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#LEND360 ● Brian Korn, Pepper Hamilton LLP Braden Perry, Kennyhertz Perry Rick Eckman, Pepper Hamilton LLP Candace Klein, Dealstruck, Inc.

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Presentation on theme: "#LEND360 ● Brian Korn, Pepper Hamilton LLP Braden Perry, Kennyhertz Perry Rick Eckman, Pepper Hamilton LLP Candace Klein, Dealstruck, Inc."— Presentation transcript:


2 #LEND360 ● Brian Korn, Pepper Hamilton LLP Braden Perry, Kennyhertz Perry Rick Eckman, Pepper Hamilton LLP Candace Klein, Dealstruck, Inc.

3 212.808.2754 Brian Korn of Pepper Hamilton LLP Corporate and Securities practice group, based in New York Hands-on transaction execution and market expertise across product categories, including equity capital markets, debt capital markets, leveraged finance and private equity Former in-house counsel at Barclays and Citigroup investment banks Specialist in IPOs, the JOBS Act and SEC compliance, as well as early-stage fundraising, high yield debt and swaps/derivatives Media Appearances: Fox Business Television, Bloomberg, NPR, CCTV America Published or Quoted: Forbes, CNBC, MSNBC, New York Law Journal, Law360, Philadelphia Inquirer, Pittsburgh Post- Gazette, The Financier, Review of Securities & Commodities Regulation Seasoned 16 year securities expert and frequent speaker: PLI, NYC Bar faculty member; Speaker at national securities and crowdfunding conferences Board Member, Crowdfunding Professional Association J.D. Northwestern University School of Law B.A. with Honors and Distinction, University of California, Berkeley

4 302.777.6580 Richard P. Eckman is a partner in the Wilmington office of Pepper Hamilton LLP. He is a finance and transactional lawyer and chairs the firm’s Financial Services Practice Group. He has practiced consumer financial services law for over 35 years representing financial institutions, non-depository lenders, investors, and service providers in product design, compliance matters, strategic transactions, government investigations and enforcement actions.

5 816.527.9447 Braden Perry, partner in the Kansas City-based law firm of Kennyhertz Perry, LLC is a former federal enforcement attorney and veteran in government compliance, having over 10 years of experience in the areas of financial services compliance, internal investigations, enforcement matters, regulatory issues, and litigation. He currently advises highly regulated firms and frequently speaks on compliance and regulatory topics. He was previously a Senior Trial Attorney for the U.S. Commodity Futures Trading Commission and the Chief Compliance Officer of a global financial firm.

6 858.430.8301 Candace Klein is Chief Strategy Officer for Dealstruck (, an alternative Peer-to-Peer lending platform that provides loans and lines of credit to small business borrowers. Prior to Dealstruck, Candace co- authored the legislation that became the JOBS Act, then chaired the Crowdfund Intermediary Regulatory Advocates, the industry advocacy group for platforms and broker dealers affected by the JOBS Act. Candace was the founder and CEO of two companies: Bad Girl Ventures ( and SoMoLend ( Candace continues to serve as General Counsel for Women Investing in Women, a global NGO focused on increasing access to capital for female entrepreneurs, and as Advisor to LoanHero, a peer-to-peer lending company for consumer loans at the merchant point of sale. Candace Klein received her bachelor degree in Communications from Northern Kentucky University. Candace began working as a lobbyist for the Northern Kentucky Chamber and United Way, and then began attending law school at Chase University. While attaining her law degree, Candace led the Communities Practice at Property Advisors, with the title of "Maven" and the job description, "run and think."

7 Public Crowdfunding Background Capital Raising Online While Deterring Fraud and Unethical Non- Disclosure

8 Backdrop: Current Crowdfunding Landscape – Five Varieties TypeRewards/ Donation- Based Securities to Accredited Investors (Title II) Securities to the Public (Title III) Peer-to-Peer LendingIntrastate Crowdfunding ExamplesKickstarter, Indiegogo, Rockethub, Youcaring Ourcrowd, Realty Mogul, FundersClub, AngelList, None so far; potentially a rewards or accred platform LendingClub, Prosper, Funding Circle, Zopa (UK), Ratesetter (UK), Auxmoney (Germany) Invest Georgia Exemption, Michigan Invests Locally Exemption (MILE), Maine, Kansas, Texas (pending) Securities Reg Status Not sales of “securities” Sales of securities to accredited investors through deal-specific special purpose vehicles; Intrastate rules have been enacted in GA, MI, ME and KS and are proposed in TX Sales of securities to the general public Registered borrower- payment dependent notes to the general public (25 states only) or private placements Public offerings to residents of a single state; exempt from SEC rules under Securities Act 3(a)(11) exemption/Rule 147 RegulationState-level antifraud only; not SEC- regulated SEC-regulated, no-action letters protect website solicitations from being public offerings Extensive SEC regulation; currently illegal until SEC rules are finalized SEC-registered securities, not really crowdfunding; banking regulations, not legal in several states due to blue sky restrictions; Private placements have blue sky preemption State regulated Bad Actor Disqualification Not applicable Applies for all issuers and for the crowdfunding sites themselves Not applicable under JOBS Act, but SEC has said it will apply Not applicableVaries by state

9 Crowdfunding vs. Other Exemptions Feature Public Crowdfunding (Title III) Regulation A+ (Tier 1) Regulation A+ (Tier 2) Private Placements Including Title II Crowdfunding (Regulation D Rule 506 (b/c)) Maximum Total Raised $1 million per 12 month period $5 million per 12 month period; including up to $1.5 million for selling shareholders $50 million per 12 month period; including up to $15 million for selling shareholders Unlimited  Number of Investors Unlimited but subject to maximum total raised Unrestricted  Unrestricted  Unlimited accredited investors; up to 35 non-accredited investors unless soliciting (if soliciting- 0 non- accreds)  Investment Per Investor Restricted by income/net worth Unrestricted  Restricted by income/net worth Unrestricted  Investor Disclosure Required, must be filed with SEC Not required if all accredited investors; Form D filing proposed  Intermediary Required Yes – broker/dealer or funding portal No  No  No  Subject to ongoing SEC reporting following raise Yes, at least annually, possibly more frequently No; as long as exit report is filed not later than 30 calendar days after termination or completion Yes; audited financials filed annually; annual, semi-annual, current reporting required May file exit report, so long as issuer meets certain qualifications No 

10 Crowdfunding vs. Other Exemptions FeaturePublic Crowdfunding Regulation A+ (Tier 1) Regulation A+ (Tier 2) Private Placements (Regulation D Rule 506 (b/c)) Disclosure Liability Yes, full disclosure liability with a knowledge exception Only anti-fraud liability  Shares restrictedYes, for one year No  No  Yes, for public companies most can sell under Rule 144 after six months State Filing Possibly, depends on future rules by state Not exempt from state securities law registration and qualification Exempt from state securities law registration and qualification if sold to “qualified purchasers,” defined to include all offerees in a Regulation A offering and all purchasers in a Tier 2 offering Usually no if only offering to accredited investors  Advertising and general solicitation Not allowed "Testing the waters" permitted before filing; general solicitation permitted after qualification  "Testing the waters" permitted before filing; general solicitation permitted after qualification  Allowed if sales are made only to accredited investors and issuer takes reasonable steps to verify accredited status Can public cos., foreign issuers, investment companies and exempt inv. companies issue NoYes, but limited Yes 



13 In Philadelphia, it’s worth 50 bucks…

14 Peer-to-Peer

15 States Cannot Agree on Investor Legality

16 Top Legal issues in Peer-to-Peer Neither LendingClub nor Prosper are banks –Peer-to-peer lending sites facilitate loans to consumers from WebBank, a Utah- chartered state industrial bank –WebBank allows interest rate to be “portable” –WebBank sets credit terms, extends credit and holds loan for 1 day –Both LC and Prosper have been in business over 5 years Battles have been waged in each state to arrive at this point –Platforms retain servicing rights and service loan –$$ is not FDIC or SIPC insured Bank regulatory “lite” applies – Platforms must comply with consumer finance credit, privacy and auto-deduction laws, but…… –Exempt from 23A and 23B affiliate rules* –Exempt from regulatory capital rules* –Exempt from too big to fail, living wills, Volcker –Will big banks start to care at some point, and then what happens? Borrower may not pay and Lender cannot sue Borrower –Lender has limited ability compared to traditional lending –Limited recourse to enforce loan –Collection fees will exceed recovery

17 Lending Regulation Issues for Peer to Peer Lenders Usury Laws True Lender State Licensing Requirements – Lending – Money Transmitter Fair Credit Reporting Act

18 Consumer Protection Issues Truth in Lending / Regulation Z FTC Act Title 5 / CFPB UDAAP Equal Credit Opportunity Act / Reg B and Fair Lending Electronic Funds Transfer Act / Reg E Fair Debt Collection Practices Act Vendor Management Oversight


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