The State of North Dakota “brought the pain” earlier this year as it sanctioned Prosper to the tune of a whopping $906 for violating North Dakota’s Securities Act by selling unregistered securities to 2,390 residents of North Dakota.

The Administrative Consent Order largely follows the normal template being used by Prosper to settle with States, including:

- Prosper notes are securities

- Prosper sold unregistered securities in North Dakota

- Prosper failed to make required disclosures

You can read the Administrative Consent Order here.

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.

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.

Peer-to-peer lender Prosper Marketplace has openened for business (at least in a few states).  The Prosper.com Class Action Suit Monitor welcomes potential new market participants to check in with this blog to keep up to date with developments related to the ongoing legal action against Prosper.

Additionally, it is highly recommended that new P2P lending participants become acquainted with the community of experienced Prosper lenders and borrowers at Prospers.Org.

To learn about the ongoing litigation, please view the case dockets at the web site of the Superior Court of California.

 Welcome to the madness and…caveat emptor.

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.

The State of Oregon’s Order to Cease and Desist, assessing civil penalties for the  sale of unregistered securities to Oregon residents can be read here.

According to the document, Oregon residents have financed over 30,000 Prosper loans totaling more than $2.8 million, but Prosper failed to provide lenders with the information typically required of a securities registrant – and failed to inform prospective investors that the securites were not registered.

The State of Oregon ordered Prosper to pay the sum of $15,000 in civil penalties to the General Fund of the State Treasury.

A press release issued by the Department of Consumer and Business Services can be read here.

Text version follows:

For immediate release: June 25, 2009

Lisa Morawski, 503-947-7897

Kevin Anselm, 503-947-7498

State Finalizes Agreement with Prosper Marketplace Over Sales of Unregistered Securities

(Salem) – The Oregon Department of Consumer and Business Services – Oregon’s securities regulator – has signed a final consent order with Prosper Marketplace Inc., a San Francisco-based online “peer-to-peer” lending service, to resolve matters relating to the sale and offer of unregistered securities and the omission of material facts in connection with the offer, sale, or purchase of a security.

Prosper had been subject to a multistate investigation, and the order announced today completes Oregon’s case. The order requires Prosper to pay a fine of $15,000, representing Oregon’s pro-rata share of a $1 million settlement negotiated by a working group of state regulators formed by the North American Securities Administrators Association (NASAA). The working group included representatives from Oregon and Washington.

Under the terms of the settlement, Prosper also agreed to comply with Oregon’s securities registration laws.

“The notes issued by Prosper are securities, but they were not properly registered for sale,” said David Tatman, administrator, administrator of the department’s Division of Finance and Corporate Securities.

Securities sold in Oregon must first be registered with the division; the registration ensures a security is evaluated for financial condition and the validity of the operation. During the investigation of Prosper, the division also found the firm failed to provide investors with necessary information, such as its financial statements.

Prosper – which is licensed in Oregon as a consumer lender – provides a private online lending “marketplace” that allows prospective borrowers and lenders to find one another. Through its Web site, Prosper conducts an electronic auction to fund unsecured promissory notes. The Web site 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 the notes.

From February 2006 to mid-October 2008, Prosper 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. 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 and the states. As of September 29, 2008, Prosper’s Web site reported that it had 810,000 members and $175 million in loans funded.

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The Division of Finance and Corporate Securities (DFCS) helps ensure that a wide range of financial products and services are available to Oregonians and protects consumers from financial fraud and abuse. It does that by licensing financial institutions and service providers, regulating the sale of securities in Oregon, investigating complaints and alleged violations of financial-service laws, and providing education and other resources to consumers.

The Department of Consumer and Business Services is Oregon’s largest business regulatory and consumer protection agency. For more information, visit www.dcbs.oregon.gov.

A piece published at OregonLive.com can be accessed 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.