The SEC cease and desist order against Prosper offered the legal arguments on a plate, now the first class action lawsuit filed against Prosper Marketplace Inc. uses the SEC filing as exhibit A to state it’s case. Regarding numbers and affected lenders the lawsuit by The Rosen Law Firm, New York, states
“…As of October, 2008 approx. $21.7 million of loan notes purchased by Class Action members have become worthless because the borrowers did not pay the loans to Prosper. Additional loan notes will become worthless as more loans are charged off as uncollectible.
…
there are tens of thousands, and perhaps hundreds of thousands of, loan note purchasers that are class action members…”
Prosper is required to file a written response within 30 days. The first court date is set for May 1st, 2009.
On the same issue – selling unregistered securities – but in an otherwise unrelated case Prosper agreed to pay a 1 million US$ fine in a settlement to the states to avoid individual states suing against Prosper. More information on that in the press release of the North American Securities Administrators Association (NASAA).
This is somewhat surprising to me as Prosper did obtain licenses in over 25 states and conducted lending under those, before it switched to the model using the WebBank. (see ‘Prosper riding the state-by-state roller coaster‘ and ‘Prosper goes national with 36 percent max interest rate‘). The same states that granted the licenses now wanting to sue Prosper?
Last week Zopa’s CEO Giles Andrews commented that regulation issue were the reason why Zopa did not use it’s UK model when it entered the US market.
While Lending Club has completed SEC registration and therefore is in compliance with the rules of the SEC, it might still face some risks. An article of the Oregonian on the NASAA settlement states:
“Oregon regulators also are investigating 40billion.com, owned by Atlanta-based 3 Guys in a Garage, and is currently reviewing a registration request by Sunnyvale, Calif.-based Lending Club, Anselm said.”
Prosper clearly only had finance lender licenses from the states, not securities law clearance – a yawning gap for anyone conversant with US securities law (which I concede is tough to navigate). The two sets of activities are dealt with by different regulatory teams, albeit within the same department, and in dealing with most businesses there’s no reason for their paths to cross. However, it is possible that Prosper’s conduct on the securities law front could be taken into account in deciding whether or not it is entitled to retain its lending licenses. As the California Dept of Corporations notes on its web site, for example, the California licensed lender law provides that “In general, principals of the company may not have a criminal history or a history of non-compliance with regulatory requirements.”
So how do we join the class-action lawsuit against … [Prosper – edited for unsuitable language]
It looks like Prosper is back, although only California can lend. I wish I had never heard of them, I’d be about $600 richer from not giving loans to people with sob stories. Well, lesson learned, but I would be happy to get even a fraction of that back from the class action suit.