The Prosper "Quiet" Diary - millstones and milestones

[Investar]

... but worry not, the lawyers are making money.
 deskguy

deskguy, you have no idea what your talking about. Contingency cases get paid when the case is settled or won. Since that hasn't happened so far the attorney's haven't made a dime.

You're both half right. On the lender's side it is "no recovery - no fee" but on Prosper's side I believe they've been forking out the dough as they go along. I'm working to see how I can pull apart their financials in the 10Q and other disclosures to guess what the 'bleeding' amounts to (to the nearest 100k) and whether they've paid with IOU's at all. It gives me a headache so I'm doing it in short bursts.

....and/or looking at it and putting it up on the shelf again.
 

   

[Beerbud1]

it strikes me as only natural that Prosper would have an in-house lawyer - whether they have 20 employees or 200. 

Totally agree. It is necessary to have an in-house lawyer for an "established" company, such as Prosper.

Funny in this link they admit that they are a start-up. Yet you said they are an established company:

http://blog.prosper.com/2009/09/30/renewed-customer-focus/

Why don't you man up and admit you were wrong?

[go4reward]

it strikes me as only natural that Prosper would have an in-house lawyer - whether they have 20 employees or 200. 

Totally agree. It is necessary to have an in-house lawyer for an "established" company, such as Prosper.

Funny in this link they admit that they are a start-up. Yet you said they are an established company:

http://blog.prosper.com/2009/09/30/renewed-customer-focus/

Why don't you man up and admit you were wrong?

I don't want to argue with you. It is meaningless anyway. Everybody's definition is different. As far as I am concerned, we should focus on the big area, not a small dot. The point is most company wants a in-house attorney if they are big enough (that is my definition of established or well recognized).

[NewHorizon]

OCT-19-2009: OUTSIDE DIRECTORS' OBJECTIONS TO PLAINTIFFS' PROPOSED ORDER SUSTAINING THE DEMURRER TO THE SECOND AMENDED COMPLAINT

http://tinyurl.com/ylqozuw

ETA:

OCT-28-2009:  JOINT CASE MANAGEMENT STATEMENT FILED BY PLAINTIFF HELLUM, CHRISTIAN BARNWELL, WILLIAM BOOTH, DAVID INDIVIDUALLY AND ON BEHLF OF ALL OTHERS SIMILARLY SITUATED

[taxesformuchlessinc]

This statement is false. <------------ Is this statement true or false?

general rule of thumb: all generalizations are false, including that one.

That's pretty funny.

taxesformuchlessinc

[Investar]

Class Action Lawsuit
CASES MERGED IN A COZY COURTROOM?

Very little came to light concerning Prosper's October 29, 2009 meet-n-greet with the disenfranchised lenders. Lawrence R. Katzin and lead attorney Paul T. Friedman represented Prosper. Brian Umpierre and Robert S. Green of Green Welling represented the lenders. The lawyers shuffled at least one official paper across the bench before the gang adjourned, agreeing to meet for lunch after the holidays. "Lunch conference + CMC set for January 21, 2010 at 12:00 PM in Dept 304" was announced. CMC means Case Management Conference.

In preparation for lunch, Judge Richard Kramer ordered private talks between the sparring parties to continue. According to the court record, "Further mediation is ordered by the court" and counsel was instructed to "meet and confer privately" on 'discovery' matters as well.
 
A related law suit, Prosper vs Greennwich Insurance came to discussion. Separately, Prosper has sued their liability insurance carrier for breach of contract. The insurance underwriter refuses to reimburse any costs or damages arising from litigation with lenders. The underwriter's denial was based on very same claim the disenfranchised lenders have made — Prosper knowingly ran afoul of the law. The two complaints will apparently be 'merged' and considered together. According to the minutes, "Counsel advised the court of a … related action, Prosper vs Greenwich. The court will grant the application and consolidate actions."

It is uncertain if the court's consolidation will happen in time to invite Greenwich's team of attorneys to lunch with the others on January 21. Lunch conference? Is this another unfamiliar legal term? Even legal pundits who frequent Pro$pers.org are stumped. "Never heard of a lunch conference. I'll have to ask my firm's San Francisco office about that one," one lawyer/lender posted. Apparently the consort plans to eat in the department. It remains unclear if a catered event or a brown bag affair is planned.

 
definition MEDIATION:  The attempt to settle a legal dispute through active participation of a third party (mediator) who works to find points of agreement and make those in conflict agree on a fair result. Mediation has become more frequent in contract and civil damage cases. In this case the ad hoc mediator is the judge. He is also the ultimate arbitrator. Formal mediation differs from arbitration but the judge appears to be approaching this case much like an out-of-court arbitrator who acts in a less formal setting. Witness the informality of a "lunch conference." In this instance "mediation" is applied informally and does not mean "Alternative Dispute Resolution" nor has it legally become an "Arbitration" proceeding. (Background source: Free Legal Dictionary)

[Investar]

PROSPER GETS A BAND-AID,
SEATS NEW BOARD MEMBER

You may have seen the Prosper Blog announcement November 11, 2009. A new 'lender' was seated on their Board of Directors. He happens to be Nigel Morris who co-founded Capital One in the early 1990's. These days he happens to be running the firm, QED Investors. So happens QED Investors just fronted Prosper a million bucks. QED Investors joins Accel Partners, DAG Ventures, Fidelity Ventures and Benchmark Capital to bring Prosper’s total outright debt somewhere near $41 million.

Details of the QED loan are disclosed in a Form 8-K filed at the SEC. Prosper has taken a 24 month convertible Promissory Note at a 15% interest rate. Prosper’s obligations under the Note are unsecured but Prosper also issued to QED a fully vested warrant in connection with the deal. Form 8-K shows QED Investors can elect to convert the Note preferred stock under certain conditions and these terms hinge on availability of preferred stock. This suggests Prosper may attempt longer range financial stability by floating a fresh stock offering.

While they are 'good to go' into 2010, this $1 million alone will not carry Prosper to the point of profitability. Prosper is expected to 'burn thru' the $1 million dollars long before 24 months have passed. Beginning July 2009 their monthly operating deficit slowed when their income stream resumed but they are not on track to generate a positive cash flow according to recent SEC Form 10 filings. It is not expected they will be able to repay this note when due.
 
Seating Morris on the Board of Directors could revitalize Prosper's prospects for success longer term. According to Prosper, QED Investors is a direct investment fund focused on high-growth companies that leverage the power of data strategies. In addition to managing QED as its general partner, Prosper said Morris works in an advisory capacity with General Atlantic Partners, Columbia Capital and Oliver Wyman. Prosper said he also serves on the board of The Economist Group, London Business School, and Venture Philanthropy Partners.

Also see 60 DAY STOP GAP LOAN a few posts down.

[cutecub00]

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

[Investar]

LENDERS v PROSPER
PROSPER v GREENWICH

Dateline January 21, 2010 -- Calling Thursday's courtroom action "unimpressive" would be an overstatement. So little occurred Judge Kramer didn't even bother to call in a clerk or a court reporter into the room. He officially told the lenders there will be no rummaging in the wallets of Prosper's Board Of Directors, and that's final. All board members were officially excused from allegations of wrongdoing. This was something Judge Kramer had pretty much decided last autumn and said so at the time.

This pound of the gavel was something judicial pundits predicted at the outset. A board of directors is rarely, if ever, implicated in these things with any success. During the course of events that now stretch across 15 months, the lenders tried the ploy twice and have finally proved the pundits correct once again, costing Prosper half a million dollars in the process.

At this point, the lenders were reduced to rummaging in Prosper's wallet, which was pretty much empty except for $8 million in borrower loans they accumulated since July, 2009, the time they began holding borrower notes in their own name and selling their lenders a derivative product. Otherwise, the "class action" lenders still had latch-strings on the wallets of Prosper's CEO and three other executives. And thus the disenfranchised lenders slog on into year two of the litigation, still optomistic their complaints will achieve "class action" status.

Meanwhile, Prosper's complaint against their liability insurance carrier is still marinating. Greenwich Insurance of Stamford, Connecticut blatantly refuses to reimburse Prosper's mounting litigation cost. The judge has taken no action in the matter, save stirring that marmalade into the molasses that is Prosper versus the disenfranchised lenders. He has swept the two events into one and all three parties-at-odds will rendezvous with the judge at 2:30 PM on April 9, 2010. Until then, it's all quiet here on the observation platform.

[go4reward]

So will lenders get part of their charge-off money back based on the outcome of the lawsuit?

[Investar]

60 DAY STOP GAP LOAN KEEPS OPERATIONS AFLOAT
February 1, 2010

Prosper's blog announced a "Bridge to Series D Fund Raise" on February 3, 2010. They secured a 60-day, $2 million bridge loan. Prosper had been facing imminent bankruptcy. The 8K filing at the SEC said Prosper Marketplace, Inc. entered into a Note and Warrant Purchase Agreement with certain of its existing investors. Prosper signed a series of Convertible Promissory Notes in the aggregate principal amount of $2,000,000. All principal and accrued interest under the Notes were due in a single payment on April 1, 2010. The APR was 15%. Prosper described the notes as "unsecured" debt.

Two insiders and some of Prosper's current investors, those who already had $40m on the table, dipped into their collective jars of pocket change to keep things running for 60 more days. Prosper could now continue its search for a real solution. A stock deal was referenced in this filing and the last one where they borrowed $1 million. All appearances, they continued to seek a $5 million float. Both the 2mil this day and the 1mil of last November could be converted into that stock. It was unclear if the end result would yield $8 million or if this loan meant 3 of the 5 million was effectively "spent" at this point.

The blog post said the stock offering was going well but perhaps Prosper meant to say "as well as can be expected." Prosper claimed there was strong interest from a number of world class investors. Although they'd been shopping the offer door-to-door for several months they did not have $5 million in pledges to date. If they had, they'd have issued the thing instead of going for more 'payday-cashcall' type money. Meanwhile, lenders and borrowers we're 'good to go' for sixty more days.

[sosocratic]

Hmmmm.......

Prosper is in financial trouble and is having to scratch around for a loan. They are having trouble getting fully funded and have had to take an unsecured loan for 15% APR.

Anyone else find this somewhat ironic?

[Investar]

  So will lenders get part of their charge-off money back based on the outcome of the lawsuit?

That's the plan.

[go4reward]

  So will lenders get part of their charge-off money back based on the outcome of the lawsuit?

That's the plan.

Does this mean we should not bid on any Prosper loans?