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SEC vs Prosper.com: Behind Closed Doors

September 10, 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.orgPCASM 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?

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