EASTHAMPTON – Secretary of State William F. Galvin has charged a local wind turbine manufacturing company with selling unregistered securities, backed by a misleading business plan that contained “baseless puffery” in order to lure investors.
Galvin charged Urban Power USA Inc. of Easthampton with selling shares in the company when it was not registered to do so through agents who were also not registered with the securities division. The division hopes to compel Urban Power to stop selling the unregistered securities and establish a refund offer to investors who have already bought shares, according to a statement from Galvin.
Urban Power began building wind turbines for use on top of commercial and apartment buildings in September 2010, based on company president Mark Maynard’s patented design. An August 2010 Gazette article noted that the turbines stand about 10 feet tall, weigh about 1,200 pounds, cost about $20,000, and can produce from 17,000 to 34,000 kilowatt hours per year.
In 2008 the average Massachusetts home used about 7,400 kilowatt hours, according to the U.S. Energy Information Administration.
Attempts to reach Maynard for comment at his home were unsuccessful Tuesday evening. A voicemail message left after hours at Urban Power’s Pleasant Street office was not immediately returned.
Galvin’s office asserts that the business plan that Urban Power produced to attract investors projected sales of $1 million in 2011, nearly triple that ($2.9 million) in 2012 and $4.2 million in 2013.
According to state investigators, to date only two wind turbines manufactured by Urban Power have been sold for a total of $105,000.
Additionally, foreign sales projections showed a 162 percent increase in sales between 2011 and 2013, but Urban Power has yet to sell any products to foreign buyers, according to the state report.
The state goes on to accuse Urban Power of significantly misrepresenting its 2011 year-end cash balance in the plan.
According to investigators, the business plan listed the company’s 2011 year-end cash balance as $516,581, but Urban Power’s bank statement showed a balance of about $22,189.
Brian McNiff, a spokesman from Galvin’s office, said the securities were likely sold to generate capital for Urban Power.
According to Galvin’s office, the Pennsylvania Securities Commission issued Urban Power a cease-and-desist order Oct. 19, 2010, for similarly offering unregistered securities to Pennsylvania residents.
It was the Pennsylvania Securities Commission that alerted the securities division in Massachusetts, according to the complaint.
The business plan contained blanket statements about the potential success of the wind power industry, according to Galvin, but “without any proven connection to Urban Power, these generic statements are non-sequiturs and baseless puffery, serving to materially mislead investors that Urban Power is destined for greatness.”
The complaint alleges that, despite a subpoena request, Urban Power never furnished any basis for the calculations of the turbines’ capabilities and did not contain adequate risk disclosures to potential investors.
Galvin’s office called the business plan “34 pages of sheer optimism.”
The charge goes on to say that Urban Power hired unregistered promoters to advertise the investment opportunities on websites, in newspapers, emails, social media and at industry conventions.
“Investments in new technologies offered through new media can be alluring, but the offering must be presented to investors so that they can clearly understand the risk they will be undertaking,” Galvin said. “Novelty is no excuse for an offering document that maintains a tenuous link to reality.”
According to the complaint, shares in the company were also being offered to investors as compensation for “time and effort” and stock options were offered to the company’s legal counsel as compensation for their services.
McNiff said Urban Power has 21 days to respond to the charge.
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