| By Jim Bruene on November 26, 2008 12:35 PM | Comments (2) |
It's 3 for 3 now. All major P2P U.S. peer-to-peer lenders have been shut down this year by the SEC (see note 1). First Lending Club in March, then Prosper Oct. 15, and finally Loanio this week (see note 1).
Here is the statement I received from Loanio founder Michael Solomon this afternoon:
In light of the recent cease-and-desist ruling issued to Prosper Marketplace by the Securities and Exchange Commission, Loanio voluntarily suspended its operations. We were not contacted by the SEC or any other government agency. The SEC ruling on Prosper, combined with the recent registration of Lending Club, removes all ambiguities as to the Commission's legal interpretation on the issue of whether P2P promissory notes, in all of their varieties, are considered securities under current law.
Regulators have concluded that loans created in these networks are, in fact, securities and must be registered as such. You can read the SEC's logic in its Prosper filing published this week (here).
I have mixed feelings. While I applaud regulators for taking the initiative to understand this new way of lending/investing, I find it a bit ironic that a $100-million self-regulating and relatively transparent marketplace receives heavy-handed treatment while multi-trillion dollar financial products grew relatively unchecked in recent years (see my prior editorial on the matter).
The good news is that Lending Club has proven that SEC registration need not be a death sentence. The startup successfully completed the registration process after six months, relaunching at our Finovate event Oct. 14. The company has funded $2.6 million in loans since reopening.
We are hopeful that Prosper, which has $40 million in venture funding, will be back in business in early first quarter. Angel-funded Loanio may need to raise money to finance the registration process.
Notes:
1. Last month (here), the Loanio founder predicted that at some point he'd also need to register with the SEC.
2. Fynanz and GreenNote, the P2P student loan lenders, appear to still be accepting lender funds.
Is it any surprise that the SEC would go after ALL US based p-2-p lenders? The core business models "technically" violate security laws. That being said, I hope Loanio can withstand time delay of getting to market and the and regulatory costs.
BTW-ZimpleMoney is looking at a "quite" beta launch in the next couple of weeks. We are moving from the dev site to a full production environment.
Steve Rabago, ZEO, ZimpleMoney
I am not sure heavy handed is appropriate here in characterizing the regulators. The direction has been clear for many months and as a minimum since June when LendingClub began their regulatory application.
There has been heavy handed-ness on both sides methinks.
Having said that there is an opportunity to reconsider regulations that arise in the 40's when they are being applied to internet land.