Author Topic: You may not purchase notes in an amount in excess of 10% of your net worth  (Read 11668 times)

Fred

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This is related to the "How much of your portfolio goes to P2P lending" topic, but I want to separate this because LC has an official policy on this.

On the “State and Financial Suitability” conditions page: http://www.lendingclub.com/kb/index.php?View=entry&EntryID=113, it states:

Regardless of your state of residence, you may not purchase notes in an amount in excess of 10% of your net worth (exclusive of the value of your home, home furnishings and automobile).


As some of the investors are either already in this situation, or getting close, the questions are:

- Are you aware of this?
- How is this enforced?


DanB

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Couldn't you have brought up the subject a couple days ago or waited until April 1st next year? I would have had a really entertaining scenario/answer to share.  :) Much better than Peter's Warren Buffett piece from a few days back!

yojoakak

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It's mentioned in the prospectus a few times, sometimes it's only for Kentucky investors (pg 5, pg 7) sometimes it sounds like it covers everyone (pg 60).

Perhaps it's simply a copy-editing problem?

https://www.lendingclub.com/fileDownload.action?file=Clean_As_Filed_20121128.pdf&type=docs
« Last Edit: April 04, 2013, 02:14:41 AM by yojoakak »

investforfreedom

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Couldn't you have brought up the subject a couple days ago or waited until April 1st next year? I would have had a really entertaining scenario/answer to share.  :) Much better than Peter's Warren Buffett piece from a few days back!

It is like asking your friend in front of his wife: "Do you think of other women when you are making love with your wife?"  ;D

By the way, I don't.  :D  That applies to p2p as well.  There is no way I would put more than 10% of our net worth, exclusive of our house, into p2p.

DanB

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This is related to the "How much of your portfolio goes to P2P lending" topic, but I want to separate this because LC has an official policy on this.

On the “State and Financial Suitability” conditions page: http://www.lendingclub.com/kb/index.php?View=entry&EntryID=113, it states:

Regardless of your state of residence, you may not purchase notes in an amount in excess of 10% of your net worth (exclusive of the value of your home, home furnishings and automobile).


As some of the investors are either already in this situation, or getting close, the questions are:

- Are you aware of this?
- How is this enforced?





 
Well I suppose I should answer this since I'm guilty of trying to make a joke of it...............The answer is yes, I think most if not all investors are aware of this, since one has to sign off or check off when first opening an account. As for how it is enforced................I'm not sure how it could be enforced, nor have I ever heard of attempts to do so. But, of course I may be wrong.

berniemadeoff

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My net worth including human capital is worth billions, maybe trillions of dollars.  Hitting the 10% limit isn't possible until LC becomes an order of magnitude size of JPM. haha

DanB

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My net worth including human capital is worth billions, maybe trillions of dollars.  Hitting the 10% limit isn't possible until LC becomes an order of magnitude size of JPM. haha

Your modesty is an example to us all.  :)

SkaXc0re77

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My net worth including human capital is worth billions, maybe trillions of dollars.  Hitting the 10% limit isn't possible until LC becomes an order of magnitude size of JPM. haha

slave trade?

ee1x

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I have seen no evidence that this rule is enforced in any meaningful way... There doesn't seem to be any incentive for them to enforce this, so it seems like more of a cautionary statement rather than an actual rule.
Investing since March 2012

berniemadeoff

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I have seen no evidence that this rule is enforced in any meaningful way... There doesn't seem to be any incentive for them to enforce this, so it seems like more of a cautionary statement rather than an actual rule.

Isn't it required that investors in LC be qualified investors?  How is this rule enforced?

ee1x

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I have seen no evidence that this rule is enforced in any meaningful way... There doesn't seem to be any incentive for them to enforce this, so it seems like more of a cautionary statement rather than an actual rule.

Isn't it required that investors in LC be qualified investors?  How is this rule enforced?

To my knowledge they have never verified my net worth nor my income. I'm under the impression that companies are allowed to take the attestation of the investor that he or she is accredited as fact, and do not necessarily have to verify all information provided. I know this is the case in the futures industry but I am uncertain if the same principle applies under SEC rules.
Investing since March 2012

dontvote

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Qualified investment status is a question that has to be asked and answered, not something that they a company is required to 'enforce' in any meaningful way. They don't give a shit if you're lying or not. They are just legally required to have you lie (if you want).

Why would you want this enforced anyway? Qualification or accreditation is a proxy for sophistication. If you're sophisticated and not qualified you don't want them to know. In any case, this investment would be a no-go if I had to provide a tax return to invest. You don't even need to provide a tax return to run for president!

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Fred

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There is a difference between "financially suitable" investors and "accredited" investors.

Financial Suitability:
Investors who are residents of states other than California or Kentucky must have
(a) an annual gross income of at least $70,000 and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000; or
(b) have a net worth of at least $250,000 (determined with the same exclusions).

Accredited Investor:
- a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $2 million at the time of the purchase, or has assets under management of $1 million or above, excluding the value of their primary residence; or
- a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
- see other definitions here: http://www.sec.gov/answers/accred.htm

Accredited Investors are for LCA (Investment Adviser arm of Lending Club), while financially suitable investors are for the regular LC platform.

Also, my question about reinforcement is more for "good-to-know" purposes, just as it's good to know what / how IRS does its audits on taxpayers.


mo

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Since those regulations are there ostensibly to protect people from loosing money in investments they might not fully understand; it's hard to imagine a scenario where you would be penalized for circumventing those rules that only exist for your own protection to begin with.

I think the "not in excess of 10%" statement is more of a CYA thing for LC than anything else.  If someone does something stupid and looses their life savings they can't very well blame LC for encouraging them to do it when they explicitly say not to.

berniemadeoff

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Since those regulations are there ostensibly to protect people from loosing money in investments they might not fully understand; it's hard to imagine a scenario where you would be penalized for circumventing those rules that only exist for your own protection to begin with.

I think the "not in excess of 10%" statement is more of a CYA thing for LC than anything else.  If someone does something stupid and looses their life savings they can't very well blame LC for encouraging them to do it when they explicitly say not to.

I agree that the 10% of net worth limit and qualified/accredited investor requirements are probably for CYA mostly and not actively enforced.  I can image a person sinking their life fortune into LC, LC investments blow up for some reason, and then person tries to sue LC.