Candace Klein: Administrative hearing against SoMoLend founder postponed until June

Crowdfunding industry will be watching

The state administrative hearing for embattled entrepreneur Candace Klein has been postponed again.

Lawyers for Klein and Ohio regulators were scheduled to face off again in Columbus April 8, resuming a hearing that began in February after several other delays.

But a state Department of Commerce spokesman notified WCPO that the hearing won’t start again until June.

The continuance was granted because Assistant Ohio Attorney General Keith O'Korn, lead counsel for the state regulators, became ill.

Whenever the hearing resumes, it’s a sure bet that Klein’s friends and investors won’t be the only ones watching to see which side prevails. The nation’s crowdfunding industry will be, too.

“A lot of people are keeping an eye on it from the sidelines,” said Joy Schoffler, a board member of the national Crowdfund Intermediary Regulatory Advocates, or CFIRA, and author of a book on crowdfunding.

“There’s kind of a feeling that maybe she was used as a little bit of a scapegoat,” she said. “While they couldn’t stop crowdfunding, they could make an example of someone who was such an advocate for it.”

Klein became a nationally known proponent of crowdfunding after starting Cincinnati-based SoMoLend, which stands for social, mobile, local lending. Crowdfunding is a way to raise money from large numbers of people who contribute small amounts, typically using the Internet.

SoMoLend was designed to help small businesses borrow money in small amounts as one of the nation’s first debt-based crowdfunding platforms.

Troubles Started in 2013

But the company and Klein ran afoul of Ohio state regulators last year. The Ohio Division of Securities filed a document last June known as a “notice of intent” to issue a cease and desist order. That document accused SoMoLend and Klein, the company’s CEO at the time, of a variety of misdeeds.

Those included 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.

SoMoLend reached a settlement with the state Feb. 10. Lawyers for Klein have said the company is essentially defunct. Klein resigned as CEO last August in an attempt to save the business.

She has been fighting the state’s allegations, and the administrative hearing represents her opportunity to defend herself. The stakes for Klein are high: If the hearing determines she committed fraud, it would become difficult – if not impossible – for her to work in the financial sector where she’s spent years building her career.

A spokesman for the state’s securities division said the hearing shouldn’t be interpreted as anything more than it is – a hearing on the specific allegations outlined in the notice of intent.

But some crowdfunding industry insiders argue the proceedings represent much more.

Insiders can read why those industry insiders are watching the state so intently. They also can read comments from a spokesman for an association that represents state regulators, led by the Ohio Securities Commissioner who signed the "notice of intent" issued against Klein and SoMoLend. And they can read about a hearing examiner's ruling regarding whether Commissioner Andrea Seidt will have to testify in the matter.

 


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