Kiran Lingam, Managing Director at LendTech Angels, has published his thoughts on the Citizen.VC No-Action letter released earlier this week. Lingam, a securities attorney by education, sees the clarification pushing marketplace lenders to use 506(b), as opposed to utilizing 506(c) – an exemption that allows for general solicitation or advertising.
To quote Lingam;
“Marketplace lending platforms should pay particular attention to this letter in structuring the p2p side of the business (i.e. using Rule 506(b) vs. Rule 506(c)) and in designing their investor onboarding processes.”
“I suspect that the trend will continue towards using Rule 506(b) as a result of this new guidance.”
He premise is that since the SEC has removed some uncertainty as to what qualifies as a “substantive, pre-existing relationship under Rule 506(b)” that platforms will be more inclined to follow this path. Title II of the JOBS Act legalized advertising for private placements under 506(c) but also added additional steps (read time & cost) for issuers selecting this exemption.
Lingam highlights topics addressed by the SEC in the letter:
- No 30 Day Cooling Period
- New Members Can See Prior Offerings
- Reasonable Procedures (as outlined by Citizen.VC)
- No Deal Information Prior to Qualification
Regulators, issuers and financial firms are rushing to catch up to the disruption being delivered by the internet. The securities industry is a highly regulated sector so you can only go so fast. Each step in hardening acceptable processes and procedures can make it easier for FinTech innovators to advance and take advantage of the new world order in finance.
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