Massachusetts Secretary of State William F. Galvin said Thursday that his office has fined and censured a Quincy company and its cofounder for selling privately placed securities to investors who were urged to roll their 401k investments into a self-directed IRA without warning them of the high fees and risks associated with such investments.
The settlement names Conquest Capital Partners LLC, Conquest Phoenix Fund LLC, and Ryan G. Gadles, co-founder and principal of Conquest Capital.
Conquest agreed to make $40,000 in restitution to Massachusetts investors and pay the Commonwealth a $15,000 fine, Galvin said. The entities named in the settlement were also prohibited from doing future offerings in the Commonwealth.
“All the investors have been made whole,” Gadles said. “And the state has been paid the $15,000 fine.”
An attempt to reach Conquest’s attorney was not immediately successful.
“Investors should be on guard against efforts to steer them towards self-directed IRAs,” Galvin said in a statement.
Investors, particularly unsophisticated investors, need to be even more wary as new rules go into effect about so-called “crowdfunding.”
In 2012, President Obama signed the Jumpstart Our Business Startups Act that requires the Securities and Exchange Commission to devise regulations that will allow private companies to use crowdfunding to solicit investors and make other changes that would give companies access to a larger pool of backers.
In response to part of that law, the SEC earlier in July issued new rules that remove a ban on advertising the sale of securities, setting the stage for companies to use the Web, social media sites such as Twitter, and other means to sell securities.
Those changes prompted Galvin to form a watchdog unit to monitor the emergence of crowdfunding websites that are designed to let start-ups raise money from unaccredited investors. The unit is called the Internet Crowdfunding and Offerings Watch Department, or I-CROWD.
In his Thursday statement, Galvin said, “With the oncoming of the ‘Crowdfunding Era,’ investors must be on guard against offerings which are unbalanced, one-sided, and replete with unbridled puffery.”
Chris Reidy can be reached at email@example.com.