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[112233]

is this a typical letter or was ed in over his head here?

[NewHorizon]

The SEC web site needs a Donate/PayPal button.   

[Tokyo Joe]

The SEC web site needs a Donate/PayPal button.   

While I am pleased that they gave Fred a tip of the hat, I am still livid at the SEC for its gross incompetence in other matters.  Bernie Madoff's victims, among others, are the ones who need a Pay Pal/Donate button.

[NewHorizon]

I would love to see their response!

Make an FOIA request?

In a previous letter, there was some more fun stuff:

9. Please advise the staff how you determined that Group Leaders were not offering
paricipants or otherwise take liability for their actions on the platform.

10. Please advise the staff whether the lender members funds held in the FBO account with
Wells Fargo is reachable by the creditors of Prosper in the event of your entry into
bankruptcy or other collection proceedings.

http://www.sec.gov/Archives/edgar/data/1416265/000000000009042077/filename1.pdf

ETA: another SEC comment in another letter:

The staff is unable to agree with your analysis that the borrower financial information is not material to an investment decision by the lender members.

http://www.sec.gov/Archives/edgar/data/1416265/000000000009037655/filename1.pdf
What kind of "analysis" was that, I wonder.

ETA: and in another letter, more wonderment:

The staff is not able to agree that individual performance of outstanding loans, which are potentially able to trade on the note trading system, is not material to an investment decision and necessary to the functioning of the market.

http://www.sec.gov/Archives/edgar/data/1416265/000000000009037657/filename1.pdf

ETA: OK - found the afore-mentioned "analysis":

Prosper believes that the information with regard to each individual borrower is not material to investors in the Notes being offered by Prosper.  Individual borrower member information is made available on Prosper’s website because some lender members may be interested in information about a borrower (or about the nature of the borrower members in general) including the borrower members’ self-identified affiliations, intended use of funds and other borrower-supplied information.  The mere fact that lender members can view an individual borrower’s posted information and that a borrower member’s loan will be made once sufficient funding is obtained to enable Prosper to purchase the loan, does not alone support a conclusion that that the borrower-supplied information is material to purchasers of the Notes.  It has long been settled that the standard for determining what information constitutes material information about an issuer or security, and therefore must be disclosed to investors under the federal securities laws, is what information a hypothetical “reasonable investor” would consider material to an investment decision with respect the offered security.  See TSC Industries v. Northway, 426 U.S. 438, 445 to 449, 96 S.Ct. 2126, 2130 to 2132 (1976), and the cases cited therein.  In TSC Industries, the Supreme Court made it clear that the test for materiality is an objective standard (i.e. information is material information if there is a substantial likelihood that a reasonable investor would consider it to be important to an investment decision) not a subjective standard (i.e. what a specific investor might consider important).  Id (1)For the reasons described below, Prosper believes that borrower-supplied information about a specific borrower member is information that a reasonable investor would not consider important under the circumstances described in the prospectus and therefore such information is not material information under the objective standard set forth in TSC Industries.  As a result, it is not necessary to include such information in the prospectus.  In addition, as noted in by the Supreme Court, some information may be of “such dubious significance that insistence on its disclosure might do more harm than good” and may cause issuers “to bury the [purchasers of the Notes] in an avalanche of trivial information[,] a result that is hardly conducive to informed decisionmaking.”  TSC Industries at 448, 96 S. Ct at 2132.  For the reasons described below, Prosper believes that including the borrower-supplied information in the prospectus would present a substantial likelihood of doing more harm than good and of burying the material information set forth in the Current Prospectus in a mountain of trivial information, most of which would be irrelevant and inapplicable to the investment decision being made at a particular time by a particular lender.  Accordingly, no information about individual borrower members will be included in the prospectus.

http://www.sec.gov/Archives/edgar/data/1416265/000110465909003175/filename1.htm

Maybe if I looked up those court cases, this would make sense to me.  
But for now, it doesn't.

[Urbi_et_Orbi]

Interesting question regarding group leaders...

[NewHorizon]

Responses to the group leader question, among other, are found here:
http://www.sec.gov/Archives/edgar/data/1416265/000110465909003175/filename1.htm

[CleanRivers]

WTF?
"7. In your response to prior comment 6 of our February 24 letter, you state that the open market lender transfers its security interest in the note to Prosper, and that the only interest retained by the open market member is the servicing right. However, in the disclosure on pages 58 and 66, you indicate that the open market member must warrant that it has perfected its security interest. You also state that the open market member may “foreclose on any collateral” or even “sell the loan to a third party debt buyer at any time.” Please revise your disclosure to clarify what rights Prosper will acquire as a result of a sale of an open market loan on the Prosper platform and what rights and interests in the loans that will be retained by the open market members in the loans. Please clarify also, in the event that Prosper does receive full title to the loan, whether it will take steps to perfect the security interest in the underlying collateral for the benefit of the lender members."

So by this statement somewhere in their paperwork is a something that says, we will sell your note and you can close/sell the note immediately and the buyers of your note are Up the Creek without a Paddle???
Company A sells note through Prosper for XX,XXX it is the financing on a used car; buyers “buy” note at X percent interest rate. Company can then close/sell the note telling the note holders sorry, stuff happens you get nada or a pittance, borrower absconded with the money. You have no recourse. Prosper pockets its percentage plus fees, the borrower gets a car and the Company gets a bunch of fees, plus whatever the money from the car the borrower bought from them. The Company does not have to go after the borrower at all. If anything the Borrower could still be paying on the note they think they have through the Company.

[ira01]

ETA: OK - found the afore-mentioned "analysis":

Prosper believes that the information with regard to each individual borrower is not material to investors in the Notes being offered by Prosper.  Individual borrower member information is made available on Prosper’s website because some lender members may be interested in information about a borrower (or about the nature of the borrower members in general) including the borrower members’ self-identified affiliations, intended use of funds and other borrower-supplied information.  The mere fact that lender members can view an individual borrower’s posted information and that a borrower member’s loan will be made once sufficient funding is obtained to enable Prosper to purchase the loan, does not alone support a conclusion that that the borrower-supplied information is material to purchasers of the Notes.  It has long been settled that the standard for determining what information constitutes material information about an issuer or security, and therefore must be disclosed to investors under the federal securities laws, is what information a hypothetical “reasonable investor” would consider material to an investment decision with respect the offered security.  See TSC Industries v. Northway, 426 U.S. 438, 445 to 449, 96 S.Ct. 2126, 2130 to 2132 (1976), and the cases cited therein.  In TSC Industries, the Supreme Court made it clear that the test for materiality is an objective standard (i.e. information is material information if there is a substantial likelihood that a reasonable investor would consider it to be important to an investment decision) not a subjective standard (i.e. what a specific investor might consider important).  Id (1)For the reasons described below, Prosper believes that borrower-supplied information about a specific borrower member is information that a reasonable investor would not consider important under the circumstances described in the prospectus and therefore such information is not material information under the objective standard set forth in TSC Industries.  As a result, it is not necessary to include such information in the prospectus.  In addition, as noted in by the Supreme Court, some information may be of “such dubious significance that insistence on its disclosure might do more harm than good” and may cause issuers “to bury the [purchasers of the Notes] in an avalanche of trivial information[,] a result that is hardly conducive to informed decisionmaking.”  TSC Industries at 448, 96 S. Ct at 2132.  For the reasons described below, Prosper believes that including the borrower-supplied information in the prospectus would present a substantial likelihood of doing more harm than good and of burying the material information set forth in the Current Prospectus in a mountain of trivial information, most of which would be irrelevant and inapplicable to the investment decision being made at a particular time by a particular lender.  Accordingly, no information about individual borrower members will be included in the prospectus.

http://www.sec.gov/Archives/edgar/data/1416265/000110465909003175/filename1.htm

Maybe if I looked up those court cases, this would make sense to me.  
But for now, it doesn't.

I can't be positive, but I think what is going on is whether Prosper needs to include borrower-specific information on every loan IN THE PROSPECTUS (which apparently must ordinarily include all material information about the investment).  If that is correct, I agree with Prosper -- the Prospectus should inform potential lenders of the operation and risks of Prosper lending generally, not be bogged down by the minutia of every loan ever originated.  The Prospectus can direct potential lenders to the website where all the detailed information about past loans and borrowers is available.

ETA:  Forgot to add my kudos to Fred for his excellent work getting recognized by the SEC!

[NewHorizon]

The Prospectus can direct potential lenders to the website where all the detailed information about past loans and borrowers is available.

Well anyway, I think the net effect of SEC's position is that the detailed information is filed at the SEC now - not just kept on Prosper's web site.  I myself feel that it's better to have those details at the FCC SEC than only on the web site of a company who's currently on a trajectory to run out of cash in a few months - whereupon the web site would presumably come down too.

I can't be positive

I misread that.  At first, I was thinkin', "What prevents you from saying anything positive?"   


EDIT: to correct "FCC" to "SEC".

[chameleon734]

The Prospectus can direct potential lenders to the website where all the detailed information about past loans and borrowers is available.

Well anyway, I think the net effect of SEC's position is that the detailed information is filed at the SEC now - not just kept on Prosper's web site.  I myself feel that it's better to have those details at the FCC than only on the web site of a company who's currently on a trajectory to run out of cash in a few months - whereupon the web site would presumably come down too.

I can't be positive

I misread that.  At first, I was thinkin', "What prevents you from saying anything positive?"   

Did you mean the SEC?

[NewHorizon]

Did you mean the SEC?

Ummm, yeah.  Corrected.

[lhsbandnurd]

Im kind of surprised the SEC uses blogs at face value. I mean, we all know fred and there is no concern, but the SEC doesnt necessarily know that.

Well it wasn't just any blog. Fred cited his sources, and every bit of the information can be (or could be at the time) independently verified.