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[onthefence]

Looks like a related concern was brought up ages ago.

... and lenders apparently didn't really care.

http://www.prosperreport.com/threads/6/1/6114.0.HTM

Does anyone know who FOXE is?
http://www.lendingstats.com/lenders/FOXE

I think this guy needs to be told his concerns have been vindicated.  And maybe should get an apology from those who blew him off.

[NewHorizon]

FOXE may be exemplary of the brightest Prosper members.
They left long ago.

This just leaves, well, the rest of us. 

[msava]

The states that lost absolutely nothing are making a cool million off of the misery of investors.

[onthefence]

The states that lost absolutely nothing are making a cool million off of the misery of investors.

That's $1 million dollars split up among the states that took part in this settlement.  It isn't $1 million per state.  If I am not mistaken, these are to be considered penalties, not restitution.

[chameleon734]

The states that lost absolutely nothing are making a cool million off of the misery of investors.

Your math is WAY off because that $1 million fine is shared between all the NASAA members equally, which are US States/territories*, Washington, D.C., Canada, and Mexico.

$1,000,000/55 NASAA members= $18,181.18

It would only be $1 million per NASAA member if the fine was no less than $55 million.

*= includes Puerto Rico and US Virgin Islands.

[msava]

Who said it was $1 million per state. I meant the group of states made $1 million, investors made nothing.

[beerbud1]

A link I believe may be of interest:

http://www.netbanker.com/2008/12/prosper_pays_1_million_to_states_to_settle_securities_complaint_nightmare_not_over_yet.html

Prosper Pays $1 million to States to Settle Securities Complaint; Nightmare Not Over Yet
By Jim Bruene on December 1, 2008 7:52 PM  No one said it would be easy trying to disrupt a multi-trillion dollar industry. Prosper's latest blow is the cool $1 million it spent to settle what could have been a legal black hole, individual states suing it for securities law violations. Here's today's press release from the NASAA announcing the settlement.

With sate securities regulators off its back, Prosper now has two of its three problems settled. Last week it announced a settlement with the SEC (here). Terms were not disclosed.

But there is one major hurdle remaining: potential claims from lenders wanting their money back. Attorney Broox Peterson commented on Prosper's potential legal liability yesterday (here):

Sale of a  security that has not been registered under Section 5 of the Securities Act of 1933 gives rise to a private right of action under Section 12(a)1 of that Act.  The remedy that can be enforced with this private right of action is rescission of the sale of the unregistered security.  In practical terms this means that investors in unregistered Prosper notes that were ultimately uncollectible can get their money back.

If a significant portion of the lenders, who hold an estimated $30+ million in bad debt, successfully sue Prosper for a refund on the grounds they were sold an unregistered security, it could be very expensive for the company. At least one class action suit has been filed against Prosper (The Rosen Law Firm suit filed Nov. 26 ).   

Comment: Ultimately, I think the U.S. peer-to-peer lending industry will recover from these legal setbacks. However, the regulatory situation has put a damper on innovation, reduced competition (see note 1), and caused a significant reduction in credit available to consumers via P2P exchanges (see note 2).

Court cases aside, the bigger issue is whether P2P loan losses can be kept to a level that provides a reasonable rate of return for lenders. The jury is still out on that (see note 3).

Notes:
1. Zopa has now admitted that the reason it did not open a fully peer-to-peer loan market in the U.S. was because it expected this regulatory treatment (post here).

We always took the view that the SEC would likely view our platform, as operated in the UK and Italy, as requiring registration with them. That’s the key reason why we didn’t launch our UK model in the US...

2. P2P lender, Lending Club, which reopened Oct 14, is fully SEC compliant and open for business. Prosper and Loanio remain shuttered until the SEC filing process is completed sometime in 2009.

3. For more info on the market see our Online Banking Report on P2P Lending

[Mtnchick]

The states that lost absolutely nothing are making a cool million off of the misery of investors.

Your math is WAY off because that $1 million fine is shared between all the NASAA members equally, which are US States/territories*, Washington, D.C., Canada, and Mexico.

$1,000,000/55 NASAA members= $18,181.18

It would only be $1 million per NASAA member if the fine was no less than $55 million.

*= includes Puerto Rico and US Virgin Islands.

Were loans originated in PR and the VI? Surely if no loan originated somewhere, they won't be getting a piece of the cut? And would the amount of loans be in play, i.e. a state that had more loans would get more of the fine?

[Fred93]

Were loans originated in PR and the VI? Surely if no loan originated somewhere, they won't be getting a piece of the cut?

I wanna know if Canada and Mexico get part of the money.  (They're members of NASAA.)

[Mark12547]

OregonLive.com mentioned the settlement: Oregon regulators reach $1 million pact.

Main concerns Oregon regulators had:

• Securities weren't registered
• Lenders had little recourse about misleading statements by borrowers
• Prosper failed to properly disclose risk

Oregon regulators are investigating 40billion.com, and they are reviewing registration request by Lending Club.

The bulk of the article was about Prosper, which isn't news to us, but it is an article that finally showed up in a news outlet.

[CleanRivers]

While I like that we are finally seeing the problems of Prosper coming to "Official" notice. I am irked every time I see a fine levied. It means there is now less money Prosper.com can pay the lenders back on the illeagal securites.

[beerbud1]

Another Link, I thought might be of interest:

http://weblogs.baltimoresun.com/business/consuminginterests/blog/2008/12/prospercom_settlement.html


Prosper.com settlement
Prosper Marketplace may need to borrow $1 million.

That’s the amount that the popular peer-to-peer lending service has agreed in principle to pay to 20 states, including Maryland, to settle complaints that it was selling unregistered securities. The settlement was announced today.
The lending site matches people in need of a loan with regular folks willing to bid on the opportunity to lend them $50, $100 or so.

According to the North American Securities Administrators Association, a group made up of state securities regulators:

“Prosper conducts an electronic auction to fund unsecured promissory notes. The Web site features a list of potential loans and investors bid against each other to finance the loans. Funds from the lowest bidders are pooled together to fund the loans. Prosper issues notes to those lenders funding the loans and services that note.”

Those notes are securities, regulators say, and haven’t been registered with the states.

The states still need to sign off on the settlement. If they do, they also will be agreeing to ending their investigation of Prosper’s securities sales prior to Nov. 24th.

This settlement comes a week after the SEC filed a cease and desist order against Prosper for selling unregistered securities.

Prosper spokeswoman Tiffany Fox said, "We have agreed to settle this matter with the NASAA members, and we are moving ahead with our registration."

Prosper recently announced it would stop making new loans and accepting new investors while it sought to register with the Securities and Exchange Commission.

On its Web site, Prosper said:

“If you're an existing lender, 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.

"If you're a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process. If you're a borrower seeking a loan, you will still be able to create a new loan listing, which we will endeavor to fulfill through alternative sources....A successful registration can take several months, but we assure you we will do our best to move forward as quickly as possible.

 

Posted by Eileen Ambrose on December 1, 2008 5:21 PM | Permalink

Bolding is mine

[beerbud1]

I called the Florida Office of Financial Regulation and was speaking to the Person who answered my call and explained to her what I was calling about and she said I should also File a complaint with
The Federal Trade Commssion and She gave me the following telephone numbers:

1-877-382-4357 as well as 202-326-2222

[Nora_Lenderbee]

Main concerns Oregon regulators had:

. . .

• Lenders had little recourse about misleading statements by borrowers
• Prosper failed to properly disclose risk

Yesss![/list]

[lhsbandnurd]

So I ask, why isn't Witchel listed as a defendant?

And to all you lawyers out there, what happens when there is more than one class action for the benefit of "lenders"? Do you have to opt in/out of all? Do they eventually merge?