Class action lawsuit

[NoGoodDeed]

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"?

[Peter]

I have had more communication but nothing I can share publicly I am afraid. Suffice it to say I am still investing in Prosper.

[viking]

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?

[NoGoodDeed]

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?

[Peter]

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.

[NoGoodDeed]

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?

[Peter]

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.

[ira01]

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. 

[berniemadeoff]

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.

[New Jersey Guy]

"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.

[Peter]

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.

[NoGoodDeed]

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.

[Peter]

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.

[NoGoodDeed]

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...

[Peter]

I will be covering this news on the blog probably next week.