Print

[Xenon481]

I was waiting around for any mention of whether or not Prosper had filed their 2011 10-K with the SEC yet and was surprised to see that it was filed all the way back on March 30th, 2012, but nobody had posted about it yet. So, here you go:

Prosper has filed their Form 10-K for the 2011 Fiscal Year with the SEC:

http://www.sec.gov/Archives/edgar/data/1416265/000141626512000198/p10k12d31d2011.htm

[Xenon481]

Some interesting excerpts (emphasis mine):

As of December 31, 2011, we had experienced 23 cases of confirmed identity fraud affecting 36 loans since our inception.  In these cases, we received a police report and identity theft affidavit from the victim of the identity fraud, evidencing that identity fraud had occurred.  We have not experienced any cases of confirmed identity fraud during the years ended December 31, 2011 and 2010. 

And if you believe that that means that there hasn't been any identity fraud in that time period, then I would like to sell you some ocean front property in Arizona.

Prosper has the exclusive right to investigate claims of identity theft and determine, in its sole discretion, whether verifiable identity theft has occurred.  As Prosper is the sole entity with the ability to investigate and determine verifiable identity theft, which triggers its repurchase obligation, a conflict of interest exists as the denial of a claim under Prosper’s identity theft guarantee would save Prosper from its repurchase obligation.

Prosper even admits that there is a conflict of interest here.

Prosper may work with the borrower member to structure a new payment plan in respect of the borrower loan without the consent of any holder of the Notes corresponding to the borrower loan.

As of December 31, 2011, we employed 58 full-time employees.  Of these employees:

·21 were in network and engineering;
·12 were in customer services and operations, which includes the employees who conduct our collection activities;
·9 were in legal and finance;
·8 were in marketing and risk;
·6 were in institutional sales; and
·2 were in general and administrative.

58 employees? That is an increase of 52% from the previous 10-K filing for FY2010.

Greenwich subsequently made payments to the Company in the amount of $2 million to reimburse the Company for the defense costs it had incurred in the class action suit.  As a result, Greenwich has now satisfied its obligations with respect to the Company’s defense costs for the Hellum suit, with the exception of $142,584 in pre-judgment interest that Greenwich will be required to pay to the Company when a final judgment has been entered in the suit and all appeals have been exhausted.

Prosper has run through their defense insurance payments and are now having to cover all legal defense costs out of their own pockets. That is going to hurt.

All listings are posted on our platform without our verifying the information provided by the borrower member, including the borrower’s stated income, employment status or occupation that appears in the listing.  Lender members should not rely on borrower’s self-reported information such as income, employment status, or occupation in making investment decisions.

If lenders shouldn't rely on that data for making investment decisions, then why should Prosper display it?

Note holders do not have a security interest in the borrower loans or the right to payment thereunder.

 

In the unlikely event that we receive payments on the corresponding borrower loans relating to your Notes after the final maturity date, you will not receive payments on your Notes after maturity.

[...]

If there are any amounts under the corresponding borrower loan still due and owing to Prosper after the final maturity, Prosper will have no further obligation to make payments on the related Notes, even if Prosper receives payments on the corresponding borrower loan after final maturity.

 

We have incurred operating losses since our inception and we anticipate that we will continue to incur net losses for a number of years as we grow our business.

Didn't a Prosper higher up recently state that he expects them to start turning a profit some time in 2012? That doesn't match with what they are telling the SEC. Isn't that some sort of violation?

Our arrangements for back-up servicing are limited.  If we fail to maintain operations, you will experience a delay and increased cost in respect of your expected principal and interest payments on your Notes, and we may be unable to collect and process repayments from borrowers.

If we were to become subject to a bankruptcy or similar proceeding, the rights of the holders of the Notes could be uncertain, and payments on the Notes may be limited, suspended or stopped.  Although Prosper has granted the indenture trustee a security interest in its right to receive payment under the corresponding borrower loans, the Notes themselves are unsecured and holders of the Notes do not directly have a security interest in the corresponding borrower loans or the proceeds of those corresponding borrower loans.  The recovery, if any, of a holder on a Note may be substantially delayed and substantially less than the principal and interest due and to become due on the Note.

the legal title to the FBO account, and the attendant right to administer the FBO account would be property of Prosper’s bankruptcy estate.  As a result, if Prosper were to file for bankruptcy protection, the legal right to administer the funds in the FBO account would vest with the bankruptcy trustee or debtor in possession.
[...]
a bankruptcy court could determine that some or all of such funds were beneficially owned by Prosper and therefore that they became available to the creditors of Prosper generally.

This is in regards to the money you keep in your Prosper account that isn't invested. Prosper holds this money in a pooled account, so not only are you not earning interest on it, but if Prosper goes BK (possibly due to something like the Class Action lawsuit), then it is possible that the funds in this account could go to Prosper's creditors instead of back to you.

Item 1B. Unresolved Staff Comments
 
Not applicable

Really? Prosper staff have never made comments outside of official SEC filings that have remained unresolved? There are plenty of those comments that still need resolution!

[Xenon481]

Even with increased revenues, Prosper lost money at a faster pace in 2011 than they did in 2010.

2010 - Loss before other income: $10,505,982
2011 - Loss before other income: $12,291,164

That is a burn rate of over $1,024,263 per month on average for the whole year of 2011. That is an almost 17% increase in burn rate in just one year!!!

An interesting thing, though, is that their burn rate didn't just increase from 2010 to 2011, it continued to increase even between the first and second halves of 2011.

1H 2011 - Loss before other income: $5,934,838
2H 2011 - Loss before other income: $6,356,326

Prosper's burn rate increased by over 7% in just the last 6 months of 2011!

Even more scary is the rate of increase in their burn rate from Q3 to Q4 in 2011.

Q3 2011 - Loss before other income: $2,837,290
Q4 2011 - Loss before other income: $3,519,037

Prosper's Q4 2011 burn rate was ~24% higher than their Q3 2011 burn rate!!!

Prosper seems to be running as hard as they can to get further and further away from profitability.


Prosper currently (as of December 31st, 2011) has cash on hand of $19,213,553

Assuming a static average burn rate for the 2nd half of 2011, Prosper has about 18 (since the end of 2011) of operating time remaining before they run out of money, requiring another venture capital infusion. That brings them out to about June of 2013. If they're burn rate continues to increase (as all signs seem to point towards), then that 18 months may be a significantly high number.


Prosper spent $1,169,278 in rebates and promotions in 2011. ~35% of that was in the 4th Quarter of 2011 alone.

Prosper also spent an additional $2,017,981 in marketing and advertising in 2011. Just under 40% of that was in the 4th Quarter of 2011 alone.

Prosper paid employee compensation of $6,824,295 in 2011; a ~43% increase over 2010. That is an average of over $117,000 per employee assuming all 20 of the new employees were hired at the very beginning of 2011.


Each one of these 2011 expenses is individually significantly more than their 2011 Net Revenues of just $975,142.


Prosper's 2011 Net Revenues are merely ~7.4% of their 2011 Expenses.

[Xenon481]

Nominating this thread to The Lobby.

Edit: I can't report my own post, so if somebody would be so kind as to report this thread.

[God-Father]

OMG!!!!

Second for lobby.

I am sooooo glad that Prosper isn't allowed in Maryland. 

[God-Father]

If there are any amounts under the corresponding borrower loan still due and owing to Prosper after the final maturity, Prosper will have no further obligation to make payments on the related Notes, even if Prosper receives payments on the corresponding borrower loan after final maturity.

 

Of all the bad stuff posted, this is the one that is big news to me.  If I am reading this correctly, any recovery payments after the term of the loan go to prosper, not the lender.  If I am misreading this, someone let me know.

With out post term recovery payments, my ROI would be 1.5% lower.

[Xenon481]

If there are any amounts under the corresponding borrower loan still due and owing to Prosper after the final maturity, Prosper will have no further obligation to make payments on the related Notes, even if Prosper receives payments on the corresponding borrower loan after final maturity.

 

Of all the bad stuff posted, this is the one that is big news to me.  If I am reading this correctly, any recovery payments after the term of the loan go to prosper, not the lender.  If I am misreading this, someone let me know.

With out post term recovery payments, my ROI would be 1.5% lower.

That is exactly how I interpret that section.

[bookwyrm]

As an idiot question...

Wouldn't that create an incentive for Prosper to be lax about collections until after the scheduled final payment date?  And the come down like a 900# gorilla?

[cubbiesnextyr]

As an idiot question...

Wouldn't that create an incentive for Prosper to be lax about collections until after the scheduled final payment date?  And the come down like a 900# gorilla?

Yes it could.  But they'd have to weigh that against having horrible ROI stats for their lenders.

[Xenon481]

As an idiot question...

Wouldn't that create an incentive for Prosper to be lax about collections until after the scheduled final payment date?  And the come down like a 900# gorilla?

Yes it could.  But they'd have to weigh that against having horrible ROI stats for their lenders.

Depends on how they record it in their statistics. They could record that the loan eventually fully paid off and paid lots of interest.

[xraider]

Maybe that's Prosper's basis for trying to stiff me out of my $.76/ mo on the bk loan for which it failed to make a claim - the NEW TOS says that Prosper doesn't have to pay lenders for payments received after the original maturity date.  Good thing I haven't signed the new TOS.

LOVING the idea of Prosper having to pay out of pocket for the class action defense.  The class action appears to be a gimme - Prosper didn't register and signed consent decrees.  I wonder why it's fighting so hard.

I also wonder how Prosper managed to burn through $2,000,000 on the class action when so little work has been done.  A few depositions, a few status conferences and a class cert motion?  REALLY??  

[mothandrust]

If there are any amounts under the corresponding borrower loan still due and owing to Prosper after the final maturity, Prosper will have no further obligation to make payments on the related Notes, even if Prosper receives payments on the corresponding borrower loan after final maturity.

 

For years, lenders have wanted Prosper to "do something about collections" so now they have...come right out and said they own all the unpaid principal and interest after the maturity date.  Wow!!

What's funny is that we have another Lobby thread about how Prosper is some 40+ days late in passing on a $2461 payment to lenders, so Prosper could confiscate the last payment or two on all the loans with their stalling tactics.

[Fred93]

I also wonder how Prosper managed to burn through $2,000,000 on the class action when so little work has been done.  A few depositions, a few status conferences and a class cert motion?  REALLY??  

It is an amazing amount to have spent at this point. 

I'm sure they did it the standard way ... by NOT MANAGING the lawyers' activities and billing.

If the lawyers billed $2M for the preliminaries, how much will the lawyers bill for the upcoming real action?

[Staneslav]

a

[bookwyrm]

If there are any amounts under the corresponding borrower loan still due and owing to Prosper after the final maturity, Prosper will have no further obligation to make payments on the related Notes, even if Prosper receives payments on the corresponding borrower loan after final maturity.

 

Of all the bad stuff posted, this is the one that is big news to me.  If I am reading this correctly, any recovery payments after the term of the loan go to prosper, not the lender.  If I am misreading this, someone let me know.

With out post term recovery payments, my ROI would be 1.5% lower.

That is exactly how I interpret that section.

Likewise.

This is a huge incentive for misconduct. A borrower can take out a loan for 10k, make no payments for the term, and then later return 5k to prosper and pocket the difference.

This quite literally OPENS THE DOOR to institutionalized theft.

And by "opens the door" you actually mean "stands a hawker next to the door shouting 'free money!!!'" yes?