The Investment Lawyer Covering Legal and Regulatory Issues of Asset Management

VOL. 23, NO. 5 • MAY 2016

Considerations for Investment Managers Considering Acquiring Portfolios of Online or Marketplace Loans By Edward T. Dartley and Anthony R. G. Nolan

arketplace and online lending has a small operational expenses associated with traditional but growing share of the US and global bank loans to consumers, such as the cost of main- Mlending market. Online loans to consumers taining and staffi ng physical branches. Cost reduc- and small businesses represent a growing asset class tion, in turn, makes relatively minor loans to small for investment managers seeking non-correlated businesses and individuals economically feasible for high returns in a low-yield environment. all parties involved. Online lending marketplace Th is article will provide an overview of impor- platforms use proprietary algorithms and models to tant considerations for investment advisers and assign a risk grade to the proposed borrowers and investment fund managers seeking to understand set an interest rate corresponding to the assigned how marketplace loans as an asset class can fi t into risk grade and the tenor of the loan. an investment strategy and which issues must be Marketplace lending (or online lending) is classi- considered when investing in marketplace loans, cally regarded as the process of connecting borrowers including regulatory compliance and disclosure and lenders without using banks. Th e classic concept risks. is being stretched as the online lending industry con- tinues to evolve and mature. One example of this Overview of the Online and development can be seen in the evolution of fund- Marketplace Lending Industry ing sources. Having started with a business model derived from crowdfunding, many online lending What is Marketplace Lending? platforms have increasingly come to rely on balance Th e US Treasury Department defi nes “mar- sheet funding in addition to marketplace funding ketplace lending” as “the segment of the fi nancial techniques. Additionally, the classic peer-to-peer services industry that uses investment capital and model of marketplace funding has been supplanted data-driven online platforms to lend to small busi- by fl ow purchases of assets in bulk as institutional nesses and consumers[.]”1 Online lending market- investors have become more prominent—so much places use technology to drive a simple and speedy so that the industry has shifted away from call- matching of borrowers and lenders. Th ese internet- ing itself “peer-to-peer” to “marketplace lending,” based platforms reduce costs by eliminating many “online lending,” or “direct lending.”

Th e impact of regulation is another area where institutions and credit funds accessing fi nancial the classic defi nition is subject to change. Emerging assets through fl ow purchase agreements with online as a largely-unregulated lending source that would lending marketplaces. compete with banks by relying on big data analy- Securitization of marketplace loans provides sis more than classic credit underwriting, the online investors with liquidity, diversifi ed funding and lending industry has seen growing convergence with interest rate arbitrage opportunities. Securitized more traditional lending. One such area of con- marketplace loans have the attributes of a fi xed- vergence is seen in the growing sensitivity to clas- income security with a relatively low default risk. sic consumer fi nancial services regulation and other Marketplace loans are both suitable and desirable types of regulation, such as anti-money laundering for securitizations for a number of reasons. Th ey are considerations. a highly homogenous asset class with low borrower Another area of convergence between online concentration and a steady fl ow of new originations. lending and traditional fi nance is seen in the growth Th ey have relatively high risk-adjusted interest rates of partnerships between online lending platforms and have thus far enjoyed relatively low default rates. and deposit-taking institutions. Th ese have taken Th ey pay a predictable stream of principal and inter- many forms, including acquisitions of platforms by est payments over a relatively short three- or fi ve-year banks, white label arrangements, and targeted invest- time horizon. Also, a marketplace loan securitization ments by banks through funding vehicles, either for does not raise particularly complex tax issues (unless regulatory compliance purposes or with strategic it is backed by mortgage loans). goals in mind. Th is convergence may be acceler- ated as online lending platforms seek to enhance the Online Loan Origination role of originating banks in underwriting and servic- and Monetization Processes ing loans in order to obtain the benefi ts of federal While there are variations, online loan genera- preemption of certain state laws such as those gov- tion typically follows a similar process. An online erning usury. lending marketplace will host its own website on which prospective borrowers can apply for loans. Why Invest in Marketplace Loans? In some cases the website might be maintained in Online lending marketplaces provide individual conjunction with a bank that partners with the lend- and institutional investors an opportunity to earn ing platform. When a prospective borrower requests attractive risk-adjusted returns through equal access a loan he or she will complete a loan application, to standard program loans off ered through the online the information from which is used by the market- lending marketplace. Th e platform typically permits place platform to obtain a credit report and evaluate investors to tailor or modify their own portfolios by whether the prospective borrower meets the under- utilizing specifi c investment criteria, such as credit writing criteria established in conjunction with the attributes, fi nancial data and loan characteristics. entity originating and funding the loan. Th e platforms use proprietary credit algorithms to Th e marketplace sponsor will use its own credit approve loans and help investors construct loan algorithms to assign a risk grade to the prospective portfolios and model targeted returns. Th e busi- borrower and proposed loan to determine whether ness model began as a peer-to-peer marketplace that such prospective borrower and proposed loan meet permitted borrowers to use a web-based platform the lending standards of the online lending market- to borrow money from other platform users. More place or platform. If a borrower qualifi es, the online recently marketplace lending has become a more lending marketplace will approve the loan on a institutional market, with a wide variety of fi nancial preliminary basis and will disseminate information

Copyright © 2016 by CCH Incorporated. All Rights Reserved. VOL. 23, NO. 5 • MAY 2016 3 about the loan to potential investors, each of whom lending marketplace’s fi nancial suitability require- may determine to fund all or part of the loan. ments and the eligibility requirements under the If there is suffi cient investor interest in funding Securities Act of 1933 (the Securities Act) and that a marketplace loan, the marketplace platform spon- have established an account with the platform. When sor either originates the loan directly or through an the marketplace sponsor issues and sells Marketplace affi liated licensed lending company or bank, or alter- Platform Notes to an investor, the notes are registered natively sends the loan application to a third-party in the name of the investor on the marketplace spon- bank with which it has a relationship. Th at bank sor’s books and records. Th e Marketplace Platform then acts as the lender of record, originating the loan Notes are special, limited obligations of the online and selling and assigning the promissory notes evi- lending marketplace issuer and pay through obliga- dencing the loans to the online lending marketplace tions that are dependent on payments received by sponsor. the marketplace platform on the underlying loans. Th e relationship between the lending platform Th e issuer’s obligation to make payments on a and the originating bank is typically governed by a Marketplace Platform Note is limited to an amount loan account program agreement. Th is document equal to the note holder’s pro rata share of amounts it sets forth the framework under which the market- receives with respect to the corresponding borrower place sponsor manages the operations of the lend- loan, net of servicing fees. Marketplace Platform ing marketplace that relate to the submission of Notes typically bear interest from the date of issu- loan applications, as well as the originating and ance, have a fi xed rate, are payable monthly, and funding of loans by the bank in exchange for a fee have an initial maturity of three or fi ve years from equal to the origination fee charged by the bank. issuance. A note holder’s recourse is generally very Additionally, the marketplace lending platform will limited in the event that borrower information is enter into a loan sale agreement, under which the inaccurate for any reason, or if the borrower defaults. bank sells and assigns the promissory notes evidenc- Investors in Marketplace Platform Notes are also ing the loans to the marketplace sponsor. As consid- subject to ongoing credit and insolvency risk of the eration for the bank’s agreement to sell and assign platform, including the risk that the Marketplace the promissory notes, the marketplace lending plat- Platform Notes could be characterized as unsecured form typically pays the bank a periodic fee (usually obligations in bankruptcy of the platform. monthly) in addition to the purchase price for the An online lending marketplace may also aff ord loan assignment. facilities to eligible investors (such as accredited Marketplace lending platforms may off er either investors or qualifi ed purchasers) to establish a whole loans or fractional interests in loans. In the relationship with a registered investment adviser in case of whole loans, an online lending marketplace order to invest in Marketplace Platform Notes or to sponsor has several avenues available to it for fund- purchase pass-through certifi cates or other interests ing the underlying loans. It may sell entire portfolios in trusts or entities established by the marketplace of loans pursuant to whole loan purchase and sale sponsor to purchase Marketplace Platform Notes agreements to investors that want to hold loans on selected by the investor. their own balance sheets, either a single portfolio or on a fl ow basis. Structural Issues for Private Funds Alternatively, the marketplace sponsor may off er that Invest in Marketplace Loans fractional interests in loans through the issuance of Marketplace lending has attracted strong interest unsecured payment-dependent notes (Marketplace from investment managers seeking to deliver attrac- Platform Notes) to investors that meet the online tive fi xed income-like returns to their investors at what

Copyright © 2016 by CCH Incorporated. All Rights Reserved. 4 THE INVESTMENT LAWYER has so far been a relatively low risk profi le. Investment sponsor of the vehicle typically receives a manage- managers can off er clients exposure to the marketplace ment fee and a share of the profi ts, after the investors lending asset class through either a private fund vehicle receive a priority return. A private equity fund struc- or through a separate account structure. For private ture eliminates the concern with respect to investor funds, investment managers have structured these redemptions since capital is locked up for the life of vehicles as both hedge funds and private equity funds.2 the investment. Using a private equity fund model Investors in a hedge fund structure obtain the also eliminates concerns regarding valuation of assets opportunity to invest in the fund on a continuous for purposes of admitting new investors. basis, as would be typical for such funds. Investors in A series limited liability company can provide a those types of funds are typically charged a manage- suitable structure for investment managers that want ment fee and a performance fee, often subject to a to bring new investors into a private equity fund high-water mark provision. structure on a regular basis. With this model, inves- One important consideration for an investment tors commit capital to a specifi c series, the series is manager using a hedge fund model is the relative illi- then closed and the next series is opened. New inves- quidity of the asset class. While marketplace loans have tors may be admitted to this new series and existing enjoyed increasing popularity in recent years, there is investors can be given the option to roll principal no developed, effi cient market for either Marketplace and interest payments into the new series or to make Platform Notes or whole consumer or small-to- new capital commitments to the new series. medium enterprise loans. Accordingly, an investment Finally, a separate account structure can be used manager for a marketplace loan fund should carefully for investors that want a bespoke vehicle for invest- consider how the liquidity features of the fund are ing in marketplace loans. Th e investment manager, aligned with the illiquid nature of the fund assets. In through a separate account investment management particular, an investment manager should consider the agreement, can provide a highly tailored investment redemption features of their fund. Th is means not only opportunity to individual institutional investors. employing traditional hedge fund-style mechanisms such as lock-up periods and gates, but also avoiding Securities Act Considerations granting larger investors the ability to withdraw funds Affecting Marketplace Loan through side letter agreements. Investments Valuation represents another material consid- Marketplace Platform Notes (and securities that eration for hedge fund investment managers seek- may be issued by an investment fund investing in ing to acquire marketplace loan exposure. Because marketplace loan exposures) are subject to securi- investors have the ability to acquire fund interests ties regulation as investment contracts. Th ey may be on a continuous basis, there is a need to value the off ered in exempt transactions, typically in private portfolio on a periodic basis. Again, the illiquidity of placements under Regulation D under the Securities the asset class requires hedge fund managers to pay Act or, less commonly, in unregistered public off er- particular attention to valuation methodologies and ings pursuant to Regulation A under the Securities procedures for the portfolio. Act or in public off erings that are registered pursuant Marketplace loan funds that are structured as to Section 5 of the Securities Act. private equity vehicles have diff erent strategic imper- atives and structural considerations than those that Private Placements are structured as hedge funds. Each investor in such If Marketplace Platform Notes are off ered in a vehicle makes a capital commitment, which may multiple states through a Regulation D private be drawn over a set period of time or all at once. Th e placement, the sponsor has the option to off er them

Copyright © 2016 by CCH Incorporated. All Rights Reserved. VOL. 23, NO. 5 • MAY 2016 5 in compliance with Rule 506(b) or Rule 506(c), Finally, a Form D must be fi led in each state in which permits the use of general solicitation and which securities are sold pursuant to Regulation D, advertising. Rule 506(b) prohibits the use of gen- regardless of whether it is made under Rule 506(b) eral solicitation and advertising. On the other hand, or Rule 506(c).6 Rule 506(c) permits off erings to be advertised in an unlimited manner, including in print, digi- Public Offerings Pursuant to tal, and electronic media. Rule 506(c) was added Regulation A and A+ to Regulation D pursuant to the Jumpstart Our Regulation A, as amended in 2015 pursuant to Business Startups Act (JOBS Act), to broaden the the JOBS Act (known as Regulation A+), permits scope of communications with prospective inves- qualifying issuers to engage in public off ers and sales tors without causing a private placement to lose its of up to an annual limit ($50 million or $20 million exemption from registration. A marketplace lender with sublimits for sales by selling security-holders) that off ers Marketplace Platform Notes in reliance depending on whether the issuer is a tier 1 issuer or on Rule 506(b) must have a reasonable belief that a tier 2 issuer as defi ned in Regulation A+. As with each prospective investor who views off ering materi- a registered off ering, Regulation A+ requires that the als for the Marketplace Platform Notes are “accred- issuer provide specifi ed disclosures to investors and fi le ited investors” as defi ned in Rule 501(a) under an off ering statement with the SEC and it provides Regulation D.3 To that end, the marketplace lender the SEC with power to issue stop orders. (Both tier 1 must screen potential investors for their accredited and tier 2 issuers are subject to the same basic require- investor status prior to allowing them to access the ments while tier 2 issuers are also subject to additional platform and view any off erings. It must also limit disclosure and ongoing reporting requirements.) its marketing communication to avoid being consid- Securities issued pursuant to Regulation A+ are ered to be engaged in a general solicitation of off ers not “restricted securities” for purposes of Rule 144 to purchase Marketplace Platform Notes. under the Securities Act, which means they can be On the other hand, a marketplace lender resold without restriction as if they were issued in a may take advantage of the fl exibility provided by registered off ering. Regulation A+ provides greater the JOBS Act by off ering Marketplace Platform fl exibility than Regulation D for smaller online Notes pursuant to Rule 506(c). An off ering under lending marketplaces that are ramping up volume. Rule 506(c) is not subject to any limitations on However, the annual volume limits make it imprac- communications with prospective investors or solici- ticable for an online lending platform to rely on tation activity. In a Rule 506(c) off ering the prospec- Regulation A+ for continuous off erings of the sort tive investors may also view off ering materials before that are commonly registered on Form S-1. the issuer has verifi ed their status as accredited investors. However, in a Rule 506(c) off ering the issuer Registered Offerings on Form S-1 must take “reasonable steps to verify” that all persons In order for Marketplace Platform Notes to be who actually purchase Marketplace Platform Notes off ered to the public without the volume restrictions are accredited investors as defi ned in Regulation D. of Regulation A+, they must be off ered and sold pur- Rule 506(c) sets forth certain non-exclusive methods suant to a registration statement that is fi led with the of verifi cation that can satisfy this requirement.4 Th e SEC. Th e off er and sale may be registered on either staff of the Securities and Exchange Commission Form S-1 or S-3 but, as a practical matter, market- (the SEC) has identifi ed a number of factors which place lending platforms will generally use Form S-1 may be considered under Rule 506(c) for purposes to register a continuous off ering of securities rather of verifi cation.5 than registering a securities shelf on Form S-3.

A registered off ering of Marketplace Platform Depending on the precise model used for a mar- Notes involves signifi cant regulatory and other issues. ketplace lending program and the types of loans a Th ese include signifi cant limitations on the spon- sponsor holds, however, sponsors may be able to rely sor’s ability to off er multiple series of Marketplace on one or more bases for the conclusion that they Platform Notes using a single base prospectus for do not fall within the defi nition of an investment multiple off erings. In continuous off erings they also company, including Section 3(a), Section 3(b)(1), include complications arising from the fact that Form Section 3(c)(4) and Section 3(c)(5). Th e analysis S-1 (unlike Form S-3) does not provide for incorpora- applicable to a particular online lending market- tion by reference of subsequent periodic reports. place would also depend on a wide range of facts As a result, the registration process may be and circumstances. Th ese would include such mat- lengthy and costly and the issuer will be subject to ters as whether loans are made primarily to con- ongoing requirements to monitor and update the sumers or to businesses, the purpose of the loans, prospectus if it is used for continuous off erings. whether loans are secured and, if so, the nature of the For example, every time the prospectus is updated collateral. to include reports under the Securities Exchange Th e San Bernardino terrorist case in December Act of 1934 (the Exchange Act) that were fi led 2015 highlighted an interesting wrinkle on the after the eff ective date of the Form S-1, the issuer Investment Company Act analysis of marketplace loan will have to consider whether it needs to make investments. Shortly before the shooting the terrorist additional changes as required by Item 512(a)(1) borrowed over $30,000 from the Prosper marketplace of Regulation S-K. Th ese could include an update lending platform and identifi ed the use of proceeds of of prospectus information as required by Section the loan as “other” rather than credit card consolida- 10(a)(3) of the Securities Act if the prospectus is tion. Th is fact pattern may suggest that the exceptions more than nine months old, updated disclosure to under Section 3(c)(4) and Section 3(c)(5) may not be refl ect facts or events that represent a fundamen- available in cases where they would appear to apply tal change in the information set forth in the reg- and illustrates that the Investment Company Act istration statement, updated disclosure to refl ect analysis in this asset class may be tricky. Th is would be material changes in the plan of distribution or a practical issue only for investment managers seeking make certain other changes as permitted under the to invest in an asset class that may lend itself to a pub- Securities Act. lic distribution or seeking to establish an Investment Company Act exception that would permit a fund not Investment Company Act to be a “covered fund” under the Volcker Rule. Considerations Th e sponsors of online lending marketplaces Other US Regulatory Considerations have traditionally held loans acquired through their for Investors in Marketplace Loans marketplace lending programs on their balance sheets. If those loans are deemed to be securities, General a sponsor (or any affi liate holding the loans) could While currently there is no comprehensive regu- fall within the defi nition of an investment company lation of online marketplace lending in the United under the Investment Company Act of 1940 (the States, lenders are subject to various federal and Investment Company Act); this could cause the state laws and regulations. Th ey include federal and sponsor (or its affi liate) to be required to register as state consumer-protection statutes and regulations, an investment company and be regulated under the lender and broker licensing and usury laws, data- Investment Company Act. privacy laws, and securities regulation.7

Consumer Regulation and Usury record, was the “true lender” of the loans; as a con- Considerations sequence, the court voided the loans to borrowers To the extent that an online lending market- in West Virginia because they exceeded the West place is involved with loans to consumers, the rules Virginia usury cap.8 enforced by the Consumer Financial Protection More recently, in Madden v. Midland Funding Bureau are a material consideration for the com- the United States Court of Appeals for the Second panies and their investors. Th ese include the Truth Circuit held that a non-bank debt collector that in Lending Act, the Fair Credit Reporting Act, purchased written-off credit card accounts from a the Equal Credit Opportunity Act, the Consumer bank on a servicing-released basis cannot benefi t Credit Protection Act and the Telephone Consumer from federal preemption of state usury laws. Th at Protection Act, among others. Th ere may also be decision, which could eventually apply to bank- applicable state laws to the extent that federal law originated consumer marketplace loans, applies in does not have preemptive eff ect. Th ese aff ect disclo- New York, Connecticut, and Vermont, as the states sures, indemnifi cations, and other material issues. that comprise the Second Circuit.9 Consequently, Loans to small businesses may be subject to some of the assignee of a loan made to a borrower in one of these rules if they are guaranteed by individuals and those states may charge interest only at a rate that it is possible that the Federal Trade Commission will does not exceed the usury limitation of that state. become active in regulating such loans. State con- Th e Madden decision could adversely aff ect inves- sumer protection laws may also be applicable. State tors in marketplace loans and may aff ect the ability usury laws have recently emerged as a particular area to securitize those loans. Th is could create a bifurca- of concern. tion in how investors perceive online lending mar- Although some online lending marketplaces ketplaces that have their own lending licenses or originate loans through affi liated banks or licensed operate their own banks as compared to those that lending companies, many have traditionally tended purchase loans that are originated by a third-party to acquire the loans they originate from banks that act bank that acts as lender of record. In the case of the as lenders of record for the marketplace loans. Using former category of marketplace loans, it may result a federally insured depository institution to serve as in concentration limitations for loans to borrowers lender of record aff ords the benefi ts of federal pre- who reside in aff ected states. Th e Madden case is emption to subsequent assignees of the loan, includ- currently before the Supreme Court of the United ing the online lending platform and its investors. States. While the Supreme Court has not yet decided Under federal preemption, a loan can be originated to hear the case, on March 21, 2016 it called for the nationwide without the lender having to be licensed views of the solicitor general on whether it should in any state and the loan can bear an interest rate and grant certiorari in the case.10 fees that are permitted in the home state of the lender of record, regardless of the borrower’s location. Anti-Money Laundering and Th ere have been some relatively recent chal- Bank Secrecy Act Considerations lenges to this view of preemption. For example, in Recent events have focused attention on the 2014, the West Virginia Supreme Court of Appeals intersection of the marketplace lending industry and held that a non bank consumer fi nance company regulatory concerns that relate specifi cally to counter- that originated loans over the internet through a fed- terrorism and national security concerns are of par- erally insured bank as lender of record violated West ticular relevance. Notably, marketplace lending is Virginia’s usury and debt collection laws. Th e court subject to anti-money laundering laws and regula- found that the fi nance company, not the lender of tions under the Bank Secrecy Act as amended by the

USA PATRIOT Act. Non-bank online lending plat- driving this tendency is that the Investment forms may not be directly subject to these obliga- Company Act of 1940 imposes compliance burdens tions, but depending on their structure and services on registered investment companies and limits their off ered, a particular platform may be subject to regu- ability to incur leverage or engage in certain trans- lation as a money-services business, a money transactions or relationships. Some have considered the fer system, an investment company, an investment formation of funding vehicles that are not registered adviser, or a securities broker-dealer. Th ese regula- investment companies and that can sell marketplace tory concerns indirectly aff ect investment managers loan exposures to retail investors and that are not reg- and their investors. istered investment companies. Some models used in other industries include real estate investment trusts Conclusion and master limited partnerships, but those would Th e digital revolution in consumer and small not be available for this asset class without legislative business fi nance has helped create a small but grow- changes. Other models include retail funds that rely ing investment management asset class. As is the on an exemption from the defi nition of “investment case with many asset classes, marketplace loans will company” in the Investment Company Act of 1940 require investment managers to understand the per- that is consistent with a public off ering. As described formance characteristics and risks associated with below, fi nding such an exemption can be a challenge. marketplace lending. Th e rapid development of Th is section will focus on private investment vehicles. the asset class will make these features increasingly 3 Generally, the term “accredited investor” includes important, particularly if the industry faces a correc- companies with total assets of more than $5 million, tion as many predict will occur in time. companies in which all equity owners are accredited investors, natural persons with a net worth (alone or with a spouse) of more than $1 million, Messrs. Dartley and Nolan are partners in the and natural persons with an individual income in New York, NY offi ce of K&L Gates, LLP. excess of $200,000 in each of the two most recent years, or joint income with a spouse in excess of NOTES $300,000 in each of those years, and a reasonable 1 Public Input on Expanding Access to Credit Th rough expectation of reaching the same income level in Online Marketplace Lending, 80 Fed. Reg. 42866 the current year. (July 20, 2015). 4 Th e methods for verifi cation generally include review- 2 Institutional investment in marketplace lending in ing Internal Revenue Service forms reporting income, the United States has tended to be made through reviewing certain statements of assets provided by private funds rather than publicly distributed vehi- regulated fi nancial entities in conjunction with con- cles that can be distributed to retail investors in sumer reports. In addition, the SEC observed that cer- the United States, notwithstanding the existence of tain categories of outside service providers, including a handful of closed-end marketplace loan mutual licensed attorneys, certifi ed public accountants, regis- funds such as Van Eck Overland Online Funding tered investment advisers, and broker-dealers, could Trust Rivernorth MPL Corp. (Th is situation is dif- perform the verifi cation function. ferent than that in Europe, where several closed-end 5 See generally SEC, Eliminating the Prohibition Against retail marketplace loan funds have been listed on the General Solicitation and General Advertising in Rule London Stock Exchange, including VPC, Ranger 506 and Rule 144A Off erings, 78 Fed. Reg. 44771 and Funding Circle, though they are not available (July 24, 2014) (discussing the factors to consider in to United States retail investors.). One consideration determining whether a method constitutes “reasonable

Copyright © 2016 by CCH Incorporated. All Rights Reserved. VOL. 23, NO. 5 • MAY 2016 9 steps to verify,” including the nature of the purchaser 6 Rule 147 under the Securities Act provides an and the type of accredited investor that the purchaser exemption for off erings of securities entirely within claims to be; the amount and type of information that a single state. Th at would not be of practical signifi - the issuer has about the purchaser; and the nature of cance to marketplace platforms because the Internet the off ering, such as the manner in which the pur- distribution typically targets investors across wider chaser was solicited to participate in the off ering, and geographic areas. the terms of the off ering, such as a minimum invest- 7 See http:www.klgates.com.securities-law-considerations- ment amount). See also SEC, Use of Electronic Media, in-online-marketplace-lending-02-03-2016. 65 Fed. Reg. 25843, 25852 n. 85 and accompanying 8 Cash Call, Inc. v. Morrisey, No. 12-1274, 2014 WL text (Apr. 28, 2000) (stating that websites that allow 2404300 (W. Va. May 30, 2014). for self-certifi cation of accredited investor status “call 9 Madden v. Midland Funding, No. 14–2131–cv (2d Cir. into question” the ability of an issuer to form a reason- May 22, 2015), cert. pending. able belief regarding investor qualifi cations). 10 577 U.S 15-610 (March 21, 2016).

Copyright © 2016 CCH Incorporated. All Rights Reserved Reprinted from The Investment Lawyer, May 2016, Volume 23, Number 5, pages 13–21, with permission from Wolters Kluwer, New York, NY, 1-800-638-8437, www.wklawbusiness.com