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Prosper Discussion => Investors - P => Topic started by: Pebbles on June 02, 2012, 10:26:09 AM

Title: Class action lawsuit
Post by: Pebbles on June 02, 2012, 10:26:09 AM
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/
Title: Re: Class action lawsuit
Post by: DiligentiaLLC on June 04, 2012, 02:58:59 PM
Haven't heard anything about it.  According to the document, what are they being sued for?
Title: Re: Class action lawsuit
Post by: Peter on June 05, 2012, 04:56:59 PM
I have been following this lawsuit closely - for those interested you can read about it here:
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.
Title: Re: Class action lawsuit
Post by: Pebbles on June 06, 2012, 08:51:40 AM
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.
Title: Re: Class action lawsuit
Post by: Xenon481 on June 07, 2012, 09:27:31 PM
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

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.
Title: Re: Class action lawsuit
Post by: ira01 on June 07, 2012, 10:48:07 PM
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.

Who told you that -- Chris Larsen?  I am a lawyer, and I think the class action has a whole lot of merit.  And there is at least one other California lawyer who posts regularly at www.Prospers.org, and she also thinks the class action has a lot of merit. 

Are you aware that several of the individual defendants in the class action sought to have themselves dismissed from the lawsuit for a variety of legal reasons that generally amounted to "the lawsuit has no merit (at least as to some of the individual defendants)" -- and that the California Court of Appeal ruled that they could NOT be dismissed on those grounds, and that they had to remain as defendants in the case?  You can read the Court of Appeal's decision at http://www.courts.ca.gov/opinions/archive/A127660.PDF

Quote
In the unlikely event it will succeed I really don't think it will have much material impact on Prosper.

Are you kidding?  If the class action goes to trial and the class wins, the judgment may well be around $50,000,000, perhaps more.  That is easily large enough to most likely bankrupt Prosper.  You don't consider that "material"?
Title: Re: Class action lawsuit
Post by: NoGoodDeed on June 08, 2012, 03:22:40 PM
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.

Who told you that .....

Hi.  I just now registered and hit the "Notify" button because I'm interested in the answer to ira01's question.
Title: Re: Class action lawsuit
Post by: Peter on June 09, 2012, 08:04:42 PM
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.
Title: Re: Class action lawsuit
Post by: Xenon481 on June 09, 2012, 10:26:32 PM
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 was very careful in my post not state any opinions. Everything that I said was pure fact as can be ascertained from the court website and Prosper's own statements in filings with the SEC.

The facts that I posted are purely objective because they are facts.

It is a fact that if Prosper loses this case, the liability that the class seeks is on the order of approximately $46million which Prosper's own filings with the SEC show that they do not have available to them. In fact, a liability of that size is more than half of all of the money given to Prosper by the VC firms in total in the almost 7 years of Prosper's existence.

This fact is in direct contradiction to your opinion:

Quote
In the unlikely event it will succeed I really don't think it will have much material impact on Prosper.

Title: Re: Class action lawsuit
Post by: ira01 on June 09, 2012, 11:15:57 PM
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.

Please believe me that I am not trying to turn this into an "anti-Prosper tirade" here.  I am interested in your opinion, and the basis for it. 

While you are correct that I and others on prospers.org are not really "objective" about Prosper, I find it interesting and amusing that you cite "opinions expressed from inside of Prosper" (i.e., its employees, officers and/or directors) as a basis of your opinion that the class action has no merit.  You don't think that Prosper insiders are even more lacking in "objectivity" about Prosper and the merits of the class action than I and other burned P1 lenders?  I stand to gain little more than "chump change" from a successful class action; but the Prosper insiders stand to lose their jobs (and in the case of the individual defendants, like Chris Larsen, potentially a big chunk of their personal assets).  So who lacks objectivity?

And who "outside" of Prosper did you base your opinion regarding the validity (or lack thereof) of the class action on?  You don't have to name names, but how about the basis for their opinion?  You admit that you didn't seek independent legal advice on this matter.  So I'm curious what types of sources you are basing your opinion on, given that the objective facts seem to support the validity of the class action?

Yes, the VC have continued to invest in Prosper, but in my personal opinion, that may have more to do with not wanting to throw in the towel on their already substantial past investments, than any legitimate assessment of the prospects of the class action. 

So other than the assertions of highly-self-interested Prosper insiders, and the continued investment of the VC, what else do you base your opinion on?  Because here's what's on the other side of the equation:

1)  Class counsel obviously believes strongly enough in the merits of the class action to invest millions of dollars of their time (and a non-trivial amount of expenses) on a contingency basis.  If Prosper wins, class counsel gets nothing.  Lawyers don't like to work for free, so contingency lawyers carefully evaluate their prospects of winning and collecting (and the likely size of their win).

2)  The California Court of Appeal rejected the attempt of several individual defendants to get themselves out of this case, finding that the case against them plead in the operative complaint was meritorious.

3)  The trial court granted the Plainitffs' motion to certify the case as a class action, over Prosper's objections.

4)  The only two lawyers of whom I am aware that regularly participate at prospers.org (regardless of any lack of "objectivity") certainly don't believe that the class action "has very little merit."

5)  The class action's main claim is that Prosper violated federal securities laws by unlawfully selling unregistered securities -- the notes that Prosper 1.0 sold to its "lenders," which needed to be registered as securities.  Apparently you believe that those notes were not securities, and thus did not have to be registered (since there is no dispute that Prosper sold them to P1 "lenders," and that they were not, in fact, registered).  However, the SEC has ALREADY DETERMINED that the notes were indeed securities that needed to be registered, and that Prosper did indeed violate federal securities laws by selling them without registration.  Indeed, the SEC ordered Prosper to "cease and desist" such activities immediately, which Prosper did (with a minor and short-lived attempt to circumvent the SEC by briefly re-opening under state law, before realizing the foolishness of that course of action, shutting down again, and repurchasing all P2 notes issued).  Needless to say, the SEC is the government agency tasked by Congress with overseeing the federal securities laws, and as such, it is the foremost expert in the reach and application of those laws.  So while you believe that the class action has no merit, the SEC has already determined exactly the opposite.  Now you are perfectly free to argue that the SEC is wrong, but I hope you can see that you really have to make a persuasive case (which you haven't yet) for deciding that the SEC is wrong and you are right.  Have you even read the SEC's cease and desist order to Prosper?  You can read the whole thing here -- http://www.sec.gov/litigation/admin/2008/33-8984.pdf

And here is the "good part":

Quote
Thus, the Prosper notes are securities under Reves because: (i) Prosper lenders are motivated by an expected return on their funds; (ii) the Prosper loans are offered to the general public; (iii) a reasonable investor would likely expect that the Prosper loans are investments; and (iv) there is no alternate regulatory scheme that reduces the risks to investors presented by the platform.

As a result of the conduct described above, Prosper violated Section 5(a) of the Securities Act, which states that unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise; or to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale.

Also as a result of the conduct described above, Prosper violated Section 5(c) of the Securities Act, which states that it shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on June 09, 2012, 11:41:14 PM
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.

Who told you that .....

Hi.  I just now registered and hit the "Notify" button because I'm interested in the answer to ira01's question.

Hey, guys, there's still this.
Title: Re: Class action lawsuit
Post by: Peter on June 09, 2012, 11:57:15 PM
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.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on June 10, 2012, 12:00:31 AM
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.

Any sense of whether or not they thought we'd get to the point of Class notifications going out? 
Title: Re: Class action lawsuit
Post by: Peter on June 10, 2012, 05:26:17 PM
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.

Any sense of whether or not they thought we'd get to the point of Class notifications going out?

That is a fair question. I am going to do some digging this week and see if I can find out some more. I can only ever get off the record comments from these people but I will see if there is anything I can share and report back.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on June 12, 2012, 07:27:31 AM
That is a fair question...

With that reply, we know that the opinion ("...I have been told by several people that it has very little merit and will not succeed") you've relayed to your readership predates the recent progress in the lawsuit.

And with the recent progress, it's reasonable to assume that there's a good possibility these "significant" investors have dutifully adjusted their assessments of Prosper and the shelf life of the lawsuit-will-not-succeed assessment may have expired with last month's court ordered Class notifications.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on November 28, 2012, 11:11:35 AM
I am going to do some digging this week and see if I can find out some more.

Fast-forward 5+ months.
Any more communication with said "investors"?
Title: Re: Class action lawsuit
Post by: Peter on November 28, 2012, 07:02:14 PM
I have had more communication but nothing I can share publicly I am afraid. Suffice it to say I am still investing in Prosper.
Title: Re: Class action lawsuit
Post by: viking on November 28, 2012, 07:18:20 PM
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.
I wonder if someone could shed some more light on this possibility that in the case of a Prosper bankruptcy, the Lenders could loose their investments. In particular, if the same would apply to Lending Club Lenders [in case Lending Club files for Bankruptcy sometime in the future]?

Most of use may have assumed that LC lenders were protected in case of LC filing for bankruptcy? Specifically, I understood that Portfolio Financial Servicing Co. (www.pfsc.com) would ensure the servicing of all issued loans in case that LC "goes out of business"
http://www.lendingclub.com/kb/index.php?View=entry&EntryID=91

However, maybe this does not apply if LC files for bankruptcy?
Title: Re: Class action lawsuit
Post by: NoGoodDeed on November 29, 2012, 09:38:03 AM
I have had more communication but nothing I can share publicly I am afraid.

OK, but if you've gotten the sense that the lawsuit is less "unlikely" to succeed now than 6 months ago, would that be something you'd need to withhold from your readership too?

If yes, wouldn't you still be able to agree that the earlier analysis (that the lawsuit is unlikely to succeed) is at least perishable information - especially in light of the class notices which were since ordered to go out?
Title: Re: Class action lawsuit
Post by: Peter on November 29, 2012, 11:45:01 AM
I don't share any details on the lawsuit because there is little be gained from saying something and not being able to back it up with any details. As is demonstrated from our conversation.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on November 29, 2012, 12:32:22 PM
Wasn't asking for details, though.  Sorry I wasn't clearer than I was on that in my most recent post.
So I think my Qs remain open.

Or at the VERY least: isn't it reasonable for the casual observer to assume, based on public facts, that ordering the class notices to go out affects the odds of a successful lawsuit?
Title: Re: Class action lawsuit
Post by: Peter on November 29, 2012, 09:37:33 PM
Absolutely. Having it go this far is a setback for Prosper and its investors. My point is that even if the lawsuit is successful and the judge rules in the plaintiffs favor there is no guarantee that the amount of damages will be anywhere near the amount referenced in the lawsuit. I believe that Prosper will stay in business regardless of what happens with the lawsuit and so I continue to invest.
Title: Re: Class action lawsuit
Post by: ira01 on January 03, 2013, 11:12:17 PM
Absolutely. Having it go this far is a setback for Prosper and its investors. My point is that even if the lawsuit is successful and the judge rules in the plaintiffs favor there is no guarantee that the amount of damages will be anywhere near the amount referenced in the lawsuit. I believe that Prosper will stay in business regardless of what happens with the lawsuit and so I continue to invest.

Care to share the basis of THAT opinion?  Because the remedy for a securities registration violation is that the buyer gets to rescind any or all purchases of the unregistered securities, which means that Prosper would be forced to repurchase all such loans, for their full face value plus interest since their unlawful sale.  In my opinion, buyers would get to pick and choose which loans to tender back to Prosper, since the sale of an unregistered security is a voidable, but not void, transaction.  That means in essence that Prosper would have to repurchase all defaulted loans (or at least all those that defaulted before roughly the breakeven point), since obviously lenders would choose not to keep those, plus pay interest at the statutory rate on all those loans (for the many years since their origination).  That is likely to be $50 million, give or take. 

Even if the judge were to rule that lenders had to make an "all or nothing" rescission decision (which I believe would be wrong), the performance of P1 loans was so bad that there are still a ton of P1 lenders with negative returns, who would obviously choose rescission.  That would still cost Prosper a boatload of money, though not the $50 million.  I haven't calculated exactly how much, but IIRC the average P1 lender lost money on Prosper, so more than half of P1 lenders would choose rescission.  So maybe the damages in that case would "only" be $25 million, give or take.  But that is still probably more than enough to bankrupt Prosper. 

So I am very interested to hear your explanation for your belief that "Prosper will stay in business regardless of what happens with the lawsuit"  -- because that seems to stretch the bounds of logic.  But maybe I am missing something that you can fill me in on. 
Title: Re: Class action lawsuit
Post by: berniemadeoff on January 03, 2013, 11:57:33 PM
ira01 - are you a plaintiff in the lawsuit?

Nevermind.  I read through your other posts and realized that you have some long-term beef with Peter that won't be resolved here anyways...  carry on.
Title: Re: Class action lawsuit
Post by: New Jersey Guy on January 04, 2013, 12:56:39 PM
"So maybe the damages in that case would "only" be $25 million"

Well, they could always go to LC and apply for a loan.  I'd be willing to pitch in $25 to help the cause.
Title: Re: Class action lawsuit
Post by: Peter on January 04, 2013, 02:26:11 PM
ira01, I am not a lawyer so I cannot comment on your legal logic. My impression has been gained from conversations about the lawsuit with several different people who have far greater knowledge of this matter than I have. I am not going to give you any more details than that.

Anyway, we will find out more in a couple of weeks.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on January 08, 2013, 04:33:24 PM
Prosper's David Silverman - resigned effective 12/20/12.
... Larry Cheng - resigned eff 12/22/12.
... Jeffrey Jacobs - resigned eff 12/17/12.
... James Catlin - resigned eff 12/13/12.

I gather they don't see any silver lining in Prosper's dark clouds.
...the same clouds which persisted over Rajeev V. Date after he left Prosper for the CFPB.

Plus, of course, co-founder Witchel is long gone, co-founder Larsen resigned as Pres. and CEO last March, and James Breyer resigned last June.

At this point, I can't fault anybody who might wonder if your steadfastly confident resources aren't a bit biased.
Title: Re: Class action lawsuit
Post by: Peter on January 08, 2013, 04:41:02 PM
I am fully aware of the resignations and I know the reasons behind each one but I am not allowed to share that publicly. Suffice it to say I am still steadfastly confident in Prosper's long term prospects. You can call that biased if you like, but we are all entitled to our opinions.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on January 08, 2013, 04:57:20 PM
I am fully aware of the resignations ...

OK.  But could you help direct me to where you informed the LendAcademy community of this string of resignations?  Or is there a reason not to mention it...
Title: Re: Class action lawsuit
Post by: Peter on January 08, 2013, 06:06:33 PM
I will be covering this news on the blog probably next week.
Title: Re: Class action lawsuit
Post by: Roy S on January 12, 2013, 04:02:18 PM
According to the Jan 9th Prospectus, David Silverman, Jeff Jacobs and Lawrence Cheng are still listed under the "Management" section, which states, "The following table sets forth information about the Companys executive officers and directors as of the date of this prospectus."  It appears they still need to do a little updating to their Prospectus--yes, I actually do read (or rather skim through) the Prospectus from time to time.

I think a bigger issue (than who has resigned) is the cash flow issue at Prosper.  Unless they secure another round of financing (to add to the over $70 million so far), Prosper won't have enough cash to continue operations regardless of the lawsuit outcome.  According to the last 10Q, the Prosper burned through $4 million in three months; and they only had about $4 million cash on hand at the end of September.  That is a more important issue at the moment.
Title: Re: Class action lawsuit
Post by: DanB on January 12, 2013, 05:10:02 PM
Roy S..............One would not be going far out on a limb to suggest that the next round of financing is all but secured & that the announcement of such may be imminent.
Title: Re: Class action lawsuit
Post by: TRPeterson on January 16, 2013, 09:36:25 AM
Roy S..............One would not be going far out on a limb to suggest that the next round of financing is all but secured & that the announcement of such may be imminent.

DanB,
While I'm very hopeful what you say is true (I'm 99% in Prosper and 1% in LC), just curious if there's any public news backing your financing prediction.  We tend to learn so much more inside news on this forum... then Prosper tells us via email weeks later.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on January 17, 2013, 10:40:51 AM
I will be covering this news on the blog probably next week.

(Fast-forward a week.)
Or maybe the week after that, I gather?  This news would be a month old by then.

Maybe it's just me, but the upbeat P2P lending news appears to reach the LendAcademy community more quickly than this.

But back to the lawsuit, a few more setbacks:
Quote
ORDER DENYING MOTION FOR SUMMARY ADJUDICATION AND GRANTING AND DENYING REQUESTS FOR JUDICIAL NOTICE AND DENYING PLAINTIFFS' MOTION TO STRIKE SEPARATE STATEMENT AND DENYING APPLICATION TO SEAL
Title: Re: Class action lawsuit
Post by: berniemadeoff on January 17, 2013, 11:07:09 AM
NoGoodDeed - you seem to be very plugged-in to the drama around Prosper.  What do you think is the most likely outcome for the company?  Does it survive or does it go under this year?
Title: Re: Class action lawsuit
Post by: NoGoodDeed on January 17, 2013, 12:58:36 PM
My opinion is rather meaningless.  But since you flatter me with the question, I'll throw a lengthy reply at you...

1) The trajectory of the lawsuit over the past 4+ years in the plaintiff's favor is unlikely to change.  (Peter appears to have confidential sources.  But I ask you, if a source keeps himself confidential, does that then make him more reliable??)  Prosper will be forced to settle.  It'll be painful.  Will it kill Prosper?  I don't know.  The lawsuit has been successful holding the key (deep-pocketed) individuals responsible, and I don't know who will be made to pay what.  ira01 seems in a position to have more insight here, maybe.

2) Funded Prosper listings have taken a recent downturn. http://www.lendacademy.com/forum/index.php?topic=608.0

3) Employee turnover at the company seems awfully high (and fwiw, nobody from Prosper has been participating in this forum for quite some time now).

4) Cash: Prosper's cash burn rate has GOT to be a huge concern.  And although they had an insurance policy to protect (somewhat?) against lawsuits, it's been fully paid and I think Prosper used up much of that money to launch a promotion, IIRC.   Meanwhile, I don't know when VC monies will dry up.  There may or may not be another round or two.  But there'll need to come a point soon where Prosper will need to present something brand new - if not completely re-invent itself - if they are to keep VCs supplied with hopium.

For recent Prosper lenders, meanwhile, they're doing fine ROI-wise.  But looking at these issues Prosper execs are facing there at Sutter Street, we see the company is basically on life support.

Is Prosper likely to go under this year?  Historically, the VC's willingness to continue to throw money at Prosper always has me befuddled.  So I don't feel comfortable giving a definite "yes".  But perhaps the answer will prove to be more complicated than "yes" or "no".  Rather, we may find that Prosper still exists 2 or 3 years from now, but in a form that has little resemblance to what it is today.

The next question, I suppose, is: should Prosper lenders worry?  I'm not sure that they do.  The concern that borrower's repayments would go to creditors (instead of lenders) should Prosper declare bankruptcy seems to have been recently addressed with their new remote bankruptcy vehicle, Prosper Funding, LLC.   There remain older concerns, however.  Off the top of my head: 1) Little transparency on the collections front, and Prosper not filing any claim if a borrower declares bankruptcy and 2) the lender agreements commit lenders to any modifications of the agreement whether the lenders sign the modded agreements or not.  As of this writing, a lender seems to be preparing to take the issue of Prosper's lack of performing its fiduciary duties to Small Claims court.
Title: Re: Class action lawsuit
Post by: berniemadeoff on January 17, 2013, 02:40:27 PM
Thanks for the lengthy response.  I not as bearish as you, but it is good to understand the risks.
Title: Re: Class action lawsuit
Post by: Peter on January 17, 2013, 06:00:40 PM
NoGoodDeed,

Thanks for your detailed opinion. As to your first question, I intend to be covering this story next week, I am still waiting for a couple more pieces of information and I will be publish an article on the blog.

Once again I am not going to comment on the lawsuit other than this. My understanding is that the judge has deferred making a final decision in the case at this time.

I continue to believe that Prosper will not only survive this year, but they will have a great year.

Let me also explain why I am bullish on Prosper's long term prospects regardless of the lawsuit. Lending Club has shown that this industry has tremendous potential. It is highly likely that within five years the industry will be issuing multiple billions of dollars in loans every MONTH. Within ten years it could easily be tens of billions of dollars a month. Prosper is the clearly entrenched number two player in this market. I believe this is why their investors are patient and keep pouring money in. They have known about the lawsuit for four years and yet they continue to invest. I believe this is because they see a long run play where a new multi-billion dollar industry is being born and they want to be a part of it.

And for the record, I have never hidden the fact that I make money from referring people to Prosper as well as Lending Club. I also never pretend to be completely impartial. I am bullish on p2p lending and I want to see a thriving industry. Do I put a positive spin on things? That is my nature so I can certainly be accused of that. But I never try to mislead anybody nor do I withhold information that I think would be important for my readers to know.
Title: Re: Class action lawsuit
Post by: hippo387 on January 17, 2013, 07:37:08 PM
I think the bottom line for most of us here regarding Prosper is that we don't want to lose our money. Personally, I could care less if Prosper lives or dies as long as my investments continue to be serviced as intended, i.e. people are able to make loan payments and I benefit by earning interest.  In this regard, I take some pleasure in NoGoodDeed's comments today because even (s)he admits that Prosper Funding LLC has probably taken care of the issue. (And, in my opinion, in a worst-case scenario Lending Club wouldn't want the reputation of P2P lending to take a hit so they would have an interest in acquiring Prosper to save the loans and gain the customer base.)

At any rate, I think NoGoodDeed's biggest mistake is to think we care about Prosper beyond its impact on our own money.  The rants don't strike me as being concerned with people's money, they just seem like rants, and I'm not sure why it's worth the time if (s)he doesn't also have something to gain from the conversation.  I think there are a lot of crappy companies out there but I don't go looking for web forums just to point it out to others.  So, in conclusion, I'm inclined to ignore anything NoGoodDeed says unless hearing about what (s)he has to gain from the conversation.
   
Title: Re: Class action lawsuit
Post by: TRPeterson on January 20, 2013, 08:51:27 AM
I think the bottom line for most of us here regarding Prosper is that we don't want to lose our money. Personally, I could care less if Prosper lives or dies as long as my investments continue to be serviced as intended...

At any rate, I think NoGoodDeed's biggest mistake is to think we care about Prosper beyond its impact on our own money. ...

Apparently you and I think similarly...

I have to find the heavily positive and negative 'emotions' towards a company and it's future rather comical.  I don't attach smiley faces or frowny faces to my George Washingtons.  Right now I make better returns on Prosper than LC, so I will continue to invest with Prosper until which time I think I can do better elsewhere.  If the notes I invest in begin to not get funded on Prosper, hence making a return more difficult, then I will transition over to LC.  Rather black-and-white.

After losing almost every dime I put into Prosper 1.0, I never considered starting a blog to complain about it.  It was my choice to invest, not theirs.  It seems very pointless to waste a minute of time complaining about how someone operated a business if I'm the one that decided I trusted the business plan/product well enough to put money into it.  I'm responsible for where I put that dollar, not them.

I invested heavily in Tesla because I like Elon Musks' business plan and thought the product was solid, not because I was 'happy' or 'emotional' about a hot-looking electric car that the kid in me wants just like a Hummer and a Lambo.  It paid well, I increased my IRA 20% in 2008.  I don't see such rises coming again so right now I'm not invested in Tesla.  I participate in these forum looking for good returns or ideas for good returns, not an emotional outlet.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on January 23, 2013, 10:36:35 AM
And for the record, I have never hidden the fact that I make money from referring people to Prosper as well as Lending Club. I also never pretend to be completely impartial. I am bullish on p2p lending and I want to see a thriving industry. Do I put a positive spin on things? That is my nature so I can certainly be accused of that. But I never try to mislead anybody nor do I withhold information that I think would be important for my readers to know.

And that's all fine.  I mean, there's nothing wrong with being a fan of the p2p lending industry nor making money at it.

But it'd be a mistake to not recognize that there's therefore emotional and financial incentive to disparage ANYbody who says ANYthing bearish as being from a group of rabid haters:
... NoGoodDeed and others. They come from the Prospers.org forum and have a hatred of Prosper that is truly quite staggering.

... hence my sig.

Quote
I also never pretend to be completely impartial.

Mostly true.  But without complete impartiality, I'm not seeing how you can then achieve your goal "to be the number one resource for this burgeoning peer-to-peer lending industry."   It may make sense to re-jigger this part of the "About" page so that your readership doesn't take this to mean - despite disclaimers elsewhere on that page - that there's complete impartiality.

So, in conclusion, I'm inclined to ignore anything NoGoodDeed says unless hearing about what (s)he has to gain from the conversation.

ad hominem adjective \(ˈ)ad-ˈh-mə-ˌnem, -nəm\
marked by or being an attack on an opponent's character rather than by an answer to the contentions made


The task of making myself worthy in the eyes of everybody here isn't something I'll embark on as it'd be never-ending and in any case, it wouldn't really change anything.   I leave the onlookers to filter out whatever part of any of my posts they view as irrational - and, should they choose, take note of what's left.
Title: Re: Class action lawsuit
Post by: NoGoodDeed on January 23, 2013, 10:40:12 AM
Anyway, we will find out more in a couple of weeks.

Fast-forward more than a couple weeks.
What happened that you were referring to?  The funding?
Title: Re: Class action lawsuit
Post by: hippo387 on January 23, 2013, 01:06:22 PM
NoGoodDeed -- I wasn't questioning your character, I was questioning your motivation. We all have some motivation to participate in the forum. I made mine very clear -- to make money (and hopefully not lose it!).  Peter's motivations are pretty clear because he transparently writes about them (he promotes the industry, he's an investor, he's optimistic about all of it).  Understanding this helps me evaluate what he's saying.  So that's what I was asking for from you -- where are you coming from? What's your stake in all this? You're clearly passionate about it and I'd like to know why. Are you involved in the lawsuit, are you a burned investor, or are you just a truth-teller with an interest in the industry? Give us some context to help evaluate your information.

When it comes down to it I don't really care about Prosper or Lend Academy's pro-P2P bias or your bias.  You're probably a great guy.  But I just care about my investments in the context of this forum.
Title: Re: Class action lawsuit
Post by: berniemadeoff on January 23, 2013, 02:34:39 PM
I actually value NoGoodDeeds presence here in the forum.  I always like to hear views contrary to my own, so I hopefully don't get caught with blinders on.
Title: Re: Class action lawsuit
Post by: Peter on January 23, 2013, 03:12:00 PM
Fast-forward more than a couple weeks.
What happened that you were referring to?  The funding?
I was referring to the court hearing. I was hoping that the judge would make a final ruling on the class action lawsuit in January but that can has been kicked down the road some more.

I am also fine with NoGoodDeed being on this forum because I also welcome views other than my own. You can learn a lot when people disagree with you. Which brings me to another point. If you had spent much time on my blog you would have noticed that there are plenty of people who disagree with me there. Even though I might have a financial incentive for doing so I don't disparage anyone who criticizes LC or Prosper. The only thing I don't tolerate are harsh personal attacks - those get deleted.
Title: Re: Class action lawsuit
Post by: Keltset on January 23, 2013, 04:27:09 PM
I must say that I have also found value in NoGoodDeeds posts and enjoy reading them if they conflict or not with my opinion- Either way it's stimulating and encouraged deeper thought and evaluation which I believe we can all be reminded of the importance of questions one's own opinion.
Title: Re: Class action lawsuit
Post by: Xenon481 on January 26, 2013, 05:52:46 PM
Here are some updated facts in the Class Action Lawsuit against Prosper:

- Prosper filed a "Motion For Summary Judgement" with the court, requesting that the case be immediately ruled in Prosper's favor without going to trial.

- The judge ruled to deny Prosper's motion, stating that Prosper's arguments for summary judgement in their favor were not valid for a number of reasons including the following:

Quote
[...] I have inferred from other undisputed facts that in the event of Prosper's failure there would be no effective means to recoup the loan proceeds.


The complete court docket and documents can be found here:

http://webaccess.sftc.org/Scripts/Magic94/mgrqispi94.dll?APPNAME=IJS&PRGNAME=ROA22&ARGUMENTS=-ACGC08482329
Title: Re: Class action lawsuit
Post by: Peter on July 19, 2013, 03:54:56 PM
So, the lawsuit has been settled for $10 million with $2 million due immediately. I was wrong in thinking it would be less than that and others were wrong thinking it would be more.
http://www.lendacademy.com/class-action-lawsuit-against-prosper-has-been-settled/

Xenon/IRA01/NoGoodDeed - anyone want to comment?
Title: Re: Class action lawsuit
Post by: Dennis on July 19, 2013, 07:29:36 PM

I continue to believe that Prosper will not only survive this year, but they will have a great year.


You have a very good crystal ball Peter.  Prosper will easily survive this year as the lawsuit settlement numbers are well within reason, and Prosper is indeed having a great year, just look at the current loan volume.

And you predicted this 7 months ago??? 

Any other predictions?  I'm all ears...........
Title: Class action lawsuit
Post by: Peter on July 19, 2013, 08:39:23 PM
Hmmm. How about this: Lending Club will do an IPO next year...
Title: Re: Class action lawsuit
Post by: clostrom on July 31, 2013, 12:21:20 AM
So, the lawsuit has been settled for $10 million with $2 million due immediately. I was wrong in thinking it would be less than that and others were wrong thinking it would be more.
http://www.lendacademy.com/class-action-lawsuit-against-prosper-has-been-settled/

Xenon/IRA01/NoGoodDeed - anyone want to comment?

They are huddled in their caves with their tails between their legs.