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I didn’t know the promissory note I bought was a security. The SEC’s own Education web page investor.gov has a simple primer for new investors. Its glossary has this definition:
Security—A stock, bond, or another investment.
On the main page it lists these things as investment products:
Investment Products
"While the SEC cannot recommend any particular investment, you should know that a vast array of investment products exists – including stocks and stock mutual funds, bonds and bond mutual funds, lifecycle funds, exchange-traded funds, certificates of deposit, money market funds, and annuities.
This section describes some of these investment products, explains how they are bought and sold, and details their benefits and risks. You’ll also find information on fees and tips to avoid fraud.
Please use the menu to the left to learn more information about each of the products.
Investment Products
Stocks
Bonds
Municipal Bonds
Mutual Funds
Exchange-Traded Funds (ETFs)
Annuities
Certificates of Deposit (CDs)
Money Market Funds
Commodities
Hedge Funds
Real Estate Investment Trusts (REITs)
International Investing"
Among those things I know how to buy a certificate of deposit and an annuity. The other stuff was out of my league. I did know how to loan someone money on an informal basis. And I had certainly borrowed money, so I knew how that worked. Prosper provided a simple way for me to reverse the role. Even though I was technically a loan purchaser the ‘Lender’ term used “for the sake of brevity and simplicity” in my Lender Registration Agreement helped me feel the concept was less bound with legalities. So it was a surprise to me that the notes needed to be regulated by the SEC. Then in retrospect I see Prosper was too informal about their end of the bargain with respect to servicing the 50% of my loans that defaulted. Really robbed me of part of my ‘mission’ in participating in P2P, i.e. helping fellow consumers like me.
My $400 loss is not enough of itself to go to court over. But I appreciate the opportunity to be part of the class. The securities claims seem the appropriate way to handle it. The .org threads are the appropriate place to vent about other underlying issues. In court, it’s about business, on .org it’s personal.
edit: corrected 3rd sentence, 2nd to last par.