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[zcommodore]

Prosper has posted in their blog about the fraud case:
http://blog.prosper.com/2008/03/05/anatomy-of-prospers-involvement-in-the-recent-fraud-conviction/

[beerbud1]

Here's what they posted in their official forums:

At Prosper Days 2008 Chris Larsen announced the 1st conviction for fraud in which Prosper as been involved. Citing a newspaper article from the News Tribune - Lakewood man off to prison for bank fraud.  Many people have asked how this fraud was allowed to occur; what actions Prosper took to facilitate the conviction; and the precautions taken to mitigate future occurrences.

All transactions were reviewed for risk and Mr. Kilen was contacted prior to authorization of his transfers (both before and after Prosper became aware of the investigation.) Prior to Prosper’s knowledge of the investigation transactions were allowed because the transactions posed no risk to any Prosper member’s money and were deemed to be minor risk to Prosper. Additionally, the transfers were allowed in this case (as opposed to similar cases where they were stopped) because they were initiated from Key Bank offices by a bank employee. Additional controls have been put in place to reduce the likelihood of a similar occurrence.

As for Prosper’s involvement in the case, after being contacted by authorities about the illegal activity in which Mr. Kilen was involved, Prosper cooperated fully with federal investigators — providing a significant portion of the evidence used to locate and prosecute Mr. Kilen.

Prosper is committed to providing a safe and secure marketplace. Prosper members can trust that Prosper will facilitate the prosecution of criminals to the fullest extent of the law. Prosper is not a safe haven for crooks and thieves.

 Regards,

Prosper

[112233]

sometimes I get the feeling they read .org

[Shenandoah]

sometimes I get the feeling they read .org

A couple of them stated that they do at PD.

[112233]

sometimes I get the feeling they read .org

A couple of them stated that they do at PD.

Ed Giedgowd and James Gale?

[I_M_Spartacus]

Here's what they posted in their official forums:

At Prosper Days 2008 Chris Larsen announced the 1st conviction for fraud in which Prosper as been involved. Citing a newspaper article from the News Tribune - Lakewood man off to prison for bank fraud.  Many people have asked how this fraud was allowed to occur; what actions Prosper took to facilitate the conviction; and the precautions taken to mitigate future occurrences.

All transactions were reviewed for risk and Mr. Kilen was contacted prior to authorization of his transfers (both before and after Prosper became aware of the investigation.) Prior to Prosper’s knowledge of the investigation transactions were allowed because the transactions posed no risk to any Prosper member’s money and were deemed to be minor risk to Prosper. Additionally, the transfers were allowed in this case (as opposed to similar cases where they were stopped) because they were initiated from Key Bank offices by a bank employee. Additional controls have been put in place to reduce the likelihood of a similar occurrence.

As for Prosper’s involvement in the case, after being contacted by authorities about the illegal activity in which Mr. Kilen was involved, Prosper cooperated fully with federal investigators — providing a significant portion of the evidence used to locate and prosecute Mr. Kilen.

Prosper is committed to providing a safe and secure marketplace. Prosper members can trust that Prosper will facilitate the prosecution of criminals to the fullest extent of the law. Prosper is not a safe haven for crooks and thieves.

 Regards,

Prosper

Not sure if this is a positive or a negative.

They seem to be boasting:

Prosper is committed to providing a safe and secure marketplace. Prosper members can trust that Prosper will facilitate the prosecution of criminals to the fullest extent of the law. Prosper is not a safe haven for crooks and thieves.

But they would never have gotten involved if it werern't for someone else:

after being contacted by authorities about the illegal activity in which Mr. Kilen was involved, Prosper cooperated fully with federal investigators

Not the warm fuzzy feeling that Prosper has the ability to detect or stop this sort of thing on their own.

[Mtnchick]

Not sure if this is a positive or a negative.

They seem to be boasting:

Prosper is committed to providing a safe and secure marketplace. Prosper members can trust that Prosper will facilitate the prosecution of criminals to the fullest extent of the law. Prosper is not a safe haven for crooks and thieves.

But they would never have gotten involved if it werern't for someone else:

after being contacted by authorities about the illegal activity in which Mr. Kilen was involved, Prosper cooperated fully with federal investigators

Not the warm fuzzy feeling that Prosper has the ability to detect or stop this sort of thing on their own.

Was thinking the same thing......

[yankeefan]

At least they asked the question "say, you're not a crook, are you?  You really work at that bank?"

[traveler505]

Additionally, the transfers were allowed in this case (as opposed to similar cases where they were stopped) because they were initiated from Key Bank offices by a bank employee.

This is a very strange sentence, IMO, and I don't know what to make of it.

There is nothing in the federal court complaint, which includes a summary of the federal investigator's conversations with Prosper's Chief Security Officer which suggests that there was anything out of the ordinary about the way the transfers were handled by Prosper, or that Prosper did any verification other than the standard small deposit when the accounts were added.   

I initially thought the Prosper blog might be suggesting that Kilen used wire transfers rather than the ordinary ACH transfer process to fund the Prosper account.  AFAIK, it's entirely up to the sending bank to verify the source of the funds for a wire transfer, and Prosper wouldn't know what (or whose) account the funds came from.  But the federal complaint indicates that the transfers were made by ACH pursuant to Kilen's requests, which is the standard procedure.

ETA:  My blog post based on the federal court filings:

http://blog.traveler505.com/2008/02/prosper-didnt-catch-fraudster-using-its.html

[traveler505]

Not the warm fuzzy feeling that Prosper has the ability to detect or stop this sort of thing on their own.

Nope.

We only know the details on two Prosper-related court cases.  One (Victoria C.) was detected by a forums participant; one (Kilen) was detected by Key Bank.  Perhaps Prosper caught some of the others that Larsen mentioned (without details) at PD, but right now, for confirmed court cases, Prosper is 0 for 2.

[BigGulp]

I remember hearing from a regular who was transferring large amounts of money in and then transferring large amounts out to a different account.  They did say that Prosper called and asked what's up.

...Gulp

[Urbi_et_Orbi]

I did some sizable transfers between accounts (around $40K).  I did receive a call from the Security department.  They did't really do much other than ask if I was indeed requesting the transfer - and asking why I was transferring out.  Conveniently, I was in the lobby of Prosper's office when the call came.

[traveler505]

Prosper did block one $20K outbound transfer to Kilen's bank account because of its size, though smaller subsequent transfers were allowed.  (No further details were provided in the compliant regarding the procedures used with regard to the $20K attempted withdrawal.)

The whole episode occurred before Prosper began verifying ownership of bank accounts (rather than just using the deposit/withdrawal test to verify access to account information), and was probably a major reason for that change.  I haven't opined on whether Prosper was derelict in its duties by not catching Kilen, only that it shouldn't try to give people the impression that it did catch him.

I do see two issues which might have caught Prosper's eye if it had been looking for irregularities in lender accounts:

(1)  Transferring in from one account and out to another.  (In Kilen's case, it was transferring in from two accounts and out to two others.)

(2)  Leaving $80K sitting in a non-interest-bearing Prosper account while loaning out only $7K.  (Kilen placed a total of about $30K in bids, IIRC, but I have no way of knowing how many were active simultaneously.)

[Fred93]

We only know the details on two Prosper-related court cases.  One (Victoria C.) was detected by a forums participant; one (Kilen) was detected by Key Bank.  Perhaps Prosper caught some of the others that Larsen mentioned (without details) at PD, but right now, for confirmed court cases, Prosper is 0 for 2.

Precisely.  The prosper puff piece on the blog is a misdirection.  History shows that prosper does NOT detect identity fraud.

[ira01]

We only know the details on two Prosper-related court cases.  One (Victoria C.) was detected by a forums participant; one (Kilen) was detected by Key Bank.  Perhaps Prosper caught some of the others that Larsen mentioned (without details) at PD, but right now, for confirmed court cases, Prosper is 0 for 2.

Precisely.  The prosper puff piece on the blog is a misdirection.  History shows that prosper does NOT detect identity fraud.

Hey, the caught BigGulp's brother!