Colorado Division of Securities Orders CapSource, Inc. to Cease and Desist

Nevada-based CapSource ordered to stop using unlicensed sales representatives to solicit and sell unregistered, non-exempt securities.

The Sonn Law Group is investigating allegations that CapSource, Inc. sold non-exempt, unregistered securities through unlicensed sales representatives. If you or a family member has suffered losses investing, we want to discuss your case. Please contact us today for a free review of your case.

CapSource, Inc. Cease and DesistOn November 1, 2019, acting Colorado Securities Commissioner, David Cheval, signed an order against CapSource, Inc. (“CapSource”) and listed control person Steven J. Byrne.

The order directs CapSource and Byrne to immediately cease and desist all violations of the Colorado Securities Act, including their use of unlicensed sales representatives to solicit and sell unregistered, non-exempt securities.

According to the Division of Securities, CapSource offered and sold at least $21.5 million to over 200 Colorado investors over a period of four years, from 2015 until 2019. These individuals were solicited to purchase investments in the “CapSource Note Program,” which were billed as guaranteed, pooled, and fixed-rate commercial mortgage investments that meet the definition of securities under Colorado law.

Despite these claims, the note program products were never registered with the Colorado Division of Securities, nor were they exempt from being registered.

Additionally, CapSource used lead finders and sales representatives to find potential investors and sell investments that were not licensed to do so in Colorado, as required by the Colorado Securities Act. These lead finders and sales representatives also received fees for their services, another violation of Colorado law. 

As of April 2019, the Division of Securities reported that approximately $17 million in funds remained outstanding with at least 185 of the Colorado investors.

“It’s always hard to see people lose money on investments that were pitched as ‘guaranteed’ to produce a profit,” Commissioner Cheval stated. “All we can do is remind people to do their due diligence and check the license of whomever they’re dealing with, as well as the registration of any product they’re considering in the securities market. It’s the best way to make sure your money doesn’t fall into the wrong hands.”

CapSource was previously ordered to cease and desist from offering and selling unregistered securities, and to cease and desist from continuing to directly or indirectly make any untrue statements of material fact, or omit to state material facts necessary in order to make statements made, in the light of the circumstances under which they were made, not misleading, contrary to the Securities Act for the State of Michigan.

The Corporations, Securities, & Commercial Licensing Bureau (the “Bureau”) initiated an investigation into CapSource’s activities in the securities industry in Michigan. Their investigation revealed that CapSource offered and sold fixed-interest pooled mortgage investments which were “investment contract” securities to multiple Michigan investors.

CapSource would allegedly identify appropriate businesses to be borrowers, collect money from multiple investors, pool the funds, offer loans to the businesses, and payback investors as borrowers paid back the loans. The following transactions involved Michigan investors:

Borrower Investor Amount Rate of Return
EQ Durango, LLC SA $13,000 7%
EQ Durango, LLC PH $9,100 9%
EQ Durango, LLC TG $24,100 7.8%
Flipping Capital III, LLC DS $26,500 7% or 9%
Flipping Capital III, LLC TG $75,000 9%
Global Bio Labs, LLC RA $50,000 5%
Global Bio Labs, LLC PH $10,000 7%
Global Bio Labs, LLC VJ $12,000 8%
America’s Rehab Campuses-Arizona, LLC FJ $150,000 8%
America’s Rehab Campuses-Arizona, LLC KD $50,000 8%
America’s Rehab Campuses-Arizona, LLC BC $10,400 8%

The Bureau’s findings stated that the investment contracts offered and sold were not registered in Michigan, as required by the Securities Act, and CapSource had not identified any exemption that would not require them to be registered. 

The findings also stated that CapSource represented to its investors that they would receive certain rates of return in exchange for providing capital to be pooled and loaned to businesses, however, CapSource failed to identify how any of those businesses would generate income sufficient to pay the promised rates or return or whether they would be able to do so.

Finally, the findings stated that CapSource had represented to investors that the loans to businesses would be guaranteed by various individuals, but did not provide information about those individuals to the investors.

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The Sonn Law Group is currently investigating allegations that CapSource sold unregistered, non-exempt securities. We represent investors in claims against negligent brokers and brokerage firms. If you or your loved one experienced investment losses, we are here to help. For a free consultation, please call us now at 866-827-3202 or complete our contact form.