The Prosper "Quiet" Diary - millstones and milestones

[Investar]

A kwik-reference to key dates and events in the life of Prosper Marketplace Inc since sudden shut-down in October of 2008.
— Registering with United States Securities and Exchange Commission (SEC)
— Resolving sanction by state regulators promulgated by North American Securities Administrators Association (NASAA)
— Addressing grievances alleged by disenfranchised Prosper lenders (Class Action Lawsuit)
— Other surprises

THE PROSPER "QUIET" DIARY

• October 15, 2008; 4:43 AM PDT -- that was the moment Prosper turned out the lights and shut down the marketplace. This lender wondered what the sudden "Quiet" was all about.

• November 24, 2008 -- an investigation that began October 15th was concluded. The Securities and Exchange Commission (SEC) issued a public demand that Prosper cease-and-desist. Their loans were actually securities and they weren't licensed to sell them. The SEC's Cease & Desist Order.

• November 26, 2008 -- disenfranchised Prosper lenders filed motion for a class action lawsuit against Prosper in Superior Court, Los Angeles County, California. They saw an opportunity to recover capital lost to defaulted and charged-off loans.

• December 1, 2008 -- Prosper agreed to pay a $1 million penalty to the 50 states for violations pursuant to their federal breach of law. Few knew the states had been doing their own investigation. The federal decree spurred them to act. Discussion here.

• December 5, 2008 -- Prosper filed an all new proposal to sell regulated securities, loans now called notes, with the SEC. It was some 140 pages long. It was strikingly similar to LendingClub's proposal the SEC had approved the very week Prosper went quiet.

• January 7, 2009 -- the first courtroom appearance to hear the Class Action against the 'old' Prosper was postponed by the lenders/lawyers bringing the suit. The official start of a proceeding that promised to drag on for many months failed to occur. On the following day the case was assigned "Complex Litigation Designation" moving its future activity to a different 'department' in the courthouse. Discussion here.

• January 15, 2009 -- this lender 'quietly' marked 90 days in the darkness of a "Quiet" Prosper winter.

• January 16, 2009 -- Prosper filed a complete 'new' amended S1 form with the Securities and Exchange Commission. This was a follow-on to their December 5th document, the result of ongoing dialog between the two parties.

• February 11, 2009 -- the court case against the 'old' Prosper continued to trundle along. Prosper filed a "demurrer" challenging the legal sufficiency of the disenfranchised lender's claims. Discussion here. On February 26, 2009 a "1st Amended Complaint" was filed by the lenders. Discussion here.

• March 18, 2009 -- Prosper's first appearance in court for the Class Action Lawsuit didn't happen. Again. Discussion here.

• April 14, 2009 -- Prosper filed a 3rd Amended S1 Securities Registration Statement with the Securities and Exchange Commission. It contained revisions and clarifications required for SEC approval. The document was the culmination of dialog between the parties after the 2nd Prosper filing January 16, 2009. Discussion here.

• April 15, 2009 -- this lender 'quietly' marked 90 (+) 90 days in the darkness of a "Quiet" Prosper winter and saw his rosy predictions of an early springtime rebirth begin to wither. The April 14th event did provide new hope.

• April 15, 2009 -- the lawsuit against the 'old' Prosper continued to inch forward. Prosper filed written answers to the revised "Complaint" of February 26 and entered a protest on behalf of its Directors. Three court dates were pending. Discussion here.

• April 21, 2009 -- Prosper and the North American Securities Administrators Association (NASAA) finalized a template consent order, the framework for Prosper to pay up to $1 million in penalties to the individual States, as agreed last December, to resolve harm caused by their offer and sale of unregistered securities. Details here.

• April 25, 2009 -- an unusually "Quiet" weekend commenced. Prosper's website was offline for system upgrades and configuration changes all day-n-nite Saturday and Sunday. There was rampant speculation here and elsewhere. By Sunday evening the "Site Not Available" notice changed to say system upgrades were taking longer than expected. The 'darkness' continued thru Monday. On Tuesday morning Prosper reopened it's doors to California lenders only and to borrowers everywhere.

• April 30, 2009 -- again with the disappearance of the first appearance of the Class Action Lawsuit in court. The reason this time. Actually, the litigation had yet to be recognized as a class action at this point.

• May 5, 2009 -- states began to enter Consent Orders (levy fines) related to the NASAA settlement agreement.

• May 07, 2009 -- an overbooked court docket caused Prosper's first meeting with the disenfranchised lenders to be delayed once more. The resulting calendar of events at this point.

• May 09, 2009 -- the brief moment of Prosper sunshine that commenced April 28th suddenly disappeared behind a dark cloud. Prosper shuttered its California-only operation with an odd excuse, an apology, and a reference to ongoing registration efforts in Washington D.C. All was "Quiet" again. The interpretation here.

• May 21, 2009 -- there was a rustle in the quiet. Several states were satisfied with Prosper's proposals and approved the operation for their state ahead of SEC action, or so it seemed. The whispering began here.

• June 1, 2009 -- Prosper's put a 4th set of documents in front of the United States Securities and Exchange Commission. They filed another Amended S1 Registration Statement and associated exhibits dated May 29. Discussion here.

• June 11, 2009 -- for the very first time, a clutch of lawyers gathered before a judge in session in a courtroom in California to confer on matters related to the 'old' Prosper's alleged violation of securities laws. The very first turn of the great wheels of justice remembered here.

• June 26, 2009 -- Prosper filed proposal number 5 with the Securities and Exchange Commission. For the first time the package included direct testaments from Prosper's legal counsel, Morrison & Foerster. Since lawyers hesitate to bind their name to these sorts of things unless there can be no argument against their blessing, speculation was the SEC and Prosper had come to terms at last. Analysis here.

• July 9, 2009 -- Prosper presented a 6th set of basic registration documents to the Securities and Exchange Commission. A mere 12 days had passed since their 5th attempt.

• July 9, 2009 -- Prosper won a temporary reprieve from the Class Action Lawsuit in its second courtroom session with the disenfranchised lenders. It was short lived. Lenders filed a refreshed Complaint the next day. The day's events here.

continued....

[Investar]

THE PROSPER "QUIET" DIARY continued 

• July 13, 2009 at 5:00 PM PT -- PROSPER ENDED THEIR QUIET PERIOD. On Friday, July 10, United States Securities and Exchange Commission (SEC) approved Prosper's new securitized peer-to-peer (P2P) note funding and trading platform at about noon (3:30 PM Pacific). The office lights on the 22nd floor of the Hunter-Dulin building burned brightly on Saturday. Prosper took the Marketplace off-line Sunday and Monday to 'unlock' the doors.

Late Monday afternoon Prosper rushed an email invitation to borrowers. About midnight Monday the doors to Prosper, The Loans Marketplace reopened to lenders, and borrowers, and for the first time, to traders. Prosper's CEO, Chris Larsen officially announced Prosper Is Back! (here) on the Prosper blog. Bidding and funding consumer loans began in 14 states where 'Blue Sky' approval had been granted. Borrowers in 46 states were eligible to participate.

Sources for more information:
--- Prosper Help Pages
--- Prosper Legal Compliance
--- Prosper 50 State Progress - Blue Sky - Lend Trade Borrow

• July 15, 2009 -- just as this lender was about to sing "Thirty Days In the Hole" .. .. nine times over .. .. Prosper emerged from the quiet. Except for a shaft of California-only sunlight in the waning days of April the "quiet" season extended just short of nine months. Originally this space contained my wholly optimistic prediction Prosper would spring forth early in the spring of 2009. It took LendingClub six months to navigate a successful birth, but they were first born of of the SEC's womb. I was sure Prosper would have an easier time of it. While the "Quiet" is officially over, other points of interest remain. As a new dawn spreads beyond 14 states in the sunshine now, the long shadow of a class action against the 'old' Prosper remains.

• July 16, 2009 -- the new Prosper dawn arrived in the states of Washington and Hawaii. Lenders there were authorized. 

 • July 21, 2009 -- class action lawsuit litigants took a summer break. Complex Litigation discussion would resume mid-September. Then anticipating a mandatory work furlough, Superior Court Of California pushed the events off calendar for an extra week.

• July 22, 2009 -- Prosper emailed lenders in all states who remained 'quietly' on the sidelines. About state-by-state approval they said, "We are diligently working through the process, but ultimately Prosper does not control the timeline involved to get approval. We will inform you the moment we hear that lending is open in your state of residency."

• July 27, 2009 -- states continued to enter Consent Orders (levy fines) related to the NASAA settlement agreement. Prosper's total penalty topped $100,000 among at least 7 states who 'cured' their allegations against the 'old' Prosper. Details here.

• July 31, 2009 -- Prosper opened the gates to lenders in Maine (borrowers there remained ineligible to participate).

• August 7, 2009 -- Prosper welcomed lenders and traders in Connecticut, Idaho, New Hampshire and Oregon where state clearances were granted. Now investors in 21 states were participating on the 'new' Prosper.

• August 10, 2009 -- litigation paper shuffle took no summer break. Named as perpetrators in a 2nd Amended Complaint, members on Prosper's Board of Directors repeated their objection to alleged involvement. The court would hear them on September 15th – the date more tedious matters in the pending class action were already set to come under review.
 
• August 14, 2009 -- state clearances arrived from Louisiana and Missouri. Then on August 19th, Rhode Island and Virginia joined in. One month into "the world’s most transparent and durable personal loans trading platform" Prosper had reached nearly 49% of its potential investor/lenders by total US population and 50% of potential by participating state count.

• September 14, 2009 -- the state of Florida, 4th largest in the nation, became the 26th state to certify the 'new' Prosper. Their swell of lenders pushed national peer-to-peer participation on the lending side into the clear majority.

• September 15, 2009 -- courtroom action resumed with the renewed cry of "your honor, we're not really in this" by three on Prosper's Board of Directors. The judge agreed and excused them from proceedings. The actual lenders bringing the complaint addressed the judge for the first time. The rundown is here.

• October 29, 2009 -- Prosper and their suitors met the judge again, shuffled at least one official paper across the desk, then broke for lunch until after the holidays. A second, related lawsuit entered the fray. Here is the report.

• November 10, 2009 -- Prosper garnered $1 million in stopgap funding via a 24 month convertible Promissory Note. And not a moment too soon, the 'well' at Prosper was nearly dry. Prosper avoided the ultimate "Quiet" with enough cash to continue operations into 2010. Discussion here.

• January 21, 2010 -- Prosper and the disenfranchised lenders said "howdy" to Judge Richard Kramer in chambers and then parted ways for ninety more days. Prosper's uncooperative insurance underwriter tagged along. Read all about it here.

• February 1, 2010 -- Prosper secured a 60-day, $2 million bridge loan. Prosper had been facing imminent bankruptcy. Lenders and borrowers we're 'good to go' for sixty more days. The good news here.

[go4reward]

So this is good news for all Prosper members. Thanks for the info.

[Investar]

I guess I should add/clarify....

According to what Prosper filed with the SEC, they have no plans to institute fixed loan rates as LendingCLub has done. It appears they intend to allow flexible rate bidding just as in the past.

There is also no indication Prosper intends to shut out the little guy as LendingClub has done. Their lenders must have an annual gross income of at least $70,000 plus a net worth of $70,000, or failing 70k income, a net worth of at least $250,000. This could come into play on Prosper according to DeskGuy who posted an interesting insight on this thread....
 
Possible Restrictions When Prosper Resumes Lending?
http://forums.go4reward.com/index.php?topic=245.0

[go4reward]

Where do you get the new sources of information regarding Prosper? They are very hard to find.

[Investar]

Where do you get the new sources of information regarding Prosper? They are very hard to find.

You're right. Took me an hour or better going thru my notes, bookmarks and past writings just to put the timeline together accurately. My sources range from Googling on a tidbit in a blog, to linking from link to link, to digesting the actual documents posted on the SEC's site. It's more fun than piecing together a jigsaw puzzle!

[go4reward]

These information are quite useful especially no news coming out of Prosper while Prosper is still in "quite" period.

[Investar]

Diary Update

On Friday, January 16, 2009 Prosper filed a completely "new" amended S1 form with the Securities and Exchange Commission. This is a full amendment of the December 5th document. No doubt the proposal is the result of ongoing dialog between the two parties. It hints that approval is close at hand. Folks don't usually file amendments unless they are reacting to SEC comments and an official response such as this is likely to propel them to SEC approval.

[go4reward]

This sounds like good news for Prosper members. Perhaps Prosper is working good progress.

[deskguy]

Investar posted, in part ... There is also no indication Prosper intends to shut out the little guy as LendingClub has done. Their lenders must have an annual gross income of at least $70,000 plus a net worth of $70,000, or failing 70k income, a net worth of at least $250,000. This could come into play on Prosper according to DeskGuy who posted an interesting insight on this thread....
--------------------------------------------------------
 meant to respond to this earlier but i am confused because i don't know on what you base your expectation of no income floor. as you note, the lady from lendingclub told me specifically the SEC required a minimum net worth to participate in lending. perhaps the SEC said, 'impose a financial worth requirement' and left it to lendingclub to set the amount. i don't know because i didn't pursue it. not a problem anyway.

 the 'quiet period' may be coming to an end but there still remains the problem of state approval. lendingclub returned to operations in november (i think) and yet the list of states authorizing it to sell registered securities is stuck on 25. i check it several times a week and there have been no additions for well more than a month. lendingclub says it applied to all 50 states - and i assume D.C - simultaneously, which suggests to me that half the states have problems with the concept and may just use a 'pocket veto' and let the request die.

 so it may well be that a 'new' prosper will be with us soon but if subject to the same approval process as lendingclub it will be a long time before many of us will be able to participate. i e-mailed the appropriate maryland authorities about 10 days ago but have not had a response. i'd be surprised if i got one.

  deskguy
 
 
 

[Investar]

...I am confused because i don't know on what you base your expectation of no income floor. as you note, the lady from lendingclub told me specifically the SEC required a minimum net worth to participate in lending. perhaps the SEC said, 'impose a financial worth requirement' and left it to lendingclub to set the amount.

We can be reasonably certain Prosper's lawyers copy-n-pasted from Lending Club's filing quite often (saves a lot of work plus, the SEC likes sameness). It seems reasonable to conclude that when they got to this sub-section they just cut what didn't apply, especially since what is there is Lending Club word-for-word-for-word.

PROSPER S-1 Filing
"Financial Suitability Requirements"

The Notes are highly risky and speculative.  Investing in the Notes should be considered only by persons who can afford the loss of their entire investment.

LENDING CLUB S-1 Filing
"Financial Suitability Requirements"

The Notes are highly risky and speculative. Investing in the Notes should be considered only by persons who can afford the loss of their entire investment.
 
In addition, minimum financial suitability standards and maximum investment limits have been established for lender members. These minimum suitability standards and maximum investment limits are as follows. Any additional or different requirements for residents of the state in which you reside will be added by prospectus supplement. Lender members must either have an annual gross income of .. etc .. etc .. and lender's must represent in the note purchase agreement that they meet the applicable minimum suitability requirements.

Lending Club claims it wasn't playing 'big brother' here. If that's true, exclusions they included should show up in Prosper's amended proposal. I haven't had a chance to read it and find out. It would be in a document on this list -- all the stuff they re-filed Friday 16 Jan -- should be in the "S-1" itself.
http://www.sec.gov/Archives/edgar/data/1416265/000110465909002910/0001104659-09-002910-index.htm

Lending Club imposed separate requirements for California lenders (even more stringent). Those were apparently necessary since California did not come on line until a few weeks ago.

As for the states "pocket veto" .. .. not encouraging, huh. Especially your Maryland since they haven't approved note trading either (most states have). I wish you all the best. Me too. I'm not (yet) eligible to bid and that's where my interest lies. I'll want to see some history under the belt on the note-trading before I go there. I agree, there is every probability Prosper will see the same states line up, or fail to do so, as LendingClub has. That's why I'm watching them so closely.

List of States Eligible to Participate (Lending Club)
http://forums.go4reward.com/index.php?topic=271.0
 

[Investar]

Here's the rewording on page 42 of the new Prosper S1 doc....
Section: ABOUT THE PLATFORM (meaning the bidding and funding of loan notes)

FINANCIAL SUITABILITY REQUIREMENTS
The Notes are highly risky and speculative.  Investing in the Notes should be considered only by persons who can afford the loss of their entire investment.  Our platform currently allows lender members to bid as little as $50 and as much as the full amount of any particular listing, up to an aggregate amount of $5,000,000 for individuals and $50,000,000 for institutions.  We are currently seeking to register the offer and sale of our Notes in all 50 states and the District of Columbia.  As part of this process, we expect that certain states will impose minimum financial suitability standards and maximum investment limits for lender members who reside in their states.  Should this occur we will set forth these requirements in a supplement to this prospectus.  Under the lender registration agreement, lender members are required to represent and warrant that they satisfy the applicable minimum financial suitability standards and maximum investment limits of the state in which they reside.  Lender members who fail to satisfy any such requirements will not be permitted to purchase Notes.

[Investar]

Class Action Law Suit
Conference Scheduled

You probably won't be hearing much about redress against Prosper for awhile. Following cancellation of proceedings set for January 7th, they are starting over. The court has scheduled a "Case Management Conference" for Friday, May 1, 2009. This sounds like a step backward from "Notice of Motion and Order To Grant" the court was ready to entertain on January 7th.

One of the lead actors got cold feet and has asked to be removed as a named plaintiff. Whether this was cause for delay is unclear. It was the lenders, not Prosper who asked for postponement in January. In any case, the mountain of paperwork needed to accomplish a simple "okay buddy, you may go" is now shuffling from desk to desk. Absent the claimant from Alabama, the lender from Florida and the one from Los Angeles County are the only named plaintiffs.
 
Source:
http://webaccess.sftc.org/Scripts/Magic94/mgrqispi94.dll?APPNAME=IJS&PRGNAME=caseinfoscreens22&ARGUMENTS=-ACGC08482329,-AL,-A,-AN,-A

if an error displays try later, not available consistently, court is updating their web access due to high traffic on the site
Alternate path to try:
http://www.sfgov.org/site/courts_page.asp?id=77500
Case number you want is: CGC-08-482329

[go4reward]

WoW! That could delay things for Prosper come back online fully again.

[Investar]

WoW! That could delay things for Prosper come back online fully again.

I don't see that. The class action is not related to anything Prosper is doing at the SEC. The law suit is about the "old" Prosper. The SEC has put that issue behind them, is considering the "new" Prosper. The longer the suit drags on the better for Prosper. It is true Prosper is suffering income loss caused by the "Quiet", is getting low on cash, is down to $16 million I believe. If the SEC approves in a timely fashion Prosper can recover and be strong enough to deal with whatever suffering the law suit might bring.