CINCINNATI – SoMoLend Holdings reached a settlement with the state of Ohio’s Division of Securities this week. But one local investor said the deal comes too late to save the business .
In a settlement agreement dated Feb. 10, the Cincinnati-based crowdfunding company agreed to stop all the business practices that triggered a June 14, 2013 notice from the state that brought the company’s promising future into question .
That notice accused SoMoLend and Candace Klein, the company’s founder and former CEO, of a laundry list of misdeeds: Selling unregistered securities, committing securities fraud by overstating SoMoLend’s early success and making fraudulent financial projections by exaggerating revenue projections during public presentations and statements.
The consent agreement makes clear that the issue will not prevent the company from doing business in Ohio once the state has drafted rules for crowdfunding based on the federal JOBS Act. It also eliminated fraud allegations against the company, noted Chris Calvert, SoMoLend's operations executive and counsel.
"In our view, this was a successful outcome," Calvert said. He added that he couldn't say what the company's future will be because those decisions still are being made.
But Carlin Stamm, a local investor in the business, told WCPO the agreement comes far too late. The company's cash has been drained, and virtually all its employees have left, he said.
"This would be the equivalent of someone having their legs amputated and a surgeon saying, 'This won't preclude you from entering any marathons,'" Stamm said. "They have destroyed the business. Basically the business has no value."
Crowdfunding is a way for individuals or businesses to raise money by getting small amounts of cash from lots of people. SoMoLend has been working to create an online crowdfunding platform for small businesses that need loans that often are too small to appeal to traditional banks.
Klein’s future is less clear. She resigned from the company in August 2013 in an attempt to help save it. A hearing regarding the state's allegations against her is scheduled to begin Feb. 19 in Columbus.
There is no criminal penalty attached to the state’s allegations. But business associates of Klein’s have said an unfavorable resolution could make it nearly impossible for her to work in the financial industry.
Klein told WCPO she could not comment on the settlement.
An Ohio Department of Commerce spokesman said the state had no comment on the settlement agreement beyond the document itself.
He would not say whether Klein is working to reach a settlement with the state, too.
Clifford Holekamp, a major SoMoLend investor from St. Louis, said in an email to WCPO that he just received the settlement agreement and also didn’t have any comment beyond the terms it contained.
Read the settlement agreement:
WCPO will continue to update this story as more information becomes available.
For more stories by Lucy May, go to www.wcpo.com/may . Follow her on Twitter @LucyMayCincy.