On November 24, the Securities and Exchange Commission (SEC) issued a Cease and Desist order against peer-to-peer micro-finance lender Prosper.com.

Briefly, the SEC found that Prosper, for the past almost 3 years, has been selling unregistered securities.

For additional details and discussion, I highly recommend the forum at Prospers.org. Prosper’s official forums are heavily moderated and pretty much dead after Prosper closed down for what they claimed was an SEC-imposed “quiet period.”

The following morning, news about the SEC filing broke at Prospers.org.

Speculation about possible lender-litigation against Prosper related to myriad issues such as alleged breach of fiduciary responsibility and breach of contract have been swirling for months and grew in intensity throughout the day.

Within hours, a class action attorney appeared on the Prospers.org forum.

While one could expect that a number of people would jump aboard the litigation-train at such a moment, the nature of Prosper’s groundbreaking platform is such that its users have proven surprisingly forgiving of Prosper’s many missteps over the years.

Yet, over time, the relationship between Prosper and its lenders became quite strained, with Prosper’s credibility and good will largely depleted, as the company turned increasingly hostile and behaving like the “evil” banking system it had sought to disintermediate. Trust in Prosper management is largely non-existant and lenders took the opportunity.