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BREAKING NEWS: Prosper files amended S-1 with the SEC

December 5, 2008
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Prosper Marketplace has made a new S-1 filing with the SEC.

As a point of interest, the S-1 filing includes the following statements:

(page 25):
On November 26, 2008, a class action lawsuit was filed against us the Superior Court of California, County of San Francisco, California.  The suit was brought on behalf of all loan note purchasers in our online lending platform from January 1, 2006 through October 14, 2008 and alleges that we offered and sold unqualified and unregistered securities in violation of the California and federal securities laws.  The lawsuit seeks class certification, damages, the right of rescission and the award of attorneys’ fees and costs against us.

As a result of our prior operations, our lender members who hold these loans may be entitled to rescind their purchase and be paid their unpaid principal amount of the borrower loans plus statutory interest.  In addition, As of September 30, 2008, the aggregate principal balance of loans purchased through our platform by purchasers not affiliated with Prosper was $178.6 million.  We have not recorded an accrued loss contingency in respect of this contingent liability, although we intend to continue to monitor the situation.  Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act is one year from the violation; however, the statute of limitations periods under state laws may extend for a longer period of time.  If a significant number of our lender members sought rescission, or if the class action securities lawsuit is successful, our ability to maintain our platform and service the borrower loans to which the Notes correspond may be adversely affected.

(page 72)
Securities Law Compliance
Since our commencement of operation in February 2006 through October 16, 2008, we sold approximately $178.6 million of loans to our lender members through an operating structure that involved our sale and assignment of promissory notes directly to lender members. We did not register the offer and sale of the promissory notes offered and sold through our platform under the Securities Act or under the registration or qualification provisions of state securities laws. In our view, analyzing whether or not the operation of our platform involved an offer or sale of a “security” involved a complicated factual and legal analysis and was uncertain. If the sales of promissory notes offered through our platform were viewed as a securities offering, we would have failed to comply with the registration and qualification requirements of federal and state law and our lender members who hold these promissory notes may be entitled to rescission of unpaid principal, plus statutory interest. Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act is one year from the violation, although the statute of limitations period under various state laws may be for a longer period of time. Due to the legal uncertainty regarding the sales of promissory notes offered through our platform under our prior operating structure, and as a result of discussions with the SEC and various state securities law administrators, we decided to restructure our operations to resolve such uncertainty. We began our implementation of this decision on October 16, 2008, when we ceased offering lender members the opportunity to make loan purchases on our platform, ceased accepting new lender members registrations and ceased allowing new loan purchase commitments from existing lender members.

As is often the case, there is good discussion to be found at Prospers.org.

Update: Fred 93 has published some interesting observations.

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2 Comments leave one →
  1. Fred93 permalink
    December 5, 2008 3:23 pm

    Your NY Times article link goes to wrong article.

    • December 6, 2008 7:41 pm

      If you are referring to the”Dealbook” item, try scrolling down a bit further in the story.

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