SEC orders Prosper to cease and desist

wiseclerk

In a SEC filing of yesterday, the SEC has ordered Prosper to cease and desist. On page two it states that

The loan notes issued by Prosper pursuant to this platform are securities and Prosper, from approximately January 2006 through October 14, 2008, violated Sections 5(a) and (c) of the Securities Act, which prohibit the offer or sale of securities without an effective registration statement or a valid exemption from registration.

From page six:

In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Prosper’s Offer.
Accordingly, it is hereby ORDERED that:
Pursuant to Section 8A of the Securities Act, Respondent Prosper cease and desist from committing or causing any violations and any future violations of Sections 5(a) and (c) of the Securities Act.

So far Prosper has not commented on the situation.

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12 thoughts on “SEC orders Prosper to cease and desist”

  1. RE: “from approximately January 2006 through October 14, 2008”

    Note that they went ‘quiet’ Oct 15th. There is nothing much more for them to comment on – they have already taken the action apparently requested of them Oct 14th.

  2. Very soon, a class action will be filed, to:

    1) refund losses on bad “illegal” investments.

    2) buy back loans for those who don’t wish to continue with “illegal” investments.

    3) or both

    Prosper is toast, most likely, and with it, the lender’s $170 mil. Glad I’ve only got $1k at stake.

  3. Colin,

    I just reread Prosper’s blog announcement from Oct 15th. There is no mention Prosper might have violated securities law in that post.
    Instead it gives the impression that Prosper is taking steps to allow it to offer promissary notes – without any indication that SEC has prohibited the way Prosper operated before.

    The SEC filing is dated Nov. 24th. Do you think the SEC has published it’s finding 5 weeks after it ordered Prosper to stop? I don’t believe that. But if that is the case then some SPECULATIONS from an individual lender on what could have happened are in this post:
    http://fred93blog.blogspot.com/2008/11/prospercom-quiet-period-my-ass.html

  4. The SEC’s position is very clear, notwithstanding there is no admission or denial on Prosper’s part. Here’s a quote from the summary on page 2 of the SEC Order:

    “The loan notes issued by Prosper pursuant to this platform are securities and Prosper, from approximately January 2006 through October 14, 2008, violated Sections 5(a) and (c) of the Securities Act, which prohibit the offer or sale of securities without an effective registration statement or a valid exemption from registration.”

    BTW, I seem to recall something being said about securities regulation in the course of this interview: http://foneshow.com/series/detail/show/20149

  5. There is a class action lawsuit against Prosper Marketplace

    Contact information
    Phillip Kim, Esq.
    The Rosen Law Firm, P.A.
    350 5th Avenue, Suite 5508
    New York, New York 10118
    email: pkim@rosenlegal.com
    tel: (212) 686-1060

  6. Anyone know why those $21.7 Million worth of notes are now worthless? The statement from the lawsuit says that they borrowers haven’t paid Prosper. Do they mean that $21.7 Million worth of notes defaulted all at once? What happened there?

  7. Amit,

    I think meant are the defaulted loans in total – since the start of Prosper early 2006. These defaults did not happen all at once but occured over time.
    At the moment about 24 million US$ (of the total loan amount of 178 million US$) have the status defaulted

  8. Prosper only makes 1.7million or so a year in fees and had 20 million in venture capital funding. They can’t pay back the money. The S.E.C. crackdown is the cause of the default. The loans would be just fine if the government didn’t stop the process of lending and borrowing. The borrowers are going to get away with all the loans because of the S.E.C. Had I gotten a 25,000 loan a few months ago, I would get to keep the money now. What may have been people struggling to pay loans has turned into the biggest “candy store” since the subprime thing. It’s going to be a very M Merry Christmas for a lot of borrowers. No secondary market to buy the loans; like the bank closing one day and saying “keep it”.

  9. Too bad Prosper was not able to execute on this great concept and will be, at best, a second player in this new space, after Lending Club, that has cleared the SEC hurdle and seems to be getting traction while Prosper is struggling to stay alive.

    In the meantime, we continue to use only Zopa in the UK

Comments are closed.