Charles Sidman has composed the following letter addressing the State of Ohio’s recent actions against SoMoLend and Candace Klein and has shared it for dissemination. Sidman’s bona fides are listed at the bottom of the letter, including his status as an investor in SoMoLend and his role as a Board & Executive Committee member of CFIRA.
To the Editor (and the Governor and Citizens of Ohio),
While regulators admittedly perform an important role, last week’s disclosure of fraud charges against entrepreneur Candace Klein by the Ohio Division of Securities is troubling. All hope that the facts of the matter will be established and adjudicated justly and openly, but the charges are of great concern and can even be considered fraud (defined as “knowing misrepresentation with intent to deceive”) themselves.
First and foremost, the Division’s premise that the hopes and aspirations of start-up companies are subject to regulatory approval, and if not expressed satisfactorily justify charges of fraud, represents a gross and unauthorized overextension of government reach that cannot go unchallenged. Factual statements can be fraudulent, but valuations are like beauty, subjective in the eye of each beholder, and business projections are speculative by necessity. Indeed, in any security offering, some investors are convinced and write checks, while others are not and do not. This is the free market at work. In the past, only Accredited Investors, due to their presumed financial sophistication, were allowed entree to private offerings. In the near future, under the JOBS Act that most state regulators detest, any investor will be allowed to participate under strict documentation of understanding and limited financial exposure. Nonetheless, if these investors are to have access to the returns of early stage private equity, they must be free to make their own decisions (and mistakes) unhindered by government “protection” from themselves. No investor to our knowledge has claimed confusion or injury by Ms. Klein.
The second reason the recent charges are troubling is that they represent highly selective enforcement, for transparent reasons of defeated professional turf protection. Congress legalized General Solicitation under the JOBS Act precisely because its function, previously outlawed by decades-old statute, is critical to the dissemination and funding of the start-up companies that create nearly all new jobs. Last year, this year and next, pitch competitions, incubator and accelerator graduation days, university showcases, entrepreneur-investor conferences, etc., have and will continue to take place across Ohio and the country. Ms. Klein is being harassed in last-gasp retribution for her leadership in industry groups that advocated for the JOBS Act.
Finally, Ms. Klein’s company SoMoLend has been placed in extreme jeopardy directly and exclusively by the recent charges. Numerous desirable job positions, and over two million dollars of early stage investment including hundreds of thousands from the State of Ohio itself, have been imperiled by the Divisions’s overzealous bureaucrats. Entrepreneurs, investors and advisors from New York to California have taken note of Ohio’s missteps with consternation or competitive delight. Is this what the Third Frontier is working for, and can the State of Ohio speak and act with one voice for its own betterment? The chilling and mistaken message of these charges harms Ohio locally, nationally and competitively.
Investor in SoMoLend
Member, Queen City Angels (and three other member groups of the national Angel Capital Association) Board and Executive Committee Member, Crowdfund Intermediary Regulatory Advocates
Professor (Retired), University of Cincinnati Managing Partner, ECS Capital Partners
(The opinions stated here are those of the author, whether or not shared by the groups named above)