Fraud Charges Won't Help Small Business Lending Pioneers

Since launching SoMoLend, a startup that connects small businesses seeking loans with banks and individual lenders, Candace Klein has been an outspoken proponent of the JOBS Act, touting the law’s potential to unleash a flood of financing for small firms. Peer-to-peer lenders such as Lending Club and Prosper have already shown that individuals are willing to lend consumers billions, and Klein sought to bring the same crowdfunding principles to small businesses seeking loans.

Now Ohio’s securities regulator wants to shut her Cincinnati-based business down, alleging she lied to investors and sold securities without necessary licenses. The Ohio investigation provides ammunition to advocates who worry that the JOBS Act’s provisions will lead unsophisticated investors to be duped. (It’s worth noting that Lending Club and Prosper also tangled with regulators and emerged intact.)