Prosper files another S-1a June 1, 2009, and again June 26

[ira01]

With respect to the plan of distribution, the Prosper notes are offered and sold on the internet to the public at large. There is no special level of financial sophistication or expertise that Prosper lenders must have. This wide dissemination and solicitation to the public with no attempt to limit investors is indicative of a security. See Reves, 494 U.S. at 68 (the notes “were…offered and sold to a broad segment of the public, and that is all we have held to be necessary to establish the requisite ‘common trading’ in an instrument”); Pollack v. Laidlaw Holdings, Inc., 27 F.3d 808, 814 (2d Cir. 1994) (concluding that the broad-based, unrestricted sales to the general investing public supported a finding that mortgage participations were securities under federal securities laws).

http://www.sec.gov/litigation/admin/2008/33-8984.pdf

That seems kind of irrelevant now, though, since Prosper is admitting that the notes are securities -- that's why it is seeking registration.

[112233]

With respect to the plan of distribution, the Prosper notes are offered and sold on the internet to the public at large. There is no special level of financial sophistication or expertise that Prosper lenders must have. This wide dissemination and solicitation to the public with no attempt to limit investors is indicative of a security. See Reves, 494 U.S. at 68 (the notes “were…offered and sold to a broad segment of the public, and that is all we have held to be necessary to establish the requisite ‘common trading’ in an instrument”); Pollack v. Laidlaw Holdings, Inc., 27 F.3d 808, 814 (2d Cir. 1994) (concluding that the broad-based, unrestricted sales to the general investing public supported a finding that mortgage participations were securities under federal securities laws).

http://www.sec.gov/litigation/admin/2008/33-8984.pdf

That seems kind of irrelevant now, though, since Prosper is admitting that the notes are securities -- that's why it is seeking registration.

maybe they are having problems with registration and are looking for a way to resume operations

[ira01]

With respect to the plan of distribution, the Prosper notes are offered and sold on the internet to the public at large. There is no special level of financial sophistication or expertise that Prosper lenders must have. This wide dissemination and solicitation to the public with no attempt to limit investors is indicative of a security. See Reves, 494 U.S. at 68 (the notes “were…offered and sold to a broad segment of the public, and that is all we have held to be necessary to establish the requisite ‘common trading’ in an instrument”); Pollack v. Laidlaw Holdings, Inc., 27 F.3d 808, 814 (2d Cir. 1994) (concluding that the broad-based, unrestricted sales to the general investing public supported a finding that mortgage participations were securities under federal securities laws).

http://www.sec.gov/litigation/admin/2008/33-8984.pdf

That seems kind of irrelevant now, though, since Prosper is admitting that the notes are securities -- that's why it is seeking registration.

maybe they are having problems with registration and are looking for a way to resume operations

Anything is possible with Prosper, although I doubt it -- I think Prosper learned its lesson with its recent brief re-opening and re-closing.  Also, the fact that Prosper is only applying its financial suitability requirements to lenders in a few states tells me that the issue isn't with the SEC, it is that those states are requiring Prosper to limit its use by resident lenders to those of substantial means.

[Investar]

With respect to the plan of distribution, the Prosper notes are offered and sold on the internet to the public at large. There is no special level of financial sophistication or expertise that Prosper lenders must have...

http://www.sec.gov/litigation/admin/2008/33-8984.pdf

That seems kind of irrelevant now, though, since Prosper is admitting that the notes are securities -- that's why it is seeking registration.

It does answer one question I've had. Seems LendingClub's net worth restrictions for lenders were not at issue except on a state level in some states. They voluntarily did a broad-brush that eliminated the little guy everywhere.

[Urbi_et_Orbi]

From what I can tell, a key difference between Prosper and LC in the eyes of the SEC relates to how the rate is set.

[mothandrust]

So you have two forms of risk here:

1) Borrower defaults
2) Prosper default through bankruptcy

With these being unsecured loans, you'd be better of buying junk bonds in an established company and getting comparable if not better interest rates while eliminating risk item 1) above.

All your notes were always subject to the whims of the actions of a single startup company with no public financial statements and an untested business plan.

Prosper changed the rules midstream on collections and the ID theft guarantee proved virtually worthless, so company risk was always on the table.

But now you could pick a portfolio with 0% defaults and still lose everything--no thanks, Prosper.

[bankomatic]

I gather the highlighted text on pages 5 and 6 of the S-1/A are of particular interest to the SEC. Who really owns the notes (loans) and where do lenders stand if Prosper goes belly-up? Prosper does. We won't know where we stand until such event occurs. From highlight on page 5 of the S-1/A  REGISTRATION:

Security Interest—Ranking  "The Notes will not be contractually senior or contractually subordinated to any other indebtedness of Prosper. All Notes will be unsecured special, limited obligations of Prosper. The Notes do not restrict Prosper’s incurrence of other indebtedness or the grant or imposition of liens or security interests on the assets of Prosper and holders of the Notes do not have a security interest in the corresponding borrower loan or the proceeds of that loan. Accordingly, in the event of a bankruptcy or similar proceeding of Prosper, the relative rights of a holder of a Note, as compared to the holders of unsecured indebtedness of Prosper are uncertain."

This text is revised from the previous S-1/A. As I understand it, this has been one of the sticking points. Prosper has tried various methods to protect lenders by segregating borrower loans from other assets and liabilities. Nothing they tried would fit the regulatory mold our grandfathers and their parents fashioned in 1933.

Yeah, I am not a big fan of potentially being in the same line as people who hold prosper bonds if they go under.

[NewHorizon]

So you have two forms of risk here:

1) Borrower defaults
2) Prosper default through bankruptcy

With these being unsecured loans, you'd be better of buying junk bonds in an established company and getting comparable if not better interest rates while eliminating risk item 1) above.

In the immortal words of BigGulp: "I won't lend".

Not to put too fine a point on things, but for a business loan, I view it as more like 3 forms of risk:

1) Borrower's business defaults
2) Borrower defaults personally
3) Prosper default through bankruptcy

[NewHorizon]

Well so much for regular people helping regular people...

Now it's supposed to be fat cats who do the lending.

And this is peer-to-peer how??

That hasta rub Chris Larsen the wrong way:

Chris Larsen, Prosper's chief executive and co-founder, speaks often about "democratizing" the lending process and taking the decisions about who qualifies for a loan out of the hands of an elite minority.

http://www.prosper.com/about/media_news.aspx

[bankomatic]

Well so much for regular people helping regular people...

Now it's supposed to be fat cats who do the lending.

And this is peer-to-peer how??

That hasta rub Chris Larsen the wrong way:

Chris Larsen, Prosper's chief executive and co-founder, speaks often about "democratizing" the lending process and taking the decisions about who qualifies for a loan out of the hands of an elite minority.

http://www.prosper.com/about/media_news.aspx

I swear they are doing so many things wrong. The right move is to create a low cost way to attract small time lenders and fat cats. Why automatically exclude small time guys who would likely be a great way to attract interest and buzz around prosper. They shouldn't be excluding anyone who wants to lend. If casino's can have a 1 cent slot machine and make a profit on it, then prosper can find a way to make a profit off of someone who only has $25 dollars to lend.

[onthefence]

I swear they are doing so many things wrong. The right move is to create a low cost way to attract small time lenders and fat cats. Why automatically exclude small time guys who would likely be a great way to attract interest and buzz around prosper. They shouldn't be excluding anyone who wants to lend. If casino's can have a 1 cent slot machine and make a profit on it, then prosper can find a way to make a profit off of someone who only has $25 dollars to lend.

I could be wrong, but aren't those SEC regulations?  The premise being that people need to have money they can afford to lose prior to investing.  Caping investment at 10% is also a good thing, especially since lenders won't own the loans.

Just look at Pensioner.  Took out a home loan to invest in prosper.  A 10% asset cap excluding home would have been great for him.
http://www.ericscc.com/lenders/pensioner

[lenderguy]

I swear they are doing so many things wrong. The right move is to create a low cost way to attract small time lenders and fat cats. Why automatically exclude small time guys who would likely be a great way to attract interest and buzz around prosper. They shouldn't be excluding anyone who wants to lend. If casino's can have a 1 cent slot machine and make a profit on it, then prosper can find a way to make a profit off of someone who only has $25 dollars to lend.

I could be wrong, but aren't those SEC regulations?  The premise being that people need to have money they can afford to lose prior to investing.  Caping investment at 10% is also a good thing, especially since lenders won't own the loans.

Just look at Pensioner.  Took out a home loan to invest in prosper.  A 10% asset cap excluding home would have been great for him.
http://www.ericscc.com/lenders/pensioner

Yeah, I thought hedge funds worked on the same principle.

[bankomatic]

I swear they are doing so many things wrong. The right move is to create a low cost way to attract small time lenders and fat cats. Why automatically exclude small time guys who would likely be a great way to attract interest and buzz around prosper. They shouldn't be excluding anyone who wants to lend. If casino's can have a 1 cent slot machine and make a profit on it, then prosper can find a way to make a profit off of someone who only has $25 dollars to lend.

I could be wrong, but aren't those SEC regulations?  The premise being that people need to have money they can afford to lose prior to investing.  Caping investment at 10% is also a good thing, especially since lenders won't own the loans.

Just look at Pensioner.  Took out a home loan to invest in prosper.  A 10% asset cap excluding home would have been great for him.
http://www.ericscc.com/lenders/pensioner

Well, I am going to take a libertarian stance on this issue. I am not a big believer into protecting people from themselves. If pensioner chose to waste his money on prosper that was his choice. He could have also concluded that it was wise to invest it all into lottery tickets. At some point people become grown ups and should be able to make their own decisions even bad decisions.

[HollowOak]

I swear they are doing so many things wrong. The right move is to create a low cost way to attract small time lenders and fat cats. Why automatically exclude small time guys who would likely be a great way to attract interest and buzz around prosper. They shouldn't be excluding anyone who wants to lend. If casino's can have a 1 cent slot machine and make a profit on it, then prosper can find a way to make a profit off of someone who only has $25 dollars to lend.

I could be wrong, but aren't those SEC regulations?  The premise being that people need to have money they can afford to lose prior to investing.  Caping investment at 10% is also a good thing, especially since lenders won't own the loans.

Just look at Pensioner.  Took out a home loan to invest in prosper.  A 10% asset cap excluding home would have been great for him.
http://www.ericscc.com/lenders/pensioner

This is not a bad thing. Pensioner makes the case that there are enough people who will endanger their financial security when opportunities with unquantifiable risk appears on the horizon.

With the new wording in the S1, where Prosper owns the notes and note holders' position in a bankruptcy is undefined, do you really want to run the risk of having a substantial investment (in my case the words should read "any investment") where I am not only subject to the risks imposed by the investment itself, but also by the risk imposed by the financial viability of the intermediary?  It would be as if my investments in mutual funds are also subject to the chances that my stockbroker stays afloat.

This is a horrific scenario for any investor. It is 180 degrees opposite of the initial promise of Prosper where I owned something. Now, if Prosper 2.0 (or .3?) goes belly up then I'm SOL and we all know that start-ups are inherently very, very risky. You'd have to be nuts to put a penny into Prosper if they cannot fence your investment from their viability. You may as well buy stock in the company.

[BrassKnuckles]

prosper blows