APS and Prosper Fighting

[dontvote]

American Pension Services early this month sent my account a letter saying they were were fighting with Prosper and were going to charge me fees to hold my IRA with them. This is something that Prosper indicated would not happen (the fees). I'm not particularly concerned but thought I'd mention it to see if anyone else got that letter (presumably everyone with a Prosper IRA did) and to let you know I spoke to Prosper a little while ago and they are working something out. In short their direction was to ignore the letter and they'd be in touch.

I liked APS because they didn't lose my paperwork and successfully opened my account. I don't like them now because they communicated with me. An intermediary service like this should be invisible to investors (until something goes wrong with Prosper). Their fight with Prosper doesn't really interest me, but I'm concerned I will be asked to pay 1% to change custodians.

[core]

Is APS just making up a new fee, or is this something that was there all along and being quietly paid by Prosper?  Perhaps APS is worried about Prosper's bleeding cash, or maybe Prosper has said they're not going to continue paying it?

I wasn't aware that there was a 1% fee to change custodians.  That's in the fine print, seriously??  One of my brokers seems to change similar relationships every darn year; that could really add up if that started happening here.  I would not like being at the mercy of someone else's whims.

[dontvote]

They claim Prosper is no longer willing to pay their fees on our behalf. Our choices are to pay the fees or move the account (pay the fees).

[Fred]

They claim Prosper is no longer willing to pay their fees on our behalf.

This is disconcerting.  Prosper reported a net income about $1 million at the end of June 2013 (http://www.prosper.com/Downloads/Legal/Q2%202013%2010-Q%206.30.2013.pdf)

So, any financial issues/setback recently ?

[core]

This is disconcerting.  Prosper reported a net income about $1 million at the end of June 2013 (http://www.prosper.com/Downloads/Legal/Q2%202013%2010-Q%206.30.2013.pdf)

So, any financial issues/setback recently ?

You mean besides this?

http://www.sec.gov/Archives/edgar/data/1416265/000114036113032671/form10q.htm
[...]
Q1 2013 - Loss before other income: $4,516,630
Q2 2013 - Loss before other income: $16,175,000 * and **

* = Prosper is recording the entire $10million class action lawsuit settlement cost in Q2 of 2013.
** = Prosper's quarterly operating loss (not counting the $10million settlement) is over $6million which is ~30% higher than their previous record for a quarterly loss.


Prosper currently has (as of June 30th, 2013) a combined "Cash and Cash Equivalents" of $10,515,000, but this is before having made any payments for the Class Action Lawsuit settlement.

[...]

At Prosper's current cash level and burn rate (and taking into account the first payment they will need to make for the Settlement), Prosper only has 1-2 more quarters until they will require yet another venture capital cash infusion lest they declare bankruptcy.

I admit I didn't double-check Xenon's numbers, but that post sure made things sound bleak to me.

[Fred]

I think the $10M liability from class action suit has been absorbed in the "operating activities" as stated below (p. 35 of 10-Q):

Net cash used in operating activities was $11,974 and $8,355 for the six months ended June 30, 2013 and 2012, respectively. The increase in cash used in operating activities was primarily attributable to the net loss offset by the class action settlement liability.

So the available cash should be net of this $10M liability.

The $1M net income I referred to before was from "Condensed Statements of Operations" (p. 20).  This is actually a good news, since Prosper is now operationally profitable.

I still don't understand why Prosper is penny-pinching on the IRA fees, though.

[dontvote]

I still don't understand why Prosper is penny-pinching on the IRA fees, though.

I'm not certain they are. The words I used were from APS' letter to me - not an objective report of the situation. They are in some negotiation with APS over something we don't know about. Perhaps APS promised some functionality to Prosper or some reporting or some 'bonus' or fee reduction if they hit an account milestone and didn't follow through so Prosper is holding up payments to APS until they make good. Perhaps Prosper is trying to decrease the fees and APS is pushing back. Perhaps APS hit Prosper with a bunch of additional fees and Prosper is saying 'hey our other custodian doesn't charge us all this crap, we're not going for it'. Hell, someone at Prosper could have said something insulting about someone at APS' ugly dog at the 4th of July party and they are pissed.

SPECULATION: If I had to bet I would say some invoice Prosper was asked to pay was significantly higher than expected and the relationship has soured. Prosper is trying to unwind the relationship and APS is angry and trying to give a black eye to P by sending a frankly stupid letter to customers.

OPINION: I'm not sure who would hire a custodian like this if they would end run to the customer during a dispute (no matter how serious). I know I would never consider it.

[Xenon481]

So the available cash should be net of this $10M liability.

That is not correct.

In the "Condensed Consolidated Balance Sheets" (p. 1), Prosper lists their "Cash and Cash Equivalents" as an "Asset" and they separately list the "Class Action Settlement Liability" as a separate line item under "Liabilities". See the below adapted from the 10-Q:

Assets
	Cash and Cash Equivalents	$10,515,000
	...
Liabilities
	Class Action Settlement Liability	$10,000,000

Therefore, Prosper has (as of end of June 2013) ~$10.5million in available "Cash and Cash Equivalents" before any payments made to the Class Action Lawsuit Settlement.

The $1M net income I referred to before was from "Condensed Statements of Operations" (p. 20).  This is actually a good news, since Prosper is now operationally profitable.

The information you are quoting is solely for Prosper Funding LLC (mostly just a shell corporation to hold the notes after origination) and not for the combined operations of both Prosper Funding LLC and Prosper Marketplace Inc.

According to the "Condensed Consolidated Statements of Operations" (p. 2), Prosper as a whole had a "Loss Before Other Income and Expenses" of ~$16,175,000 (including the $10million settlement, so ~$6.175million in actual operating loss before other income/expenses).

[Fred]

The information you are quoting is solely for Prosper Funding LLC (mostly just a shell corporation to hold the notes after origination) and not for the combined operations of both Prosper Funding LLC and Prosper Marketplace Inc.

You are right.  I missed checking the top of page.

So it looks like Prosper really is in a financial trouble now.  Hmm ....

[Fred]

I'm not certain they are. The words I used were from APS' letter to me - not an objective report of the situation. They are in some negotiation with APS over something we don't know about. Perhaps APS promised some functionality to Prosper or some reporting or some 'bonus' or fee reduction if they hit an account milestone and didn't follow through so Prosper is holding up payments to APS until they make good. Perhaps Prosper is trying to decrease the fees and APS is pushing back. Perhaps APS hit Prosper with a bunch of additional fees and Prosper is saying 'hey our other custodian doesn't charge us all this crap, we're not going for it'. Hell, someone at Prosper could have said something insulting about someone at APS' ugly dog at the 4th of July party and they are pissed.

Money makes people do crazy things.

[dagilbe]

I also got a letter from APS and immediately voiced my concerns to Prosper.  I received an email from Prosper who advised me to ignore the APS letter.  I got the impression that Prosper was going to work things out with APS. 

It sounded like Prosper's new management was attempting to reneg on the original agreement to pay APS for its services and Prosper reconsidered its position after receiving backlash from Prosper lenders. 

The APS letter was a joke.  In the APS letter you could either initial the letter and agree to be bound by APS' payment schedule  or you could do nothing and be bound to APS' payment schedule anyway.  I think the whole purpose of the letter was to put more pressure on Prosper to make good on their purported agreement.

[dontvote]

Partial email from Prosper: (no reconciliation with APS, no impact to us)

"We were unfortunately unable to come to an agreement with American Pension Service, but we have signed an agreement with Equity Institutional to act as a custodian for our clients’ IRA accounts.  We therefore would like to roll over your APS IRA account to Equity Institutional.
 
Prosper will pay for the fees to change to the new custodian. Prosper will also complete the required paperwork on your behalf to begin the process. We sincerely apologize for any inconvenience this may have caused you, and will make every effort to ensure a smooth transition."

Good job Prosper. Except for the bonehead letter from APS, I wouldn't have even noticed.

dontvote

[dagilbe]

I got the same email and a phone call from Prosper.  On paper it sounds like Prosper is handling this well. 

It sounds like Prosper wanted to renegotiate APS rates but APS refused.  Poorly played on APS's part. 

[graceful]

Have your IRAs finished transferring to Equity Institutional?

I'm having a problem with Equity Institutional and trying to figure out if they are still swamped dealing with these transfers.

Thanks,
Graceful

[dontvote]

I forgot to sign the paperwork. Thanks for the reminder.