There are over 1.3 trillion dollars worth of restricted securities contributing to the overall makeup of the U.S. Stock Market. These shares are held by corporate officers, directors and affiliates of publicly traded companies as well as both institutional and accredited investors.
As you will discover, although restricted stock is considered an asset and is calculated into one’s net worth, in reality this stock [restricted] is almost worthless. This is primarily due to a restricted shareholder’s inability to easily liquidate these shares as a result of heavy restrictions imposed by the Securities Exchange Commission (SEC) in an effort to protect public investors and the viability of the issuing company itself. Unfortunately, such impositions rendered this particular group of shareholders “paper-rich” and “cash-poor”.
As an example, imagine having an ATM machine in your home or office that holds $2,000,000! That’s a lot of money, and you are a millionaire… congratulations! Now imagine that the SEC will only allow you to withdraw a maximum amount of $2,000 every ninety days… Still feel like a millionaire?
So what happened? Well, in 1972, the (SEC) adopted Rule 144 to prevent these shareholders from taking actions that could be damaging to the companies that the shares were issued from as well as public shareholders of such companies. Rule 144 says a lot, but probably the most noteworthy is that a restricted shareholder cannot sell more than 1% of the company’s total outstanding shares every 90 days. For some this isn’t always such a bad deal, but for most it is liken to wearing solid gold handcuffs.
Enter the Stock Lending Industry
To meet the demand of shareholders seeking liquidity from their shares without selling, private lending companies began lending on free trading and restricted securities in the early nineties with some degree of success. However as the industry grew, problems began to arise. Most lending firms were selling the pledged collateral to fund the loans while others began to use hedging strategies that were risky, and often would result in the inability for a borrower to reclaim their shares once the loan had been paid off.
Another problem that developed was that these loan programs caused many suits and began to come under scrutiny by the IRS or SEC, resulting in governmental litigation and a lot of unclear opinions as to what constituted a loan, what constituted a sell, and how one should be able to borrow against their restricted securities. Because of these problems, the stock lending industry began to lose its luster and the search was on to create a better loan product that could give borrowers what they required. Yet at the same time meet and exceed every regulatory and compliance hurdle that faced the borrower, lender and agents alike.
The New Solution: Ajene Watson creates the True Loan stock loan
In October of 2006, a new loan program emerged that would change the face of the industry and solve every problem that lenders, borrowers, and agents had faced in the past. Creating this new loan product wasn’t an easy task… Four years in development, this new loan product has been now supported by a number of contributions from SEC, FRB and U.C.C. specialty attorneys, IRS and tax consultants, investment advisors, and even a former assistant deputy director of the SEC’s New York Enforcement Branch; and is currently managed by the TLP (True Lending Platforms).
Aptly named the “True Loan” by its creator, this new loan product is the only bona fide fully domestic stock loan program available that can be obtained against restricted shares and still allow the shares to remain in the borrowers name while all parties remain in full compliance with Federal Reserve Board (FRB), Uniform Commercial Code (U.C.C.). Most importantly, the True Loan allows an individual shareholder with those pesky restricted securities to borrow up to 80% of the asset’s value at interest rates as low as 4%, with terms ranging from 1-7 years, and the transaction is 100% private with no filings required. Even the issuing corporation itself can utilize its treasury or restricted shares to obtain financing to replace debt, enhance acquisition purchasing power, or a host of other possibilities.
Perhaps the best feature of the True Loan, and what really sets it apart from anything else in the marketplace, is it’s the only transaction offered by private lenders, allowing restricted shareholders to receive non-recourse type financing, within a fully domestic lending program, while the borrower’s shares are allowed to stay in certificate form, in an account, both being in their personal name. Why is this such a big deal? It is a big deal because it means that a borrower [affiliate] will never have to worry about their shares being shorted and used against them in the marketplace or whether or not those shares will be returned when the loan has been re-paid. The True Loan ensures that all pledged collateral is safe and sound for the duration of the loan. The borrower never has to be subjected to carrying the full liability of the loan, attach other assets, provide personal guarantees or be concerned with their creditworthiness. The entire transaction is executed domestically with the lender having no access to the shares. This guarantees that the stock will never be transferred off shore or traded, shorted, sold domestically or abroad; nor will the borrower ever be exposed to any other type of business risk. This is an industry first and it’s a big part of what makes the True Loan a bona fide “true loan”.
So what does it all mean?
It means… thanks to Ajene Watson and the TLP’s compliance driven ingenuity, shareholders holding restricted securities now have a viable option allowing access to much sought after capital without selling their stock, transferring ownership of their shares to a lender in any form or fashion, causing any filings to be made or jeopardizing the legitimacy of the transaction. Restricted shareholders can now safely and legally transform a once illiquid asset into immediate cash for such purposes as purchasing real estate, starting a new business, recapitalizing an existing business, or simply making a life-long dream come true.
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