # AZ Private Equity Fund’s Misallocation Scheme Uncovered, Spurs SEC Charges As an Arizona-based private equity fund and its manager discovered at the end of February 2014, paying one’s expenses with client’s assets is both problematic and liable to receive prosecution by the [Securities and Exchange Commission (“SEC”).](http://www.sec.gov/) Clean Energy Capital, LLC (“CEC”) and its private equity fund manager Scott Brittenham were issued charges by the SEC on February 25, which detailed how $3 million of the fund’s expenses were paid “improperly” with assets from [19 funds that invest in private ethanol production plants](http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540849548#.UxpMotKPLox). Disclosure issues, along with interest-rated loans offered back to clients when the funds ran out of money for CEC’s expenses, underlie the broader misallocation charges in this case. According to the SEC, CEC and Brittenham failed to disclose [“any such payment arrangement \[to pay the fund’s expenses\] in fund offering documents,”](http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540849548#.UxpMotKPLox) thereby masking the misallocation of funds to their constituent clients. In addition, by using fund assets towards fund expenses, CEC’s overall cash reserves diminished, which led to Brittenham and CEC forcing [unauthorized “loans”](http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540849548#.UxpMotKPLox) onto their fund clients, with interest rates as much as 17 percent attached to them. CEC’s expenses that were paid by the misallocated fund assets included [“rent, salaries, and other employee benefits such as tuition costs, retirement, and bonuses”](http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540849548#.UxpMotKPLox), with part of the funds used towards paying a reported $100,000 bonus to Brittenham himself on top of the [“millions more” \[in\] “management fees”](http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540849548#.UxpMotKPLox) that the funds also paid to CEC. This sustained misrepresentation of the fund’s true assets, as well as its back-handed efforts to recover funds through high-interest loans to its clients ([with fund assets being pledged as collateral to the loans)](http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540849548#.UxpMotKPLox), represent a particularly egregious example of insufficient disclosures, fraud, and securities law violations involving “[compliance, custody and reporting.”](http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540849548#.UxpMotKPLox) For further information on this and other related subjects, please contact us at [info@jackolg.com](mailto:info@jackolg.com) or (619) 298-2880. ### Legal Tip Archive - [September 2011 (5)](https://resources.jackolg.com/archive/2011/09) - [April 2014 (5)](https://resources.jackolg.com/archive/2014/04) - [August 2014 (5)](https://resources.jackolg.com/archive/2014/08) - [September 2015 (5)](https://resources.jackolg.com/archive/2015/09) - [August 2011 (4)](https://resources.jackolg.com/archive/2011/08) - [October 2011 (4)](https://resources.jackolg.com/archive/2011/10) - [June 2012 (4)](https://resources.jackolg.com/archive/2012/06) - [July 2012 (4)](https://resources.jackolg.com/archive/2012/07) - [August 2012 (4)](https://resources.jackolg.com/archive/2012/08) - [October 2012 (4)](https://resources.jackolg.com/archive/2012/10) - [November 2012 (4)](https://resources.jackolg.com/archive/2012/11) - [January 2013 (4)](https://resources.jackolg.com/archive/2013/01) - [March 2013 (4)](https://resources.jackolg.com/archive/2013/03) - [April 2013 (4)](https://resources.jackolg.com/archive/2013/04) - [May 2013 (4)](https://resources.jackolg.com/archive/2013/05) - [June 2013 (4)](https://resources.jackolg.com/archive/2013/06) - [September 2013 (4)](https://resources.jackolg.com/archive/2013/09) - [October 2013 (4)](https://resources.jackolg.com/archive/2013/10) - [January 2014 (4)](https://resources.jackolg.com/archive/2014/01) - [February 2014 (4)](https://resources.jackolg.com/archive/2014/02) - [March 2014 (4)](https://resources.jackolg.com/archive/2014/03) - [May 2014 (4)](https://resources.jackolg.com/archive/2014/05) - [June 2014 (4)](https://resources.jackolg.com/archive/2014/06) - [July 2014 (4)](https://resources.jackolg.com/archive/2014/07) - [December 2014 (4)](https://resources.jackolg.com/archive/2014/12) - [January 2016 (4)](https://resources.jackolg.com/archive/2016/01) - [November 2011 (3)](https://resources.jackolg.com/archive/2011/11) - [December 2011 (3)](https://resources.jackolg.com/archive/2011/12) - [January 2012 (3)](https://resources.jackolg.com/archive/2012/01) - [February 2012 (3)](https://resources.jackolg.com/archive/2012/02) - [April 2012 (3)](https://resources.jackolg.com/archive/2012/04) - [May 2012 (3)](https://resources.jackolg.com/archive/2012/05) - [September 2012 (3)](https://resources.jackolg.com/archive/2012/09) - [December 2012 (3)](https://resources.jackolg.com/archive/2012/12) - [July 2013 (3)](https://resources.jackolg.com/archive/2013/07) - [August 2013 (3)](https://resources.jackolg.com/archive/2013/08) - [November 2013 (3)](https://resources.jackolg.com/archive/2013/11) - [December 2013 (3)](https://resources.jackolg.com/archive/2013/12) - [January 2015 (3)](https://resources.jackolg.com/archive/2015/01) - [February 2015 (3)](https://resources.jackolg.com/archive/2015/02) - [March 2015 (3)](https://resources.jackolg.com/archive/2015/03) - [July 2015 (3)](https://resources.jackolg.com/archive/2015/07) - [August 2015 (3)](https://resources.jackolg.com/archive/2015/08) - [November 2015 (3)](https://resources.jackolg.com/archive/2015/11) - [February 2016 (3)](https://resources.jackolg.com/archive/2016/02) - [March 2012 (2)](https://resources.jackolg.com/archive/2012/03) - [February 2013 (2)](https://resources.jackolg.com/archive/2013/02) - [October 2014 (2)](https://resources.jackolg.com/archive/2014/10) - [November 2014 (2)](https://resources.jackolg.com/archive/2014/11) - [April 2015 (2)](https://resources.jackolg.com/archive/2015/04) - [May 2015 (2)](https://resources.jackolg.com/archive/2015/05) - [June 2015 (2)](https://resources.jackolg.com/archive/2015/06) - [October 2015 (2)](https://resources.jackolg.com/archive/2015/10) - [December 2015 (2)](https://resources.jackolg.com/archive/2015/12) - [July 2011 (1)](https://resources.jackolg.com/archive/2011/07) - [September 2014 (1)](https://resources.jackolg.com/archive/2014/09) see all #### News - [Legal Tips](http://www.jackolg.com/News-Room/) - [Publications](http://www.jackolg.com/News-Room/Publications.shtml) - [Blog](http://www.jackolg.com/blog/) [Email Us For A Response](http://www.jackolg.com/Contact.shtml) #### How Can We Help? 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