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Class action lawsuit

Started by Peter, January 22, 2013, 11:00:00 PM

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Pebbles

Have you folks seen the class action lawsuit against Prosper?  I got the letter in the mail on yesterday (6/1/2012).  I'm not interested in participating in this lawsuit, but I'm wondering how this lawsuit could impact investors?

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Update from peter on 7/19/13:

This lawsuit has now been settled. You can read more about it here:
http://www.lendacademy.com/class-action-lawsuit-against-prosper-has-been-settled/" class="bbc_link" target="_blank">http://www.lendacademy.com/class-action-lawsuit-against-prosper-has-been-settled/

DiligentiaLLC

Haven't heard anything about it.  According to the document, what are they being sued for?

Peter

I have been following this lawsuit closely - for those interested you can read about it here:
http://www.prosperclassaction.com/" class="bbc_link" target="_blank">http://www.prosperclassaction.com/

Basically, the suit claims that Prosper sold unregistered securities in the period before SEC registration and that was in violation of federal laws and they are asking for Prosper to reimburse them for all their investments in that time. I have never covered this lawsuit simply because I have been told by several people that it has very little merit and will not succeed. I am not a lawyer but on the advice of others I have never covered this lawsuit on my blog.

In the unlikely event it will succeed I really don't think it will have much material impact on Prosper. They have pretty committed VC backers who have continued to invest knowing full well this lawsuit was pending.
Publisher of the Lend Academy blog

See my returns here: http://www.lendacademy.com/returns

TravelingPennies

Peter, your blog is so important to the P2P lending world that I questioned the credibility of the letter since it was not mentioned on your blog.  Soon as I got the letter I went straight to your blog to read about it.  Thanks for explaining why it wasn't covered.  The letter I received is almost identical to the info provided in the link.  Thanks Peter.

Xenon481

The Class Action lawsuit against Prosper applies to all repackaged loans sold by Prosper to individual "Lenders" (loan purchasers) before the SEC (Federal Government) shut down Prosper's original platform in 2008 for illegally selling unregistered securities.

All decisions by the Court thus far have been in favor of the claimants and against Prosper. All indications point towards there being a very good possibility that the court will decide against Prosper when all is said and done.

If the Class Action lawsuit succeeds against Prosper, the likely result will be that all Lenders from Prosper's original platform will be given the opportunity to force Prosper to repurchase any and all delinquent loans during that time period. This is a total amount of approximately $46million according to Prosper's own figures.

That is $46million that Prosper does not have. Such a ruling would likely bankrupt Prosper.

As can be seen in Prosper's quarterly SEC regulatory filings: http://www.sec.gov/Archives/edgar/data/1416265/000141626512000295/p10q3d31d2012.htm" class="bbc_link" target="_blank">http://www.sec.gov/Archives/edgar/data/1416265/000141626512000295/p10q3d31d2012.htm

Prosper only had approximately $15million in venture capital money available to it as of the end of March, 2012 and were losing $1.6million of that every single month.

Prosper has already spent over $2million (and possibly close to $3million) in legal costs trying to defend against the class action lawsuit and have not had a single decision in their favor.


Also, a Prosper bankruptcy isn't the only possible downside to "Lenders" on Prosper's current SEC Registered platform. Prosper's current "Lenders" are lending money to Prosper, not to Prosper's Borrowers. Prosper's "Lenders" are unsecured creditors of Prosper and have no direct relationship with the actual loans to borrowers themselves. The actual loans to the borrowers are assets held solely by Prosper themselves. As such, it is possible (would have to be determined by the courts) and possibly likely that all assets of Prosper (potentially including these loans) would be liquidated as part of a bankruptcy proceeding in order to pay the $46million in restitution to the Class Action lawsuit.

This could potentially cause all of Prosper's current "Lenders" to lose all money that they currently have invested with Prosper.



TravelingPennies

I don't want this to descend into an anti-Prosper tirade that is commonplace on Prospers.org. I try and look at it objectively. And while I respect the views of ira01 and Xenon481 plus many others with similar views on Prospers.org they cannot be considered objective.

They have their opinion and I have mine. I have not sought independent legal advice on this lawsuit but I have listened to opinions expressed from both inside and outside of Prosper as well as those expressed on Prospers.org. The fact is that Prosper has continued to raise money successfully despite this lawsuit pending now for several years. That tells me that the VC backers in Prosper don't consider this lawsuit to be a material threat to their investment. If they did Prosper would have lost their support a long time ago.

I am not a member of this class (I started investing on Prosper is 2010) but if I was a member I would not be exempting myself. I hope the issue comes to a head soon so we can all put this behind us.



TravelingPennies


TravelingPennies

I am afraid you are not going to get what you seek from me. All I will say is this. I have spoken to other investors, some with significant sums in both LC and Prosper about their opinion on this lawsuit. They have said they didn't think the lawsuit would be successful. But I didn't probe any further so I cannot tell you the basis of their opinion.


TravelingPennies



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