Agape World and P2P Lending

I wrote about peer-to-peer lending, also known as P2P lending, in early 2007.

I didn’t think it was worthwhile as an investment because there was too much credit risk. In April 2008, the SEC started requiring these companies to register with the SEC. During the registration period, these companies had to stop accepting new loan offers. Lending Club went first. It finished its registration after six months and reopened in October 2008. Prosper entered the process in October. It hasn’t come out yet. Then a third P2P lending company, Loanio, followed suit in November 2008.

In NPR’s Planet Money podcast on January 12, 2009 (fast forward to 05:40), the guest Clay Shirky, New Media professor at New York University, said that the SEC was wrong in shutting down peer-to-peer lending sites and requiring them to register before they can open for business again. Last December, Netbanker published an open letter to the SEC, urging them to “leave peer-to-peer lending alone.” Was SEC wrong in shutting down P2P lending sites and requiring them to register?

I think the SEC did it right. These companies are basically selling loan syndication to the general public. It’s not much different from mortgage securitization, albeit on a smaller scale. The SEC’s formal reasoning is quite convincing. Besides that, after seeing the alleged Ponzi scheme run by Agape World, we cannot afford not to regulate peer-to-peer lending companies.

Agape World said it offered bridge loans to construction businesses. Investors were told they were providing funding to each specific loan. Agape World paid investors high interest rates. It used multi-level marketing to attract $400 million from investors. It was not registered with the SEC. Like in all Ponzi schemes, some investors received good returns. P2P lending companies offer loans to individual borrowers. They advertise high interest rates. They pay bloggers as affiliates for lender sign-ups. Perhaps the current P2P lending companies are legit, but without proper regulation, how do we prevent the next company from running a Ponzi scheme under P2P lending? How do we prevent a legit P2P lending company from turning into a Ponzi scheme?


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  1. That Lawyer Dude says

    The answer isn’t regulation, it is in education. Investors need to know not only the questions to ask but the documents to look at. People in Agape, didn’t look beyond the charisma that was Nick Cosmo and the returns. These weren’t unsophisticated people. There were was a hedge fund, a lawyers, finance people, even FBI agents in this investment. When warning bells went off, Nick Cosmo had the proper answers, but he produced nothing because no one asked him to produce anything. When he was finally pushed by his own staff to show the loan docs and the liens, it all crumbled down in no time.

    The lesson in Agape, Madoff, and other investment fraud is, diversify, ask questions, get other opinions and have someone who will check and verify. It is not to so clog up the P2P market with regulation that it becomes no more useful to the high stake borrower-lender than the present banking credit system.

  2. LendingGal says

    I’ve been lending on P2P lending sites, and you really got me worried. However, I think you are taking it too far. First, in P2P lending, you get your money back each month according to how much you invested (no ponzi scheme here). You also can get out whenever you want using the secondary market (Lending Club has one, and Prosper is working on one). Have you tried these sites?

  3. Steve Rabago says

    Not all sites need to be regulated. My company is offering a loan management/administration tool for people to manage loans between people they know. We call it naturally occurring social networks. I think the p-2-p space has to mature like most pioneering industries – it is here to stay.

  4. Alpha Tiger says

    The SEC registration is appropriate if P2P is securitizing the lending. However, if they are acting as an intermediary and simply acting as an agent, I don’t think they need to be registered with the SEC. I’ve never used P2P lending and don’t plan on it unless I have the ability to conduct my own due diligence. Just ask Stanford CD investors about how much transparency was provided to them!

  5. Randy says

    Where does one start to draw the line between a P2P lender that requires SEC approval and a typical hard money lender out there in the market that is selling loans to investors. I happen to have had an interesting exposure to this Agape World group, I am a loan broker and about a year ago had a client that was trying to refinance a development loan on an industrial property that they had taken out with Agape World. The loan docs, seemed all in order and I tried a couple of times to contact Agape just to see what types of properties they typically financed. When calling there office its obvious you are getting an answering service and never had anyone return a call.

  6. silverspoon says

    The SEC is wrong. No registration should be necessary. P2P lending does not present a threat to consumer safety. I have made 20 percent returns on my investment. The Sec is bowing to pressure from the same bankers who created the debacle on wall street. P2P lending treats the consumer with the same respect that they get from ILCs’ and thrifts which continue to lend to main street. The bankers pay only lip service to the consumers and lend to each other despite the billions they have borrowed in taxpayers’ money. The bankers have even trying to avoid issuing small business administration guaranteed loans. Apparently they don’t want competition from other lenders who are still lending. I feel safe with prosper. They are trustworthy.

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