American DG Energy

Kurta Law is investigating recommendations of American DG Energy (ADGE) stock for their potential unsuitability for investors. The company’s prospectus discloses the substantial risks involved in this stock, which may not have been appropriate for investors’ risk profiles. Brokers have an obligation to recommend investments that suit investors’ desired level of risk, under FINRA Rule 2111 and Regulation Best Interest.

FINRA arbitration can offer a lower-cost resolution than pursuing a civil suit and is often required by brokerage firms. Consider reaching out to us at (877) 600-0098 or email info@kurtalawfirm.com to speak to one of our securities attorneys for free today.

What is American DG?

According to the prospectus, American DG Energy Inc. (ADGE) is a clean energy systems company that supplies, owns, and operates electricity, water, and heating and cooling systems.

More specifically, they construct cogeneration systems that reduce energy costs by using a natural gas combustion engine to drive a generator, producing electricity and heat for water systems. These systems are also known as Distributed Generation of electricity (DG) systems or as combined heat and power systems (CHP).

What are the Risks Associated with American DG?

Investing in American DG Energy stock comes with significant risks, according to the prospectus. It states that investors “will pay a substantially higher price than the book value” of the company’s stock and experience additional dilution of the value of their warrants when exercised.

Further, any future sales of American DG Energy stock or conversion of securities into stock may lower its price and increase the dilution of existing investors.

Value and Liquidity of Warrants

The warrants sold in this offering have “no established public trading market,” and the company has no intention to list them on any securities exchange, severely limiting their liquidity.

Investors have no rights as common stockholders if they only own warrants until they exercise their warrants to purchase stock. The prospectus also notes that these warrants will become worthless if the price of American DG Energy stock does not exceed the warrants’ exercise price before their expiration three years after issuance.

Use of Proceeds from Offering

American DG Energy notes that the net proceeds from this offering have not been allocated for specific projects or as part of a defined strategy. Rather, management will have “significant flexibility” in the application of these funds, and investors will not have the ability to evaluate the risk involved in these potential applications before investing.

Aegis Capital Corp. Underwriting

Investors should know that Aegis Capital Corp. served as the underwriter for this offering. Underwriters take on risk in exchange for a fee, which could motivate certain investment banks to underwrite investments that pose too much risk for the average retail investor. Additionally, brokers may have conflicts of interest when they recommend shares that are underwritten by an affiliate of their brokerage firm. 

Do You Have Concerns Related to Your Shares of American DG Energy?

If you have concerns about your investment in American DG Energy, consider reaching out to a Kurta Law securities attorney for a consultation. Our securities attorneys have experience taking on cases of unsuitable investment recommendations and can help you achieve a fair settlement through FINRA arbitration. Call (877) 600-0098 or email info@kurtalawfirm.com.