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[nonattender]

Blog post from LendAcademy:  http://www.lendacademy.com/class-action-lawsuit-against-prosper-has-been-settled/

Link to the 8-K filing via SEC:  http://www.sec.gov/Archives/edgar/data/1416265/000141626513000504/p8k7d19d2013.htm

Nominate for Lobby.

[Xenon481]

Second

[Xenon481]

PMI agreed to pay settlement consideration in the total amount of $10 million according to the following schedule: (i) $2 million within 10 days of entry of an order by the Court granting preliminary approval of the settlement (“Preliminary Approval”); (ii) $2 million on the one-year anniversary of Preliminary Approval; (iii) $3 million on the two-year anniversary of Preliminary Approval; and (iv) $3 million on the three-year anniversary of Preliminary Approval.

As of March 31st, 2013 (the latest released 10-Q), Prosper had "Cash and Cash Equivalents" of $19,983,593.

Prosper has to pay $2million essentially immediately which is ~$10+% of their cash reserve. That's a significant hit, but possibly less than they would have had to pay in legal fees to continue fighting the lawsuit.

$10million is ~22% of what the class was seeking.

[ira01]

$10 million is a lot of money.  Stretching the payments over 3 years is somewhat troubling, though, unless the individual defendants had to give personal guarantees -- did they?

ETA:  At least the time periods supposedly run from the order granting preliminary approval (assuming Peter got that detail right), which will likely be in a few months, and not from final approval, which could be years from now if any objectors appeal the settlement.

[xraider]

Interesting.  I wonder if we'll be paid off on the same schedule as our loans. Will Doug Fuller lend his expertise if Prosper defaults?

[cubbiesnextyr]

Interesting.  I wonder if we'll be paid off on the same schedule as our loans. Will Doug Fuller lend his expertise if Prosper defaults?

I was thinking the same thing! 

[bamalucky]

I thought the cheerleaders said this case had no merit?

[Fred93]

Will Doug Fuller lend his expertise if Prosper defaults?

God I hope not.

[Fred93]

Prosper issued $178M in loans before the shutdown.
The settlement is $10M, and guessing lawyers take half, that's $5M to lenders.
Not immediately obvious how to consider the effect of $5M on $178M of lending.  Recall that a large fraction (was it 45%?) of these loans defaulted.  

We also have not been told how the money will be allocated among the borrowers.  Will it be by amount loaned, or by amount invested (I loaned more than I invested because money got recycled), or by amount defaulted, or what?

If the metric turns out to be amount loaned, then multiply your amount loaned by 2.8%
because $5M / $178M = 2.8%

If you want to do an estimate at ROI effect, you'd have to consider the time during which you didn't have this money.  Presuming we get money during 2013, that would be about 5 years.

2.8%/5 = 0.6%/year

My ROI for prosper loans for that time period was about 1.5%, so maybe I get over 2% in the end.

Whoopee.

[Risk_Reward]

Prosper issued $178M in loans before the shutdown.
The settlement is $10M, and guessing lawyers take half, that's $5M to lenders.
Not immediately obvious how to consider the effect of $5M on $178M of lending.  Recall that a large fraction (was it 45%?) of these loans defaulted.  

We also have not been told how the money will be allocated among the borrowers.  Will it be by amount loaned, or by amount invested (I loaned more than I invested because money got recycled), or by amount defaulted, or what?

If the metric turns out to be amount loaned, then multiply your amount loaned by 2.8%
because $5M / $178M = 2.8%

If you want to do an estimate at ROI effect, you'd have to consider the time during which you didn't have this money.  Presuming we get money during 2013, that would be about 5 years.

2.8%/5 = 0.6%/year

My ROI for prosper loans for that time period was about 1.5%, so maybe I get over 2% in the end.

Whoopee.

The metric should be by loss dollars.  say $50 million in uncollected charge offs.  5/50 = 10%

[Fred93]

The metric should be by loss dollars.  say $50 million in uncollected charge offs.  5/50 = 10%

I can certainly see the logic in that.  If it goes that way, it will mostly go to the people who invested in the low-grade loans.  I invested in high-grade loans, so by that scheme I would get relatively little.

Remember tho that this lawsuit was about Prosper issuing unregistered securities.  Its not about Prosper's horribly sloppy qualification of lenders, horribly non-existent collections efforts, etc.

Loans that didn't pay are no more unregistered than loans that did pay.

[Beerbud1]

Fred, did you have a net loss?

did you break even?

Did you have a net gain? (but not what you hoped or expected)

These are the factors I believe the judge is going to consider!

[Fred93]

Fred, did you have a net loss?
did you break even?
Did you have a net gain? (but not what you hoped or expected)

My net was a 1.5% ROI.  (actually that's overall Prosper ... I haven't tried to calculate it for only the loans bought during the period in question.  Would be a some lower.)

These are the factors I believe the judge is going to consider!

What my net was seems irrelevant because the issue in the lawsuit was that Prosper sold unregistered securities.

Surely the judge will set some simple formula.  My ROI is not a simple formula that the judge can understand.

[bamalucky]

So Muleshoes by being deliberately stupid will get more than others?

[ira01]

The metric should be by loss dollars.  say $50 million in uncollected charge offs.  5/50 = 10%

I can certainly see the logic in that.  If it goes that way, it will mostly go to the people who invested in the low-grade loans.  I invested in high-grade loans, so by that scheme I would get relatively little.

Remember tho that this lawsuit was about Prosper issuing unregistered securities.  Its not about Prosper's horribly sloppy qualification of lenders, horribly non-existent collections efforts, etc.

Loans that didn't pay are no more unregistered than loans that did pay.

Seeing the method by which the money will be allocated to lenders will be very interesting.  There are any number of ways that might make sense (each of which will be better for some lenders, and worse for others).  You've already noted two possibilities -- by money invested or by money lost.  But another possibility is by number of loans made.  As you note, the illegal conduct by Prosper at issue in the class action is the selling of unregistered securities.  And each such sale was just as illegal, regardless of whether it was for $50 or $5,000.  So perhaps the $5.5M or so should be allocated pro rata based on the number of loans each lender made.  That would obviously be better for the small lenders (like me!), but would eliminate the effect of loan selection.  

ETA:  I wonder why the actual settlement agreement isn't yet posted anywhere, unless it isn't even written yet.  Perhaps the settlement is only in principle so far, with the details to be filled in over the next weeks or months?  If it is fully written, it should be posted.  Class members have a right to see the full agreement.  Indeed, notice explaining the terms of the agreement and how to get a copy of it will have to be given to the Class before final approval.