Prosper has made much about the recent addition of Mr. Nigel Morris to its board - and the $1 million he brought along to the party.

As has already been noted by observers with deeper insight into the mechanics of all things Prosper, this cash infusion is little more than a minor bridge-loan, priced at a relatively steep 15% interest.  It is rather unclear how this fairly insignificant loan will impact Prosper’s future or delay what appears to be the inevitable demise of the company, as it continues on track to run out of operating funds in the near term.

On November 16, 2009, Prosper filed a 10-Q document with the Securities and Exchange Commission, which provides interesting insight into Prosper’s financial health.  Based on what is known about Prosper cash burn, the recent cash-infusion only buys Prosper an additional couple of months, with Prosper now expected to go broke in February 2010.

Despite the lackluster pace of new loan originations, there is some sense that there is still some potential value yet to be unlocked in this company.  What also remains unclear, however, is the extent to which Prosper is in a position to attract additional investments on favorable terms to operate beyond February 2010, considering the general current economic climate, the uncertainty regarding the viability of Prosper as a going concern, the current regulatory framework and Prosper’s situation with unresolved litigation.

Prosper-watcher Xraider reports  on a new development in the ongoing litigation involving Prosper Marketplace.

Prosper, through another fancy (read: expensive) San Francisco law firm, has brought a breach of contract and “bad faith” suit against its insurer, Greenwich, for refusing to defend it in the class action. 

Ongoing discussion on this matter can be found at Prospers.org.

You can access the court docket info here.

There was court action yesterday in the class action lawsuit against Prosper Marketplace (Prosper.com). As Prosper-watcher Investar points out here, Judge Kramer sustained the demurrer filed by the 3 remaining outside directors – this time without leave to further amend. A case mangement conference (CMC) was held – and the next CMC scheduled for October 29, 2009.

* DEVELOPING STORY *

Based on material now made public by the Securities and Exchange Commission (SEC) and presented by members of the Prosper community at Prospers.org, PCASM hopes to allow you to take a peek behind closed doors at what actually took place between the SEC and Prosper Marketplace (Prosper.com) in the period leading up to Prosper being shut down – and what occured in the period that followed.

Some of what is being uncovered is quite remarkable and likely of immense interest to Prosper-watchers.  The work is still unfolding and I recommend reading the discussions currently happening in the public “lobby section” of the community (no registration is required to read discussions in the lobby).

As the discussion matures and I have some time to read and digest, I may post more detailed info here on this blog.  The exchanges between Prosper and the SEC are highly relevant to the ongoing class action litigation filed against Prosper by its lenders.

I’d like to acknowledge community members Investar and NewHorizon for the leg work being performed.

On November 1, 2007, in response to what was (presumably) Prosper’s first attempt at filing their S-1 registration statement, the SEC issued a less-than-enthusiastic response:

 

 

 

 

Re: Prosper Marketplace, Inc.

Registration Statement on Form S-1

Filed October 30, 2007

File No. 333-147019

 

 

 

Dear Mr. Giedgowd:

This is to advise you that a preliminary review of the above registration statement indicates that it fails in numerous material respects to comply with the requirements of the Securities Act of 1933, the rules and regulations under that Act, and the requirements of the form. Specifically, we note a failure to identify all co-registrants, a failure to include the required financial statements, and a failure to abide by the Trust Indenture Act. For this reason, we will not perform a detailed examination of the registration statement, and we will not issue any comments because to do so would delay the review of other disclosure documents that do not appear to contain comparable deficiencies.

You are advised that we will not recommend acceleration of the effective date of the registration statement and that, should the registration statement become effective in its present form, we would be required to consider what recommendation, if any, we should make to the Commission.

We suggest that you consider submitting a substantive amendment to correct the deficiencies or a request for withdrawal of the filing.

 

 

The actual letter can be found here.

Prospers.org discussion can be read here: S-1 Fail

The “Fred93 Letter”
Just like other discriminating Prosper aficionados, the SEC staff reads the Fred93 blog.  This was revealed in a June 12, 2009 letter to Prosper from the SEC in response to Amendment No. 4 to Prosper’s Registration Statement on Form S-1.

Specifically, the mention of Fred93’s excellent blog reads as follows:

 

 

 

In postings on the web regarding performance of Prosper loans by one of your lender members, there have been concerns expressed about the number of reported loans that closed during a particular months changing. Please provide the staff, with a view towards improved disclosure, your originated loans for every month that you operated prior to shutting down your site, the number that went 30, 60 and 90 days past due and the number that entered collection. Also, please address any instance where the number of reported loans in a particular monthly set changed from when they were originated to the currently reported amount. Please refer to http://fred93blog.blogspot.com.

 

 

 
Another notable section of the letter reads as follows:

 

 

 

Note 13 – Commitments and Contingencies, F-22

We note your response and revised disclosure to our prior comment 31; however we do not see how you have addressed our comment in its entirety. Please address thefollowing:

· Tell us how you determined that it was not probable that a liabilty had been incured (refer to paragraphs 8, 37 and 39 of SF AS 5); and

· Justify how your low range estimate (i.e. $0) is appropriate considering suits have been brought and you have no factual defense (specifically regarding the Section 5 violation).

 

 

The actual letter can be found here.

Threads worth monitoring (subject to updates throughout the day)

The SEC reads Fred93

Here’s where Prosper flipped the bird to the SEC

Reference

What did Prosper know and when did Prosper know it?

There are reports today that Prosper Marketplace (Prosper.com) has suspended the user accounts of the plaintiffs named in the proposed class action suit filed against Prosper.

It is not surprising that Prosper (the ”North Korea of peer-to-peer lending”) yet again attempts to punish (if that’s what you would call being protected from making new loans) or stifle critical voices.  It is also not surprising that it took ever-efficient Prosper close to 10 months to get around to it.

On June 20, 2008 (note the date), The Commonwealth of Kentucky (via the Office of Financial Institutions) issued a document of some interest to Prosper-Watchers.

In brief, the document states:

- On October 30, 2007 (again, note the date), Prosper filed a Form S-1 Registration Statement with the SEC, seeking to register securities.

- On May 28, 2008, the Executive Director of the Office of Financial Institutions entered a “Stop Order,” suspending the effectiveness of the registration statement submitted to the Division on November 7, 2007 on the basis of certain enumerated deficiencies and failure to supply certain requested information.

- Subsequent to the filing of the Application, the Division was informed that the SEC had determined to take no action on Prosper’s federal S-1 filing, and so accordingly, a registration in Kentucky could not be acomplished.

- Prosper then requested permission to withdraw its Form U-1 Application Kentucky – to which the state had no objection.

The full document can be accessed here.

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 Colorado Securities Commissioner has joined the growing list of states sanctioning Prosper Marketplace (prosper.com) for selling unregistered securities.

Much like the others, the Colorado Consent Order states:

- The notes sold by Prosper are securities

- The securities were not properly registered

- Prosper failed to make the appropriate disclosures to investors

The Colorado Consent Order can be viewed here.

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

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

While we wait for new developments in the legal proceedings…Prosper.com observer and key statistics tracker Fred93 just updated his excellent blog with observations regarding Prosper’s sadly lacking and much questioned “Post Charge-Off Collection Techniques” operation.

This issue is (and should be) of key importance to anyone contemplating involvement with the Prosper.com peer-to-peer (p2p) lending platform.

Fred93’s important post can be found here.

This issue is also being discussed over at the Prosper Community at Prospers.org.