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[NewHorizon]

As was commented amongst us a while back, Prosper's earlier California-only service seemed basically a "screw you" to the SEC after the SEC told Prosper to shut down.  Here's how it apparently went down, and the SEC was not amused:

In the April 16 teleconference between representatives of Prosper, the California Department of Corporations and members of the staff, you advised the staff, without allowing for questions, that Prosper intended to commence an intra-state offering in California in reliance on Section 3(a)(11) of the Securities Act of 1933. As we requested in our follow up conversation with counsel on April 17, to which we have not yet received a response, in order to evaluate your compliance with the Securities Act of 1933, please provide us with a full description of how the intra-state offering will be conducted and a legal analysis evaluating the availability of the Section 3(a)(11) exemption, particularly in view of the pending registration statement for the Prosper Notes. We note that you have commenced such an offering on your web site so we believe a prompt response is warranted.

http://www.sec.gov/Archives/edgar/data/1416265/000000000009037657/filename1.pdf
Bolding is mine.  This is where they basically rebuffed the SEC.

(Pre-approved for lobby, if there's any desire.)


ETA: this letter is dated April 29, 2009.  Prosper shut down again on May 9.  I had thought Prosper repurchased the 13 loans that originated during this period, but I'm not seeing evidence of this on Prosper's performance data page.

[112233]

part of the bird as well

to which we have not yet received a response .. We note that you have commenced such an offering on your web site so we believe a prompt response is warranted.

just ignored their request and went ahead with the plan

[Cushie]

Let's get this to the lobby, ASAP.  That tells you about all you need to know about Prosper, IMO.

[bamalucky]

I guess we know why Ed is gone.

[Beerbud1]

I guess we know why Ed is gone.

I said it on another site, but a few questioned it. Glad you see it as I do.

[Urbi_et_Orbi]

Notice where the SEC letter fits on the overall timeline...

http://prosperclassaction.wordpress.com/2008/11/29/what-did-prosper-know-and-when-did-prosper-know-it/

[NewHorizon]

When the California offering was launched, a blog entry from Prosper's CEO was another example of Prosper's admiration   of the SEC:

We remain hopeful that the SEC, which until now has effectively hamstrung the growth of the peer-to-peer and micro-lending industries in the U.S. will start applying the same common sense approach as California’s regulators. California has recognized that Internet auctions, just like the Google IPO, are the most efficient means of price discovery; that loan level transparency is better than the opaque loan pooling that brought the financial system to its knees; and that requiring regulatory filings every other day of web site transactions that are already visible in real time, is redundant and cost prohibitive.

http://www.prospers.org/forum/prosper_reopens_in_california_only-t13310.0.html

Prosper stopped business again 10 days later.

[Investar]

For posterior or posterity as the case may be (grin):

Here's text of the whole email that went out from Prosper at the time -- along with my own ruminations sub-text to a "Prosper Quiet Diary" entry no longer available in original form.

Turn out the lights,
Shut the door.
Prosper turns quiet,
Quiet once more.

You saw it on your screens Saturday:
Prosper is in a quiet period and is not accepting any new Borrower or Lender
registrations until our registration statement with the SEC becomes effective.
To learn more: Prosper> Help> General> Quiet Period

Very early Saturday morning Prosper emailed the participants:
Sent: 5/9/2009 12:07:09 A.M. Pacific Daylight Time
Subj: Discontinuance of CA State Offering

Dear First Name,

We are writing to inform you that we are discontinuing our California intrastate offering at this time.

We have been overwhelmed by the outcry from potential investors around the country who want to participate in peer-to-peer lending. Therefore, after much consideration we have decided to voluntarily shut down our operation in order to complete our SEC approval for a nationwide peer-to-peer lending platform.

Your current lender agreements will be unaffected; your existing loans will continue to be serviced; you'll be able to track and monitor your loans; and you'll be able to withdraw funds from your Prosper account.

As a result of this decision, we will not be accepting new lender or borrower registrations or loans, or new commitments from existing lenders effective immediately. Until this process is complete, we are required to be in a quiet period and will be unable to respond to press, blogger or other inquiries related to our SEC registration process, even though we would like to.

We want to assure you that Prosper is looking forward to being able to offer a transparent, durable and participatory lending institution very soon.

We sincerely apologize for this inconvenience or disappointment our decision may have caused. We want to thank you for your continued support and patience. We look forward to serving the needs of the community in the hopefully not too distant future.

Regards,
Prosper Marketplace, Inc



So what are they trying to tell us?

The phrase, "voluntarily shut down" sounds an awful lot like the olde "Your fired!" "No, you can't fire me, I quit!" syndrome. No company in their 'right mind' turns away all their existing business because they might get other business in the future. Not voluntarily anyway.

"Until this process is complete, we are required to be in a quiet period" is more telling. It suggests 'mother' SEC has warned the 'kids' not to be playing in the sandbox in California while they are dressing for Sunday-go-to-meetin' in Washington. Perhaps there was grumbling elsewhere in the nation. Bear in mind that at least some of the states are looking at Prosper's national proposal on a state level.
 
As for the phrase, "unable to respond... even though we would like to." -- Prosper has hired a Washington DC lobbying concern to promote themselves and P2P lending. Read a PDF of the Lobbying Disclosure here. Meanwhile, Fix The Credit Crisis.org, the bully pulpit Prosper set up for individual lenders to lobby on their own was shut down Saturday morning (fixthecreditcrisis.org now redirects to prosper.com).