The State of Michigan, Department of Energy, Labor and Economic Growth’s Office of Financial and Insurance Regulation has sanctioned Prosper Marketplace (prosper.com).

In the Administrative Consent Order, the Commissioner found that:

- Prosper notes are securities

- Prosper failed to properly register the securities

- Prosper failed to make the required disclosures to investors.

It is interesting to note that Prosper submitted an application to register securities in Michigan on November 8, 2007.  This would indicate that Prosper, at that point, was aware that the their loans/notes should be registered as securities.  Yet, Prosper Marketplace continued to offer/facilitate unregistered securities to unsuspecting investors for quite some time – while continuing to make public statements to the contrary, indicating that Prosper was in full compliance with applicable laws.

The Michigan Consent Order can be found here.

The State of Connecticut Department of Banking has sanctioned Prosper Marketplace (Prosper.com) for the sale of unregistered securities (approx. 25,000 notes) to 600 resident of Conecticut in the total amount of $2.2 million.  Additionally, the State of Connecticut found that Prosper failed to make required disclosures and financial statements available to investors.

You can read the Consent Order here.

Additional discussion is also taking place within the Prosper Community at Prospers.org.

This is video from the “Town Hall” meeting at Prosper Days 2007

This is video from the “Town Hall” meeting at Prosper Days 2008

The State of Missouri has sanctioned Prosper Marketplace for the sale of unregistered securities to 21,312 Missouri residents.

Further, the Securities Division found that Prosper Marketplace failed to make available the proper disclosures and financial statements.

Finally, Prosper is ordered to cease and desist from selling securities to persons in or from the State of Missouri in violation of State regulations.

Read the Consent Order here.

The State of Washington’s Department of Financial Institutions, Securities Division has issued a Consent Order, sanctioning Prosper Marketplace for violating the Securities Act of Washington.

The Securities Division tentatively found that Respondent Prosper Marketplace offered and sold investments in the form of small loans through its website. Approximately 1,860 Washington State residents invested $6,452,422 in these loans. The Securities Division tentatively found that Respondent Prosper Marketplace violated RCW 21.20.010, the anti-fraud provision of the Securities Act of Washington, by failing to disclose material facts of the investment, including details of the company’s business model and the risks of the investment

Respondent Prosper Marketplace waived its right to a hearing and to judicial review of this matter and pay a $36,025 fine.

Finally, Prosper agreed to to cease and desist from violating RCW 21.20.010, the anti-fraud section of the Securities Act of Washington.

The actual document can be read here.

http://www.metnet.mt.gov/newslinks/I02B0B953

State Auditor Reaches Agreement with Prosper Marketplace Inc.

Over Sales of Unregistered Securities

(Helena) State Auditor and Commissioner of Securities and Insurance Monica Lindeen today sanctioned a San Francisco company whose unregistered securities schemes defrauded nearly $400,000 from Montana investors.

Lindeen’s office signed a final Consent Agreement and Order with Prosper Marketplace, Inc., a San Francisco-based online “peer-to peer” lending service, to resolve matters relating to unregistered securities and securities fraud.

“My message is clear,” Lindeen said. “If you prey on Montana investors with unregistered securities schemes, or seek to profit from duping unsuspecting Montanans we will find you and we will punish you.”

Prosper has sold 4,479 notes to Montana residents for an aggregate investment of at least $396,510. Lindeen said the notes issued by Prosper are securities, but they were not properly registered for sale. All securities sold in Montana must be registered with the Montana State Auditor’s Office before they can be sold to the public.

During the investigation of Prosper, it was determined that the firm also failed to provide investors with necessary information, such as its financial statements.   

Under terms of the settlement, Prosper agreed not to offer or sell any securities until it is in compliance with Montana’s securities registration laws. The order also requires Prosper to pay a fine of $2,214, representing Montana’s pro-rata share of a $1 million settlement negotiated by a multistate working group of state regulators formed by the North American Securities Administrators Association (NASAA).

Prosper provides a private online lending “marketplace” that allows prospective borrowers and lenders to find one another. Through its website, Prosper conducts an electronic auction to fund unsecured promissory notes. The website features a list of potential loans and investors bid against each other to finance the loans. Funds from the lowest bidders are pooled together to fund the loans. Prosper issues notes to those lenders funding the loans and services that note.

Several states had been investigating Prosper’s activity last year and were considering or preparing enforcement actions. In mid-October 2008, Prosper stopped issuing new loans and accepting new investors while it sought registration with the U.S. Securities and Exchange Commission.

From February 2006 to mid-October 2008, Prosper had offered and sold promissory notes with fixed annual interest rates ranging from 7 percent to 36 percent, amortized over a three-year term with equal monthly payments. As of September 29, 2008, Prosper’s website reported that it had 810,000 members and $175 million in loans funded.