A

Accredited Investor

Definition: An individual or entity meeting specific financial thresholds as defined by the SEC, allowing participation in certain securities offerings exempt from public registration. The SEC identifies accreditation status in entities and individuals by income, wealth, or professional qualification criteria. See Rule 501 for an in-depth description of accredited investors.

Individual Qualifications
Accredited investors are individuals who:

Have a net worth of at least $1 million, excluding their primary residence (individually or with spouse), or
Have an income of over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year, or
Are investment professionals holding, in good standing, Series 7 license, Series 65 license, or Series 82 license, or
Are directors, general partners, or executive officers (collectively, “knowledgeable employees”) of the company selling securities, or
Are a “family client” of a “family office” that qualifies as an accredited investor.

Entity Qualification
Entities may qualify as accredited if they are entities that:

Own investments in excess of $5 million, or
Are any of the following entities with assets in excess of $5 million: corporations, partnerships, LLCs, trusts, 501(c)(3) organizations, employee benefit plans, “family office” and any “family client” of that office, or
Are owned by individuals that all qualify as accredited investors, or
Are RIAs (Registered Investment Advisers), ERAs (Exempt Reporting Advisers), or SEC registered broker-dealers, or
Are financial entities that are classified as any of the following:
- Bank
- Savings and loan association
- Insurance company
- Registered investment company
- Business development company
- Small business investment company
- Rural business investment company

Why it matters: Certain securities offered through our platform are only available to accredited or further qualified investors, which may be Qualified Purchasers or Qualified Institutional Buyers. Monark supports compliance with the requisite regulatory considerations and securities law, ensuring that private market investments are accessible only to those who can bear the associated risks.

Alternative Trading System (ATS)

Definition:Alternative Trading Systems (ATSs) are SEC-regulated electronic trading systems that match orders for buyers and sellers of securities. An ATS is not a national securities exchange. In addition to supporting public securities, ATSs support the trading of private securities. It is important to note that most ATSs are not for private securities.

Why it matters: Broker-dealer Subscribers to our ATS submit trades on behalf of their customers and are essential for creating a robust trading ecosystem, providing the technology and licenses needed to facilitate secondary trading. Any SEC registered Broker-Dealer in good standing can become a Subscriber to the MMM Securities Alternative Trading System.

ATS Subscriber

Definition: ATS Subscribers are broker-dealers that have been authorized to access and trade securities on the MMM Securities LLC Alternative Trading System.

Why it matters: Broker-dealer Subscribers to the MMM Securities ATS submit trades on behalf of individual investors and are essential for creating a robust trading ecosystem, fostering liquidity and active participation. FINRA Member Broker-Dealers with private placement are eligible to become a Subscriber to the MMM Securities Alternative Trading System.

B

Brokerage Fee

Definition: A fee charged by MMM Securities LLC or our Broker Dealer Partners for facilitating the buying, selling, or trading of securities on our platform. Brokerage fees may apply to both Primary Issuances and Secondary Market Transactions.

Why it matters: In the Primary market, Monark acts as a placement agent for issuers or sellers of private securities through our broker-dealer subsidiary, MMM Securities LLC. Monark's Broker Dealer Partners act as Sub-Placement agents, receiving a split of commissions from MMM. For Secondary Market Transactions, the MMM Securities ATS charges a 1% brokerage fee per trade, per side. The brokerage fee on ATS Transactions is split between MMM Securities LLC and the ATS Subscriber.

C

Carried Interest (a.k.a "Carry" or "Performance Fees")

Definition: Carried interest, or carry, is a share of the profits of an investment paid to the investment manager or SPV manager specifically in alternative investments. This percentage of profits, usually ~20%, is collected by the manager after returning capital to investors. Some managers implement performance thresholds or hurdle rates and only collect carry after investors receive initial capital plus an agreed upon annual return.

Why it matters: Certain SPV managers may elect to charge carried interest to Investors in SPVs. For SPVs managed by Monark's Exempt Reporting Adviser, no carried interest will be charged to investors.

E

Exempt Reporting Adviser (ERA)

In 2010, the Dodd-Frank Act created a new class of Advisers called exempt reporting Advisers (ERAs).
Definition:

Adviser: According to the IAA (Investment Advisers Act) of 1940, an adviser "means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.” Essentially, any person who provides recommendations on securities transactions is considered an adviser.
Exempt Reporting Adviser: According to the Dodd-Frank Act, any adviser that falls under one of the provisions below is not required to register as an RIA:

Any adviser to a “private fund," all of whose clients are residents of the State within which such investment adviser maintains his or its principal office and place of business, and who does not furnish advice or issue analyses or reports with respect to securities listed or admitted to unlisted trading privileges on any national securities exchange. A private fund is any entity that would be required to register as an investment company but for the exemptions outlined in Sections 3(c)(1) or 3(c)(7). It is important to note that regardless of AUM, an ERA cannot serve as an adviser to a Registered Investment Company under the Investment Company Act of 1940. Only Registered Investment Advisers (RIAs) can advise investment companies registered under the ‘40 Act.
Any Adviser to a “qualifying venture capital fund” as described in Section 203(I) of the IAA with less than $250 million in managed assets.
For purposes of counting managed assets, all funds under management per Adviser are pooled together with one another.

📘
Registration
Advisers with more than $25 million in managed assets seeking to claim the ERA exemption are required to complete and file the first part of form ADV within 60 days of claiming the exemption. ERAs are not required to prepare and deliver a brochure to clients. The date on which the exemption is claimed is typically the close of the fund manager’s first fund.

Why it matters

Monark has registered an entity in the state of Delaware, Monark Capital Management LLC that will become an exempt reporting Adviser (ERA) upon the close of our first SPV. Monark Capital Management LLC is a wholly owned subsidiary of Monark Markets, Inc.

Through Monark Capital Management LLC, Monark may structure Special Purpose Vehicles structured as 3(c)(1) or 3(c)(7) private funds that will acquire ownership interest in underlying pre-IPO companies. Monark Capital Management LLC, the ERA entity, will be the investment manager for these 3(c)(1) SPVs.

F

Fund Administrator

Definition: A third-party entity responsible for managing the administrative and operational aspects of a fund, such as trade reconciliation with brokers and custodians, investor reporting, tax report preparation, and more.

Why it matters: Monark has partnered with Sydecar whose API product will be supporting the SPVs offered through our API suite. Sydecar's programmatic fund administration product will enable our Partners to offer a seamless and efficient private market investment experience for Investors.

Financial Institution

Definition: A broker-dealer, Registered Investment Advisor (RIA), or foreign financial institution (FFI) that is integrated with Monark and maintains a direct relationship with Investors.

Why it matters: Monark must assign a Financial Institution to each investor to comply with securities regulations and ensure that the proper Investors gain access to the appropriate investment opportunities.

I

Indication of Interest

Definition: A non-binding expression of interest made by an Investor to participate in a specific offering or investment opportunity.

Why it matters: Monark collects, stores, and visualizes IOI volume to gauge market demand for specific Pre-IPO Companies. We leverage IOI data to inform our capital markets efforts and help our Partners target their outreach, optimize deal structuring, and align investment opportunities with market interest, ultimately delivering a better Investor and Partner experience.

Issuer

Definition: The entity, such as a company, fund, or SPV, offering securities for sale in a particular investment product.

Why it matters: It is important to understand the different issuers that interact with Monark's product. Issuers can play multiple different roles, each with varying levels of importance depending on the nature of the investment product.

Pre-IPO Company Issuer: One type of issuer is the Pre-IPO Company, which is a direct issuer of shares in their company. Examples of Pre-IPO Company issuers may include companies like SpaceX, OpenAI, Klarna, etc.

Layered SPV Issuer: Another type of SPV that is investing in a private company through another SPV that owns shares of a private company. The SPV Issuer may be Monark (through our Exempt Reporting Advisor Monark Capital Management LLC), or third party managers that structure and issue SPVs through our network of Partners.

Investable SPV Issuer: The last type of issuer is the entity or person responsible for issuing shares in the SPV that will be made available for investment to Investors on Monark's Partner platforms. The Investment Product Issuer may be Monark (through our Exempt Reporting Adviser Monark Capital Management LLC), or third-party managers that structure and issue SPVs through our APIs.

L

Layered SPV

Definition: An SPV that provides Investors with exposure to a Pre-IPO Company by investing in a SPV that owns shares directly in the Pre-IPO Company. Think of Layered SPVs are a multi-tiered investment strategy.

Why it matters: Certain Pre-IPO Companies are in such high demand that it may be difficult to source investment opportunities that acquire direct shares in the underlying company. For the companies in high demand, Layered SPVs provide Investors with an access and exposure to highly sought after private companies at a potentially reduced minimum investment size.

M

Management Fee

Definition: A periodic fee charged by fund or SPV managers to cover operational and organizational expenses as well as compensation for management services. Management fees ensure the fund or SPV has the resources to operate effectively and incentivizes skilled management.

Why it matters: SPVs offered through Monark's platform will collect a one-time, up front management fee that will be used to pay fund management fees and compensate any Placement Agent(s) and Sub-Placement Agent(s). The compensation allocated to Placement and Sub-Placement Agents may also be referred to as Brokerage Fees. Monark is focused on providing our Partners with transparent pricing, ensuring that Investors are aware of the Management Fees associated with their investments and the potential impact it may have on their returns.

Master/Series LLC

Definition: A limited liability company structure where a master LLC contains multiple series, each operating as a separate entity with its own assets, liabilities, and investors.

Why it matters: Most SPVs offered through Monark's platform will be structured as Master/Series LLCs, with each Series Entity holding ownership interest in an underlying investment. The underlying investments could be, for example, a private company, an SPV holding shares of a private company, a fund with a portfolio of private companies, or others.

O

Operating Agreement

Definition: An operating agreement is a legal document that establishes the rules, regulations, and governance structure for a Limited Liability Company (LLC). It outlines key financial aspects like profit distribution, ownership stakes, and capital requirements, as well as management procedures including voting rights and decision-making processes.

Why it matters: Operating agreements contain important information regarding the SPV, how it functions, fees and allocations, etc. Monark provides operating agreements to our Partners to aid Investors in making informed investment decisions.

P

Partner

Definition: A Monark defined term used to describe a brokerage platform, clearing firm, or fund collaborating with Monark to provide clients (investors or other broker-dealers) with access to alternative asset investments.

Why it matters: Monark provides our Partners with a seamless solution for embedding access to private investment opportunities directly into their native platforms.

Placement Agent

Definition: A Broker Dealer responsible for assisting issuers in raising capital by introducing offerings to potential investors.

Why it matters: Private securities distributed through Monark's network of Partners will leverage MMM Securities LLC as the Placement Agent for the offering. MMM Securities LLC may contract other broker dealers in a Sub-Placement Agent or selling group capacity (our Partners) to assist in facilitating the distribution of the offering.

Pre-IPO Company or Private Company

Definition: While there is no guarantee that Pre-IPO companies will eventually go public, a pre-IPO company has received significant funding, generally speaking has a valuation above $1 billion, but is not yet publicly traded. These companies often seek funding to scale operations, finalize strategic initiatives, or meet regulatory requirements before going public.

Why it matters: Pre-IPO companies offer unique investment opportunities before shares are publicly available and traded. Although these are later stage companies, they still carry risks such as liquidity constraints and market volatility.

Primary Issuance

Definition: Primary issuance in alternative investments refers to the process of offering new investment opportunities directly to investors, typically through private placement transactions. This enables the issuer to raise capital, or for SPVs to acquire assets like pre-IPO companies, real estate, or private equity.

Why it matters: Monark facilitates the Primary Issuances of alternative investments by distributing private securities to Investors on our Partner platforms. We handle the backend complexities of deal sourcing, diligence, and all functions associated with supporting private investment offerings.

Private Placement Memorandum (PPM)

Definition: A detailed document provided to prospective investors in private offerings, disclosing terms, risks, and other critical information.

Why it matters: Monark collects and makes available the PPMs associated with any investment opportunity offered through our API suite. All investors must attest that they have received and reviewed the PPM prior to making an investment. This document and process may help investors understand risks and make informed investment decisions.

Q

Qualified Clients

Definition The SEC identifies individuals and entities as qualified clients (QCs) based on AUM managed by an adviser and net worth. The SEC adjusts the thresholds periodically, and previous qualified clients are “grandfathered in,” meaning that when thresholds are raised they do not have to re-qualify as qualified clients.

Individual and Entity Qualifications
Qualified clients are individuals and/or entities who:

Have at least $1.1 million in assets under management with the applicable investment adviser after investment in the fund, or
Have a net worth of $2.2 million excluding their primary residence.

Qualified Institutional Buyer

Definition: Qualified Institutional Buyers (QIBs) are defined in the Securities Act of 1933 and are considered to be the highest level of sophistication among classified investors.
Any qualified institutional buyer (QIB) as defined in Rule 144A under the Securities Act of 1933, as amended, acting for its own account, the account of another QIB, or the account of a qualified purchaser, provided that:

Primary QIB Categories and Requirements

Insurance Companies
- Must be an insurance company as defined in section 2(a)(13) of the Securities Act
- No specific asset threshold required
Investment Companies
- Must be registered under the Investment Company Act of 1940
- Must be part of a family of investment companies with at least $100 million in securities owned and invested
Employee Benefit Plans
- Must be subject to ERISA
- Investment decisions must be made by a Plan Fiduciary (bank, insurance company, or registered investment adviser)
- Must have total assets over $100 million
Business Development Companies
- Must be licensed by the Small Business Administration
- Must be regulated as a business development company under the Investment Company Act of 1940
Banks and Savings & Loans
- Must be a bank as defined in Section 3(a)(2) of the Securities Act or savings and loan association
- Must be investing for its own account
- Must have net worth of at least $25 million
Investment Advisers
- Must be registered under the Investment Advisers Act of 1940
- Must be investing for their own account
- Must own and invest at least $100 million in securities
Corporations and Partnerships
- Not formed for the specific purpose of acquiring the securities being offered
- Must own and invest at least $100 million in securities
- Includes corporations, partnerships, Massachusetts or similar business trusts
Trust Funds
- Not formed for the specific purpose of acquiring the securities being offered
- Must own and invest at least $100 million in securities
- Investment decisions made by a sophisticated person
Any Entity
All owners must be QIBs
Not formed for the specific purpose of acquiring the securities being offered

Additional Requirements and Notes
Securities Calculation

When calculating the $100 million threshold:

Include securities owned and invested on a discretionary basis
Exclude government securities, bank deposit notes, and CDs
Exclude securities issued or guaranteed by the entity or its affiliates
Include securities owned by consolidated subsidiaries

Formation Restrictions

Entities generally cannot be formed specifically to acquire the offered securities
Exception exists if all owners of that entity are themselves QIBs

Dealer Requirements

Registered securities dealers must own and invest at least $10 million in securities
Banks and S&Ls dealing in government securities need only $10 million net worth

Why it matters: Certain products offered through Monark's API suite may only be available to Qualified Institutional Buyers.

Qualified Purchaser

Definition: The Investment Company Act of 1940 identifies individuals and entities as qualified purchasers (QPs) based on a number of sophistication and wealth-based criteria.
Individual Qualifications
Qualified purchasers are individuals who:

Have at least $5 million in investments, or
Own and invest at least an aggregate of $25 million on a discretionary basis on behalf of other qualified purchasers, or
Are knowledgeable employees which may include executive officers (such as presidents or vice presidents), directors, trustees, general partners, and employees who regularly participate in investment activities (like research, analysis, portfolio management, trading, or risk management) for at least 12 months at an investment management company or affiliated entity. To qualify, the individual must be actively involved in making investment recommendations or decisions, not just in administrative, legal, compliance, IT, marketing, or operational roles that don't directly influence investment choices. Upon termination of employment, this status is lost and must be reestablished with any new employer through another 12-month period of qualifying investment activities.

Entity Qualifications
Entities may qualify as QPs if they:

Hold greater than $5 million in investments “not less than $5 million in investments and that is owned directly or indirectly by or for two or more natural persons who are related as siblings, as a spouse (including former spouses), direct lineal descendants by birth or adoption, spouses of these persons, the estates of these persons, foundations, charitable organizations, or trusts established by or for the benefit of these persons.”
Any trust that is not covered in the bullet above and that was not formed for the specific purpose of acquiring the securities offered, in which the trustee or other person authorized to make decisions for the trust, and each settler or other person who has contributed assets to the trust, is a person described in the first, second, or third bullets.
Are a family or estate planning entity with at least $5 million, or
Are qualified institutional buyers that hold over $100 million in investments, or
Any company whose beneficial owners are all qualified purchasers.

Why it matters: Certain products or investment opportunities may only be available to Qualified Purchasers.

R

Regulation A/A+

Definition: Regulation A ("Reg A") securities were originally adopted into the Securities Act of 1933 in the year 1936 under section 3(b). Reg A was updated in 2015 as part of the JOBS Act to include Reg A Tier 1 and Reg A Tier 2. Available to non-accredited investors (with investment limitations), Reg A offerings are subject to extensive review by the SEC and as such, are often referred to as a “mini-IPO.

Description
Reg A allows companies to offer and sell securities to investors with an exemption from registration under certain conditions. Reg A offerings are divided into two tiers:
Tier 1

Reg A Tier 1 offerings allow companies to raise $20 million in a 12-month period, with no limit on the amount of money that can be raised from non-accredited investors. Companies raising capital under Tier 1 do not have ongoing reporting requirements. Tier 1 offerings do not impose investments caps on investment from non-accredited investors.

Tier 2

Reg A Tier 2 offerings allow companies to raise up to $75 million in a 12-month period. Companies raising capital under Tier 2 have ongoing reporting requirements and must satisfy requirements to provide audited financial statements. Tier 2 offerings impose investment caps on investment from non-accredited investors.

Breakdown Tier 1 and Tier 2

Limitation	Tier 1	Tier 2
Offering Limitations	Up to $20 million in any 12-month period	Up to $75 million in any 12-month period
Investor Allocation Limit	No limit on investor allocation	Allocation cap on non-accredited investors (more on investment limits below)
Audits	Offering circular financials are not audited	Audited financials
Reporting	No ongoing reporting requirements	Annual, semiannual, and current event reports

Eligible Investors
The following investor classes can invest in Reg A/A+ securities:

Non-accredited investors (subject to limitations if Tier 2)
Non-accredited investors may invest no more than:
- (1) 10 percent of the greater of annual income or net worth (for individual investors); or
- (2) 10 percent of the greater of annual revenue or net assets at fiscal year-end (for non-individual investors, ex. businesses or otherwise).
Accredited investors
Qualified purchasers
Qualified institutional buyers

Why it matters: Regulation A provides an avenue for non-accredited investors to access asset classes outside of traditionally offered public stocks and bonds. Reg A securities are freely tradable following the primary issuance and may be traded on an ATS but are not typically exchange eligible. Today, there are a number of direct-to-consumer platforms that have amassed significant user bases, providing them with access to a number of different asset classes (examples below).

Regulation CF

Definition: Reg CF was adopted in 2016 as part of the JOBS Act, in an effort to create new investment opportunities for non-accredited investors to access private securities. The cap on the amount that Reg CF offerings are able to raise within a 12-month period was increased from $1M to $5M in 2021.

Description
Reg CF allows companies to offer and sell securities to non-accredited investors with an exemption from registration under certain conditions.

Terms
All Reg CF securities must be offered via a broker-dealer or a funding portal that is registered with the SEC and FINRA. Each Reg CF offering is limited to a $5M cap in any 12-month period. Companies raising through Reg CF are required to file regular paperwork with the SEC, including annual reports.

Reg CF offerings may be publicly solicited and advertised to the general public provided that the solicitation materials have specific disclaimer language. Solicitation, acceptance of money, or any sort of commitment from any person is prohibited until Form C is filed. Generally speaking, only US-based companies are allowed to raise capital through Reg CF.

Investment Limitations
The SEC imposes limitations on the amount a single investor can allocate to a Reg CF offering. If a non-accredited investor’s annual income or net worth is less than $124,000, they may invest the greater of: (1) $2,500; or (2) 5% of the greater of their annual income or net worth.
If the non-accredited investor’s annual income and net worth are both at least $124,000, they may invest: 10% of the greater of their annual income or net worth.
Accredited investors do not have a limit on how much they can invest, and the limitations imposed are periodically adjusted by the SEC to account for inflation.
Spouses can combine their incomes and assets for purposes of determining maximum investment amounts. However, if they do so, they will be treated as a single investor for purposes of determining maximum investment.

Eligible Investors
The following investor classes can invest in Reg CF securities:

Non-accredited investors (subject to limitations)
Accredited investors
Qualified purchasers
Qualified institutional buyers

Why it matters: Reg CF securities are subject to a one year hold period (Rule 144) after primary issuance. During the hold period, ownership of Reg CF securities may not be transferred unless sold to an accredited investor, family member, as part of an offering registered with the Commission, or back to the issuer.

Regulation D

Definition: Regulation D ("Reg D") is an exemption from registration under the Securities Act of 1933. Regulation D offerings are also often referred to as “private placements". Reg D securities are available to accredited investors, qualified purchasers, qualified clients, non-accredited investors (under certain exemptions) or qualified institutional buyers.

Why it matters: Today, Monark only supports Reg D offerings of 3(c)(1) SPVs holding ownership interest in Pre-IPO Companies. Whether offered through Rule 504, 506(b) or 506(c), securities distributed through Reg D require compliance with a significant amount of regulatory considerations. Given the complex regulatory requirements, Monark's API suite helps ensure our Partners remain compliant with the requisite compliance standards. Securities sold under Reg D are considered restricted securities and can't be resold without registration with the SEC or qualification under another exemption.

Regulation S

Definition: Reg S is an exemption from registration under Section 5 of the Securities Act of 1933 and was adopted by the SEC in 1990. Reg S provides an exemption for US-based companies to offer and sell securities to investors outside of the United States. The stated purpose of Reg S is to protect US capital markets from both foreign and domestic investors.

Terms

Reg S is broken down into five rules: Rule 901, 902, 903, 904, and 905.

Rule 901 (General Statement): The General Statement reads that “[f]or purposes of Section 5 of the [Securities] Act, the terms “offer,” “offer to sell,” “sell,” “sale,” and “offer to buy” shall…be deemed not to include offers and sales that occur outside the United States.” Offerings enacted in compliance with Rules 903 or 904 will be deemed also compliant with the General Statement.
Rule 902 (Definitions)
Rules 903/904 (Issuer Safe Harbor/Resale Safe Harbor): The safe harbors provide that in order for offerings to qualify under the safe harbors, “(i) the offer or sale must be made in an “off-shore transaction”; and (ii) no “directed selling efforts” may be made in the United States.” Offshore transactions are those where the offering is not made to buyers within the United States, and the transaction occurs with a buyer outside the US or, the transaction is executed on a foreign exchange. Directed selling efforts in the United States are any efforts within the US to market the securities.
- Issuer Safe Harbor: Details on the breakdown of the three categories of the issuer safe harbor can be found here.
Rule 905 (Resale Limitations): Rule 905 clarifies the resale restrictions of securities offered in compliance with Rules 901, 903, and 904, providing clarity on the “holding period” during which securities offered via Reg S cannot be sold by foreign investors back into the US. The holding period imposed on Reg S securities is similar to that of Rule 144 Securities.

Eligible Investors

Certain countries impose their own investor limitations on Reg S securities. The document linked below details investor limitations for Reg S securities. Reg S securities must be marketed in compliance with local securities laws.

Country Limitations

Rule 504

Definition: Rule 504 provides an exemption that allows companies to offer and sell up to $10 million worth of securities in any 12-month period without having to register the securities under the Securities Act of 1933. In general, issuers using Rule 504 are not allowed to use general solicitation. While Reg D does not clearly define “general solicitation,” Rule 502(c) provides examples of general solicitation which include: “advertisements published in newspapers and magazines, communications broadcast over television and radio, and seminars where attendees have been invited by general solicitation or general advertising. The Commission has stated that other uses of publicly available media, such as unrestricted websites, also constitute general solicitation and general advertising.” Issuers must file a Form D with the SEC within 15 days of the first security sale.

Rule 506(b)

Definition: Rule 506(b) is a widely used exemption under Regulation D that allows issuers to raise an unlimited amount of capital through a private placement offering. Rule 506(b) requires the issuer or an engaged broker dealer to have a "substantial pre-existing relationship" with the investors that are notified of the offering.

Why it matters: Monark intends to rely on the 506(b) exemption to distribute private securities to Investors on our Partners' platforms. While the Rule allows broker-dealers to raise an unlimited amount of capital, it does not allow for general solicitation of individual investment opportunities. However, Rule 506(b) does allow our broker-dealer Partners to publicly solicit any offering that does not mention an individual offering (under 506(b), broker-dealers can publicly solicit “Invest in pre-IPO equities”, but cannot say “Invest in SpaceX shares.”) Again, if Rule 506(b) is used the offering may only be marketed to investors with whom the broker-dealer Partner has a substantive pre-existing relationship. Issuers must file a Form D to the SEC.

Rule 506(c)

Definition: An exemption under Regulation D permitting general solicitation for private offerings, provided all investors are accredited. Reg D securities distributed using Rule 506(c) allow companies to raise an unlimited amount of capital, while also allowing issuers to “generally solicit” investors for the individual offering.

Why it matters: Under 506(c), issuers or distributing broker-dealers can publicly market individual investment opportunities. For example a broker-dealer can market to customers something like “Invest in SpaceX shares.”
However, Reg D securities distributed using 506(c) require issuers or distributing broker-dealers to take “reasonable steps to verify” an investor’s accreditation status. If an investor is claiming accreditation based on income, the broker must collect tax forms and confirmation that the investor has met and will continue to meet income based requirements. If an investor is claiming accreditation based on net worth, the broker may collect bank statements, brokerage reports, or other documents certifying net worth. Any documentation must reflect net worth, meaning that all assets and liabilities should be disclosed. If an investor claims accreditation based on professional securities license certification, the broker must collect a copy of the certification. Third party service providers are typically used to facilitate verification of accreditation. Issuers must file a Form D to the SEC. (Why mention the FORM D here? And not in 506b? Timing is different, but both are required.

S

Special Purpose Vehicle (SPV)

Definition: A special purpose vehicle (SPV) is a separate legal entity created by an organization to fulfill a specific business objective, often used to isolate financial risk or facilitate securitization of assets. SPVs are commonly structured to be bankruptcy-remote, meaning the financial obligations of the parent company won't affect the SPV and vice versa, making them particularly useful for project finance, asset securitization, and risk management.

Why it matters: SPVs offered through Monark are structured as Series Entities of a Master/Series LLC structure. They are used to pool capital, standardize the investment process, and may provide potential liquidity with lower minimum investment sizes. It is useful to understand the two different use cases in which SPVs are relevant to Monark's product.

SPVs may represent the "investable" asset into which Investors allocate capital. The act of investing into an SPV on the Primary Market may also be referred to as a Subscription. Monark and its fund administrator facilitate SPV creation, administration, management, capital formation, and all other backend functions required to enable Investors to invest into an SPV.
SPVs may also represent the receiving entity that is the recipient of capital distributed by an "investable" SPV. See "Layered SPV" above for more context on the second use case for SPVS.

Sub-Placement Agent

Definition: A secondary intermediary (in Monark's case a Partner) working under the placement agent (MMM Securities LLC) to connect investors with an offering.

Why it matters: Monark's broker-dealer subsidiary, MMM Securities LLC, operates as the Placement Agent of private placement offerings. MMM Securities LLC contracts our Partner broker-dealers as Sub-Placement Agents, who interface directly with their Investors and provide them access to private investment opportunities. MMM Securities LLC does not interact directly with individual Investors. MMM Securities LLC compensates Sub-Placement Agents for facilitating the flow of capital into private asset investment offerings.

Subscription Agreement

Definition: A subscription agreement is a legal contract between the issuer of securities and an Investor that documents the terms under which the Investor agrees to purchase securities. The agreement will typically include details describing the nature of the investment (also referred to as a Subscription), including but not limited to:

The price and number of securities being purchased
Representations and warranties from the investor (including their status as an accredited investor if required)
Investment eligibility requirements
Disclosure of risks associated with the investment
The investor's acknowledgment that they have received and reviewed all offering materials
Rights and obligations of both parties
Any transfer restrictions on the securities
Payment and closing procedures
Confidentiality provisions

Why it matters: Unlike DTCC eligible securities registered under the 1933 Act which may include stocks and bonds, private investment offerings require additional paperwork and processes to be completed prior to accepting Investor capital. Because of the exemption(s) that private placements rely on, making proper documentation of investor qualifications and disclosures is crucial for maintaining the exemption status. Monark's API suite collects investor signatures and provides executed documents back to our Partners as part of our Primary Offering workflow.

Secondary Market Transaction

Definition: A transaction of an exempt security facilitated on the secondary market via the MMM Securities LLC Alternative Trading System. This term may also be used to describe the transaction of an exempt security on the open market outside of the purview of our ATS. Regardless of the method, these transactions rely on resale exemptions that outline what activity is permissible, who can participate, and what information needs to be provided to participants.

Why it matters: Secondary market transactions provide existing investors with the opportunity to access liquidity on the secondary market once the securities are tradable following the requisite hold period. Secondary market transactions also provide buyers with another access point to purchase private securities. While Monark provides the technology and regulatory framework to support secondary market transactions, there is no guarantee that a secondary market will develop or that investors in the primary offering will be able to resell their initial investment.

T

Transfer Agent

Definition: An entity responsible for maintaining records of security ownership, issuing new certificates, and managing changes in ownership. Transfer agents are required by law for publicly traded companies. For private companies or funds, transfer agents are not required but may help provide issuers with an organized method of tracking ownership, corporate level actions, etc.

Why it matters: Monark does not currently engage a transfer agent to support the operation of SPVs or other private investments offered through our marketplace. However, if an SPV offered through Monark holds shares in a private company that goes through an IPO, Monark and our fund administrator partner will collaborate with the appointed Transfer Agent to ensure that shares in the (newly) public company are delivered to the proper Investor's brokerage account.

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3(c)(1) Exemption

Definition: 3(c)(1) funds are pooled investment vehicles exempt from registration under the Investment Company Act of 1940. Investment vehicles relying on the 3(c)(1) exemption are subject to a number of limitations.

Why it matters: Some SPVs offered through Monark will be structured as 3(c)(1) funds, providing an avenue for Partners to provide their Investors with access to private investment opportunities. There are limitations and restrictions associated with reliance on the 3(c)(1) exemption that are relevant to Monark's product. Some of these limitations and restrictions are outlined below.

Investor Limitations

3(c)(1) funds can accept investment from:

No more than 100 accredited or further qualified investors (or 250 in the case of a qualifying venture capital fund). Depending on the exemption used (Rule 504, Rule 506(b), or Rule 506(c)), issuers can either: (1) take reasonable steps to verify Investors' accreditation status, or (2) allow Investors to self-certify accreditation status.
Other 3(c)(1) funds that hold at least $5M in assets,
Other 3(c)(7) funds.
If the entity advising the 3(c)(1) is a registered investment adviser (RIA) and is charging a performance-based fee (carry), the 3(c)(1) fund may only accept investment from qualified clients.
- However, if the adviser entity is an exempt reporting adviser (ERA), the 3(c)(1) fund can charge carry without validating that investors are Qualified Clients and can accept investment from accredited investors.

Integration

While 3(c)(1) funds may serve the purpose of lowering investment minimums for Investors, the use of the exemption is subject to certain "integration" limitations surrounding maintaining compliance with the 100-investor count described above.

Any fund claiming the 3(c)(1) exemption must remain under the 100-investor limitation. If the 100-investor limit is exceeded, the fund must register as a ‘40 Act Fund, resulting in negative consequences for the fund manager and investors. Cases of integration are looked at by the SEC on the basis of facts and circumstances, but generally if an investor would see an interest in one fund as “not materially different” from another fund of the same sponsor, the funds will be integrated.

"Vertical Integration:" If a 3(c)(1) fund is acquiring 10 percent or more of the voting securities of a second 3(c)(1) fund, and was created for purposes of investing in the second fund (generally considered to be the case if 40% or more of the assets of the first are allocated to the second fund), then there will be a “look through” where the beneficial owners of the first and second funds are counted together as part of the 100-investor limitation.
"Horizontal Integration:" If two 3(c)(1) funds of the same fund sponsor are “substantially similar” and were created for the purposes of investing in the securities of the same issuer, the beneficial owners of both 3(c)(1) funds will be counted together towards the 100-investor limitation. However, Monark’s legal counsel has provided some guidance surrounding how to avoid parallel integration across private funds:
- 3(c)(1) and 3(c)(7) Funds: Two private funds, one structured as a 3(c)(1) fund and the other as a 3(c)(7) will not be considered “substantially similar” and thus will not be counted together as part of the 100-investor limitation.
- Reg D and Reg S: Two 3(c)(1) funds, one marketed via Reg S exclusively to foreign investors, and the other via Reg D marketed exclusively to domestic investors, will not be counted together as part of the 100-investor limitation.
- 6 months: Two 3(c)(1) funds that would be substantially similar but for the fact they are structured at least 6 months apart, will not be counted together as part of the 100-investor limitation.

3(c)(7) Exemption

Definition: 3(c)(7) funds are pooled investment vehicles exempt from registration as Registered Investment Companies under the Investment Company Act of 1940. Similar to 3(c)(7), investment vehicles relying on the 3(c)(7) exemption are subject to a number of limitations.

Why it matters: Certain SPVs offered through Monark may be structured as 3(c)(7) vehicles, which may help provide certain Investors with access to larger deals. Similar to 3(c)(1) SPVs, 3(c)(7) SPVs are subject to additional limitations around investor qualification, investor count, etc.

Investor Limitations
3(c)(7) funds can accept investment from:

No more than 2000 qualified Investors
Individuals or family-owned businesses that own no less than $5 million in investments
A trust managed by a Qualified Purchaser
An individual acting for their account or the account of someone else who owns and invests at least $25,000,000 in investments
Any entity or 3(c)(7) fund solely owned by Qualified Purchasers

Integration

3(c)(1) and 3(c)(7) vehicles may be leveraged simultaneously to avoid the fund integration rules outlined above. If parallel 3(c)(7) and 3(c)(1) vehicles are structure to feed into the same underlying asset, they may avoid the fund integration issue of counting together beneficial owners in two parallel 3(c)(1) funds, enabling our Partners to potentially target larger deal sizes and help provide more Investors with access to private asset investments.

Disclosure and Disclaimer

The information contained herein is provided for general informational purposes only and does not constitute legal or financial advice. No one should act, or refrain from acting, based solely on the content of this information without first seeking appropriate professional counsel specific to their individual needs. Use of or reliance on any information provided is solely at your own risk. Neither the provider nor any affiliated parties assume liability for actions taken based on the information contained herein. Always consult with qualified professionals regarding any legal or financial matter.