Crowdfunding takes hit in Massachusetts

Dec 9, 2012 @ 12:01 am

By Bruce Kelly

Massachusetts took aim last Thursday at two players in the small but potentially vast arena of crowdfunding, which lets small private companies sell equity directly to investors.

Commonwealth Secretary William Galvin filed fraud charges against two out-of-state oil and gas operations related to their sale of unregistered securities to Massachusetts investors.

In one, Prodigy Oil and Gas LLC allegedly employed a cold-caller who had been found guilty of theft.

According to the complaint, Prodigy principal Shawn Bartholomae was subject to three state securities regulatory actions and two criminal charges.

Prodigy allegedly sold at least $464,000 in unregistered securities to one Massachusetts investor, according to the complaint.

Fraud charges against Synergy Oil LLC of Oklahoma and two of its executives allegedly involve the sale of $35,000 of unregistered securities to two investors.

Both companies and their officers and directors were subject to securities orders in other states revoking their use of private-placement exemptions, according to a statement from Mr. Galvin's office.

Mr. Bartholomae didn't respond to phone messages left with his assistant, and Robert Falco, an executive with Synergy Oil, didn't return a call seeking comment.

Crowdfunding was en-shrined this year in the Jumpstart Our Business Startups Act. A crowdfunding equity raise can have an unlimited number of in-vestors but is limited to $1 million.

"BAD ACTOR'

State securities regulators such as Mr. Galvin were against the legislation and petitioned Congress not to sign off on it. They think that the law was essentially opening a door for those with a history of defrauding investors.

“I would urge the Securities and Exchange Commission to adopt meaningful and effective "bad actor' rules that will disqualify securities law violators, brokers with re-voked licenses and other fraud operators from using these exemptions from the securities registration requirements,” Mr. Galvin said in a statement

bkelly@investmentnews. com Twitter: @bdnewsguy

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