SEC: Online Dating Site Leads to Engagement, Investments, Fraud

Online dating services are popular and continue to proliferate. A quick Google search yields lists of numerous sites. Typically they promise more matches and more marriages quickly — and with little effort. The sites do not typically promise investment advice and highly profitable investments. That, however, was the byproduct of one site, according to the SEC. SEC v. Connerton, Civil Action No. 3:16-cv-00882 (D. Conn. Filed June 8, 2016).

Thomas Connerton is the founder and president of Defendant Safety Technologies, LLC, formed in 2006. The plan was to develop and market the invention of a chemical engineer Mr. Connerton met in 2005. The engineer was developing what was claimed to be a patent protected, highly durable, puncture and cut resistant material for surgical gloves and related uses. The under development glove was the firm’s only product.

The same year Safety Tech was founded it began selling securities to raise capital. Since that date the firm has taken-in about $2.3 million from 55 investors. Six of those investors are women Mr. Connerton met through an online dating service. An additional fourteen of the investors are family members and friends of the women he met through the dating service.

While Mr. Connerton used various pitches to solicit investors, typically he focused on several key points which included:

Better gloves: Safety Tech’s technology made surgical gloves more cut and puncture resistant and more durable;

Low cost: The technology was low cost;

Revolutionary: At times investors are told that the technology is “revolutionary,” and that it was a “patent pending polymer additive” and it “addresses a costly, unmet need;”

Company interest: Several firms have expressed an interest in the gloves according to the sale pitch; and

Returns: The investment will yield outsized returns.

Investors were variously shown documents supposedly depicting the returns which could run as high as 36.4 times the amount of the investment. Some investors were shown a private placement memorandum which included a series of representations about the product. There were two versions, one dated to 2006 and a second to 2008. Neither was updated; investors were not permitted to retain a copy. In some instances potential investors were shown a law firm opinion regarding a patent application.

What investors do not learn from the solicitations is that the chemical engineer who supposedly developed the technology pass away in 2008. While he left notes regarding his work, they are illegible according to Mr. Connerton’s testimony to the staff. He has no training in the area. Investors also do not learn that the firm keeps no books and records except tax returns. While Safety Tech filed three patent applications, the first two were rejected while the third was different from the earlier two.

Most of the investor money raised through the unregistered offerings was diverted to Mr. Connerton’s personal use. A portion, however, did tie back to the online dating service: Mr. Connerton spent $20,000 to purchase an engagement ring for one of the women he met through the service.

The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The court granted a freeze order at the time the complaint was filed. The case is pending. See Lit. Rel. No. 23565 (June 10, 2016).

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