Print

[Investar]

A kwik-reference to key dates and events in the life of Prosper Marketplace Inc beginning with a sudden shut-down of operations in October of 2008.

— Registering with United States Securities and Exchange Commission (SEC)
— Resolving state sanctions promulgated by North American Securities Administrators Association (NASAA)
— Addressing grievances alleged by disenfranchised Prosper lenders (Class Action Lawsuit)
— Other surprises in the perpetual evolution of this upstart enterprise

This chronicle was originally posted to public view on a site called "SCP Prosper Investing and Finance Forum"
which went dark September, 2011 and no longer exists. The archive is presented here so its historical elements
are available to interested readers. Sections of superfluous material and known bad links have been redacted.
Where applicable links to additional information and event discussion that occured on this forum are inserted.

THE PROSPER "QUIET" DIARY

• October 15, 2008; 4:43 AM PDT -- that was the moment Prosper turned out the lights and shut down the marketplace. This lender wondered what the sudden "Quiet" was all about.

• November 24, 2008 -- an investigation that began October 15th was concluded. The Securities and Exchange Commission (SEC) issued a public demand that Prosper cease-and-desist. Their loans were actually securities and they weren't licensed to sell them. Read the SEC's Cease & Desist Order here.

• November 26, 2008 -- disenfranchised Prosper lenders filed motion for a class action lawsuit against Prosper in Superior Court, Los Angeles County, California. They saw an opportunity to recover capital lost to defaulted and charged-off loans.

• December 1, 2008 -- Prosper agreed to pay a $1 million penalty to the 50 states for violations pursuant to their federal breach of law. Few knew the states had been doing their own investigation. The federal decree spurred them to act. Full explanation with updates here, other discussion here.

• December 5, 2008 -- Prosper filed an all new proposal to sell regulated securities, loans now called notes, with the SEC. It was some 140 pages long. It was strikingly similar to LendingClub's proposal the SEC had approved the very week Prosper went quiet.

• January 7, 2009 -- the first courtroom appearance to hear the Class Action against the 'old' Prosper was postponed by the lenders/lawyers bringing the suit. The official start of a proceeding that promised to drag on for many months failed to occur. On the following day the case was assigned "Complex Litigation Designation" moving its future activity to a different 'department' in the courthouse.

• January 15, 2009 -- this lender 'quietly' marked 90 days in the darkness of a "Quiet" Prosper winter.

• January 16, 2009 -- Prosper filed a complete 'new' amended S1 form with the Securities and Exchange Commission. This was a follow-on to their December 5th document, the result of ongoing dialog between the two parties.

• February 11, 2009 -- the court case against the 'old' Prosper continued to trundle along. Prosper filed a "demurrer" challenging the legal sufficiency of the disenfranchised lender's claims. On February 26, 2009 a "1st Amended Complaint" was filed by the lenders.

• March 18, 2009 -- Prosper's first appearance in court for the Class Action Lawsuit didn't happen. Again.

• April 14, 2009 -- Prosper filed a 3rd Amended S1 Securities Registration Statement with the Securities and Exchange Commission. It contained revisions and clarifications required for SEC approval. The document was the culmination of dialog between the parties after the 2nd Prosper filing January 16, 2009.

• April 15, 2009 -- this lender 'quietly' marked 90 (+) 90 days in the darkness of a "Quiet" Prosper winter and saw his rosy predictions of an early springtime rebirth begin to wither. The April 14th event did provide new hope.

• April 15, 2009 -- the lawsuit against the 'old' Prosper continued to inch forward. Prosper filed written answers to the revised "Complaint" of February 26 and entered a protest on behalf of its Directors. Three court dates were pending.

• April 21, 2009 -- Prosper and the North American Securities Administrators Association (NASAA) finalized a template consent order, the framework for Prosper to pay up to $1 million in penalties to the individual States, as agreed last December, to resolve harm caused by their offer and sale of unregistered securities.

• April 25, 2009 -- an unusually "Quiet" weekend commenced. Prosper's website was offline for system upgrades and configuration changes all day-n-nite Saturday and Sunday. There was rampant speculation here and elsewhere. By Sunday evening the "Site Not Available" notice changed to say system upgrades were taking longer than expected. The 'darkness' continued thru Monday. On Tuesday morning Prosper reopened it's doors to California lenders only and to borrowers everywhere. Discussion here.

• April 30, 2009 -- again with the disappearance of the first appearance of the Class Action Lawsuit in court. Actually, the litigation had yet to be recognized as a class action at this point.

• May 5, 2009 -- states began to enter Consent Orders (levy fines) related to the NASAA settlement agreement.

• May 07, 2009 -- an overbooked court docket caused Prosper's first meeting with the disenfranchised lenders to be delayed once more.

• May 09, 2009 -- the brief moment of Prosper sunshine that commenced April 28th suddenly disappeared behind a dark cloud. Prosper shuttered its California-only operation with an odd excuse, an apology, and a reference to ongoing registration efforts in Washington D.C. All was "Quiet" again. Discussion here.

• May 21, 2009 -- there was a rustle in the quiet. Several states were satisfied with Prosper's proposals and approved the operation for their state ahead of SEC action.

• June 1, 2009 -- Prosper's put a 4th set of documents in front of the United States Securities and Exchange Commission. They filed another Amended S1 Registration Statement and associated exhibits dated May 29.

• June 11, 2009 -- for the very first time, a clutch of lawyers gathered before a judge in session in a courtroom in California to confer on matters related to the 'old' Prosper's alleged violation of securities laws. The very first turn of the great wheels of justice...

• June 26, 2009 -- Prosper filed proposal number 5 with the Securities and Exchange Commission. For the first time the package included direct testaments from Prosper's legal counsel, Morrison & Foerster. Since lawyers hesitate to bind their name to these sorts of things unless there can be no argument against their blessing, speculation was the SEC and Prosper had come to terms at last.

• July 9, 2009 -- Prosper presented a 6th set of basic registration documents to the Securities and Exchange Commission. A mere 12 days had passed since their 5th attempt.

• July 9, 2009 -- Prosper won a temporary reprieve from the Class Action Lawsuit in its second courtroom session with the disenfranchised lenders. It was short lived. Lenders filed a refreshed Complaint the next day.

continued....

[Investar]

THE PROSPER "QUIET" DIARY continued 

• July 13, 2009 at 5:00 PM PT -- PROSPER ENDED THEIR QUIET PERIOD. On Friday, July 10, United States Securities and Exchange Commission (SEC) approved Prosper's new securitized peer-to-peer (P2P) note funding and trading platform at about noon (3:30 PM Pacific). The lights on the 22nd floor of the Hunter-Dulin building burned brightly on Saturday. Prosper took the Marketplace off-line Sunday and Monday to 'unlock' the doors.

Late Monday afternoon Prosper rushed an email invitation to borrowers. About midnight Monday the doors to Prosper The Loans Marketplace reopened to lenders and borrowers, and for the first time, to note traders. Prosper's CEO, Chris Larsen officially announced "Prosper Is Back!" on the Prosper blog. Bidding and funding consumer loans began in 14 states where 'Blue Sky' approval had been granted. Borrowers in 46 states were eligible to participate.e.

• July 16, 2009 -- the new Prosper dawn arrived in the states of Washington and Hawaii. Lenders there were authorized. 

• July 21, 2009 -- class action lawsuit litigants took a summer break. Complex Litigation discussion would resume mid-September. Then anticipating a mandatory work furlough, Superior Court Of California pushed the events off calendar for an extra week.

• July 22, 2009 -- Prosper emailed lenders in all states who remained 'quietly' on the sidelines. About state-by-state approval they said, "We are diligently working through the process, but ultimately Prosper does not control the timeline involved to get approval. We will inform you the moment we hear that lending is open in your state of residency."

• July 27, 2009 -- states continued to enter Consent Orders (levy fines) related to the NASAA settlement agreement. Prosper's total penalty topped $100,000 among at least 7 states who 'cured' their allegations against the 'old' Prosper.

• July 31, 2009 -- Prosper opened the gates to lenders in Maine (borrowers there remained ineligible to participate).

• August 7, 2009 -- Prosper welcomed lenders and traders in Connecticut, Idaho, New Hampshire and Oregon where state clearances were granted. Now investors in 21 states were participating on the 'new' Prosper.

• August 10, 2009 -- litigation paper shuffle took no summer break. Named as perpetrators in a 2nd Amended Complaint, members on Prosper's Board of Directors repeated their objection to alleged involvement. The court would hear them on September 15th, the date more tedious matters in the pending class action were already set to come under review.
 
• August 14, 2009 -- state clearances arrived from Louisiana and Missouri. Then on August 19th, Rhode Island and Virginia joined in. One month into "the world's most transparent and durable personal loans trading platform" Prosper had reached nearly 49% of its potential investor/lenders by total US population and 50% of potential by participating state count.

• August 31, 2009  -- Prosper brought suit against Greenwich Insurance Company in California Superior Court. Prosper sought to remedy breech of contract by their liability insurer and recover compensatory damages for that entity's refusal to cover mounting costs Prosper was incurring in litigation with their lenders.

• September 14, 2009 -- the state of Florida, 4th most populous in the nation, became the 26th state to certify the 'new' Prosper. Their swell of lenders pushed national peer-to-peer participation on the lending side into the clear majority.

• September 15, 2009 -- courtroom action resumed with the renewed cry of "your honor, we're not really in this" by three on Prosper's Board of Directors. The judge agreed and excused them from proceedings. The actual lenders bringing the complaint addressed the judge for the first time.

• October 29, 2009 -- Prosper and their suitors met the judge again, shuffled at least one official paper across the desk, then broke for lunch until after the holidays. A second, related lawsuit entered the fray.

• November 10, 2009 -- Prosper garnered $1 million in stopgap funding via a 24 month convertible Promissory Note. And not a moment too soon. The 'well' at Prosper was nearly dry. Prosper avoided the ultimate "Quiet" of a bankruptcy with enough cash to continue operations into the coming winter.

• January 21, 2010 -- Prosper and the disenfranchised lenders said "howdy" to Judge Richard Kramer in chambers and then parted ways for ninety more days. Prosper's uncooperative insurance underwriter tagged along.

• February 1, 2010 -- Prosper secured a 60-day, $2 million bridge loan. Prosper had been facing imminent bankruptcy. Lenders and borrowers we're 'good to go' for sixty more days.

• April 16, 2010 -- Prosper announced it raised $14.7 million in a Series D round from new and existing investors. After satisfying short term creditors Prosper put some $11 million into their empty coffer. Shareholder stake in Prosper's future now totaled $57.7 million. A study of financial condition predicted lenders and borrowers were 'good to go' for another year.

• April 27, 2010 and again May 17, 2010 -- complex litigation case management conferences pertaining to the 'old' Prosper continued in Judge Kramer's courtroom. What the litigants accomplished, if anything, was unclear. The consort was ordered to shuffle more papers and meet again in mid-summer. Meanwhile, California's Appellate Court remained unable to consider the disenfranchised lenders disagreement with Judge Kramer's earlier ruling. They still weren't ready to present argument to the higher court.

• END of original diary. As time enables, the author intends to revise and extend the diary's event timeline and provide links to relevant discussion here or in other threads.

December 19, 2010 -- Prosper resigned their position as lender 'coach' and became their 'quarterback' instead. The revolutionary makeover occurred during a seven-hour weekend outage. Prosper re-emerged as a fixed rate platform imitating their closest competitor, LendingClub. Note investors no longer provided independent influence in creation of the peer-to-peer product. Rate bidding was ended and borrowers were summarily profiled and assigned a flat rate accordingly (Prosper: Interest Rates and How We Set Them).

continued....

[Investar]

THE PROSPER "QUIET" DIARY continued

• January 26, 2011 -- Prosper was awarded a substantial operating subsidy. The Superior Court of California issued a final decision finding that Greenwich Insurance Company, Prosper's liability insurer, had a duty to pay Prosper's past and future defense costs in ongoing class action litigation, up to the $2 million limit of the insurance contract. Greenwich acquiesced and in February, cut Prosper a check for $1,728,273. This covered costs Prosper had incurred to date. The insurer was to reimburse the remaining $271,727 as necessary. In addition, the court ordered Greenwich to pay a penalty for shirking their contractual duty, bringing the total settlement to $2,164,828. The penalty was "interest reimbursement" ostensibly incurred by Prosper when the insurer refused coverage.

• March 5, 2011 -- in a blow to conscientious borrowers and vigilant investors alike, it was confirmed borrower payments were being reported to the credit agencies on a hit or miss basis. Prosper loans were likely to show erroneous balances and no payment activity whatsoever. Typically, data on a borrower's credit profile was outdated beyond a year. In order to perform this most basic of all tasks, this otherwise sleek automated e-lender was manually clicking 'send' over 40,000 times a month, once each for every loan on the books. Not happening. Discussion and Prosper's admission here.

• April 13, 2011 -- Prosper's Quarter 1 Financials were posted at the SEC answering lender's growing concern, when is Prosper's next D-Day? Prosper's burn rate had increased as business had expanded. Operating cost in excess of revenue was putting Prosper another $31,000 behind the eight ball every day. Net cash burn had risen by $85,000 to near $930,000 per month. Prosper still had about $1.8 million cash and equivalents on hand but studies showed the reserve would be exhausted in 60 days. The only reason they weren't broke already was because they got that 1.7 million dollar insurance check in February.

• April 29, 2011 -- Prosper severed open lines of communication between its borrowers and lenders. On April 15, 2011 the Q&A interface on Prosper listings was disabled without warning and without explanation. Lenders who sought the reason were told shifts in the regulatory environment had led to heightened sensitivity among Prosper's banking partners. Privacy related compliance for borrowers was at issue. Although Prosper was investigating alternatives, the remaining resource, private messaging between borrowers and lenders was severed this day.

• June 7, 2011 -- Prosper announced that it has raised $17 million in funding from new investors Draper Fisher Jurvetson and CrosslinkCapital. Existing investors Accel Partners, CompuCredit, Omidyar Network, TomorrowVentures, and Volition Capital also participated in the round.  Social Lending Network noted this $17.2 million funding round was Prosper's largest cash injection to date and brought their total cash raised to $74.7 million. The new injection was expected to give Prosper breathing room for a year or more although ample portions of ready cash was likely to spend for promotional incentives or be usurped by rising cost of operation. Prosper was burning thru a full million per month even as business expansion continued to pace at a healthy clip. Prosper was writing $6 million in new loans per month. That figure was just $2 million a year earlier.

• September 17, 2011 -- Author's placeholder for additional information

Events continue to develop. The NASAA settlement has seen its zenith but the pending class action against Prosper is far from concluded - key updates at Prosper.com Class Action Suit Monitor.

Forum members are encouraged to post notice of new events and relevant dates as they occur
The author thanks you in advance

(move to lobby "okay")

[Xenon481]

+1 for Lobby.

[Cushie]

Great timeline, second (will wait for another mod to move).