3 Who Sold Shares in Earthworm Farm Accused of Fraud

Three men who sold $8.5 million worth of shares in a now-bankrupt Southern California earthworm farm were accused of fraud, regulators said Monday.

The Securities and Exchange Commission alleged in a civil action that Robert J. Dalton, James L. Masini, George J. Bodlak and their company, Professional Brokers Group, persuaded more than 250 people across the U.S. to invest in an earthworm-breeding enterprise that sold worms and their castings. Worm castings--soil that’s been digested by the worms--is considered good fertilizer because it is rich in nitrate, phosphorus, calcium, potash and magnesium,

Investors were told they could buy worm “herds” of various sizes to be raised on a farm east of Los Angeles in Paradise Valley, the SEC said.

Investors were told that the farm would enter into contracts with Wal-Mart Stores Inc. and Home Depot Inc. to sell the castings and that they could make profits of at least 74%, the SEC alleged.

Instead, the men used about 52% of the investors’ money to pay sales commissions, overrides and administrative expenses, the SEC alleged. The SEC also charged that some investor returns were paid with funds from new investors.

The farm never made a profit selling castings and never entered into contracts with Wal-Mart or Home Depot, SEC lawyer Diana Tani said. The farm is now bankrupt, she said.

The misrepresentations to investors were made over the phone by sales representatives of the Alta Loma, Calif.-based Professional Brokers Group or in offering materials sent through the mail, the SEC alleged.

Without admitting or denying the SEC’s allegations, Bodlak, 50, agreed to pay $13,946 in restitution, interest and a civil penalty.

“Mr. Bodlak’s position with the SEC was that he was in charge of farming and that other people were in charge of raising money from the investors,” said Bodlak’s lawyer, Thomas Bourke of Los Angeles. “He has cooperated with them, telling them everything he knows and therefore I think that he was not the main focus of the investigation.”

Lawyers for Dalton, 55, and Masini, 51, could not be reached for comment. The SEC said it is seeking civil penalties against Dalton, also known as Robert Oliver, and Masini, also known as Jim Hall, and repayment plus interest.