Brokers of Worm Farm Stock Fined

Two men who sold $8.5 million worth of shares in a now-bankrupt earthworm farm were ordered to return illegal profits and were warned against future violations of federal securities laws, the Securities and Exchange Commission announced.

In California, Judge Richard A. Paez of the U.S. 9th Circuit ordered Robert J. Dalton and James L. Masini to return $856,839 in illegal profits, but waived most of the penalty due to their inability to pay, the SEC said.

Lawyers for Dalton and Masini could not immediately be reached for comment.

In October, the SEC alleged that Dalton, 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 operated by Ecology Farm Management Inc. 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 California’s Paradise Valley, the SEC said.

They also 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 charged.

Instead, the men used about half of the investors’ money to pay sales commissions, overrides and administrative expenses, the SEC alleged. In addition, some investor returns were paid with funds from new investors, the SEC charged.

The farm never made a profit selling castings and never entered into contracts with Wal-Mart or Home Depot, the SEC said.

Without admitting or denying the SEC’s allegations, Bodlak agreed last fall to pay $13,946 in restitution, interest and civil penalties. Masini, also known as Jim Hall, and Dalton, also known as Robert Oliver, did not join the settlement at that time.