Monday, November 24, 2008
The SEC settled administrative proceedings against Prosper Marketplace, Inc. (Prosper). The SEC Order finds that Prosper violated the registration provisions of the Securities Act of 1933 during the period January 1, 2006 through October 14, 2008, by engaging in the unregistered offering of securities via Prosper's online lending platform. Prosper offers loans in a double-blind, auction-like process wherein multiple lenders bid to fund loans to borrowers. Since the inception of its platform in January 2006, Prosper has initiated approximately $174 million in loans.
The loans are non-recourse in nature and in amounts between $1,000 and $25,000. Lenders and borrowers register on the website and create Prosper identities. Potential lenders bid on funding all or portions of loans for specified interest rates, which are typically higher than rates available from financial institutions. Individual lenders do not actually lend money directly to the borrower; rather, the borrower receives a loan from a bank with which Prosper has contracted. The interests in a given loan are then sold and assigned through Prosper to the lenders, with each lender receiving an individual non-recourse promissory note in the amount of the lender's bid. Prosper collects an origination fee from each borrower of one to three percent of loan proceeds and collects servicing fees from each lender of one percent of loan payments. Prosper administers the collection of loan payments from the borrower and the distribution of such payments to the lenders. Prosper also initiates collection of past due loans from borrowers, assigns delinquent loan accounts to collection agencies and sells defaulted loans to debt purchasers. Lenders and borrowers are prohibited from transacting directly and from learning each others' true identities.
Based on the above, the Order orders Prosper to cease and desist from committing or causing any violations and any future violations of Sections 5(a) and (c) of the Securities Act of 1933. Prosper consented to the issuance of the Order without admitting or denying any of the findings in the Order.