SoMoLend, a crowdfunding platform that connects small business to potential investors, is in hot water with Ohio's Division of Securities.
The site was launched in 2011 by Candace Klein, the founder of Bad Girl Ventures who earlier this year wrote an article for Inc. admonishing the SEC's delayed actions on crowdfunding-related portions of the Jumpstart Our Business Startups (JOBS) Act.
Now SoMoLend is currently under investigation and might be shut down, reports Cincinnati.com. According to the notice filed by the state of Ohio, the company is accused of the following:
- Unregistered sales of SoMoLend securities
- Fraudulent financial projections
- False statements regarding current and past performance
- False and misleading statements regarding nature and extent of business relationships
- Offers and sales of unregistered securities through the SoMoLend platform
- Unlicensed offers and sales of securities on the SoMoLend crowdfunding platform
The notice highlighted Klein's March 10 SXSW pitch, in which she said:
"Our platform is about six months old, and since that time we've had 15,000 businesses sign up for funding on our platform. We've funded them with about $15 million so far, and that's come from 1,000 peer lenders and 50 different banks."
However, according to the Division of Securities, at the time "only one bank had ever made a loan on SoMoLend Crowdfunding Platform, a single $30,000 loan that generated zero revenue."
Allegedly false statements made by Klein about her start-up's performance made it as far as the pages of The New York Times, when the company was profiled in a January feature, 'The Crowdfunding Crowd is Anxious':
"Since SoMoLend started about a year ago, it has eased the way for $3.4 million in loans to 89 small-business borrowers, typically retailers, restaurants, salons and other concerns that have inventory and equipment that can be used as collateral."
A March profile of the company by Entrepreneur Magazine contained similar information:
"Since the beta site launched in May 2012, SoMoLend has facilitated some 100 small-business loans totaling nearly $3.5 million. Loans range from $500 to $1 million, with interest rates ranging from 3 to 22 percent and terms spanning six weeks to five years, depending on a business's needs and creditworthiness."
In reality, claims the state of Ohio, by March of this year SoMoLend had "closed only 25 loans for 18 businesses for an aggregate loan amount of only $234,000."
A copy of the Ohio Division of Securities's 15-page notice can be seen in full here.