Author Topic: "Recently came to our attention" ... net annulaized returns not accurate  (Read 27113 times)

panther02912

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Well, I got at partial answer to my questions from Prosper: 12.7% before the adjust and 6.45% after.  More than 50% lower!

They also provided their intended formula but no details about the mistake they were making:

Annualized Net Return = [ ((Payments Received Servicing Costs Charge Offs + Recoveries) / Average Daily Amount of Principal Outstanding) / Dollar Weighted Average Note Age of Portfolio in Days ] x 365

My account skewed several years old and low-grade, so my guess is their mistake had to do with write-offs.  I also guess that my risky account took an especially big haircut.  That said, if they want to rebuild trust, Prosper still owes us complete answers to questions 2 and 3.



1 My annualized Return numbers before and after the revision.
2 Details about how they revised the calculation to reach the new return numbers.  Had they neglected a factor or used an incorrect formula?
3 Details about about how the revision affects the investor population overall. For example, a new by old plot of returns and a quantile-breakout of adjustments amount.  Was my account's downgrading typical or one of the worst?

kaw753

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It has been explained to me. Two years ago, they started to sell their charge-offs to a loan collection agency. So, they would get 10 cents on the dollar and give that to the investor. What they forgot to do was subtract the 90 cents on the dollar that was the loss from your returns.

They are doing nothing to compensate people beyond showing people how to turn auto-invest to off. The loans are registered with the SEC, so I am sure everyone can find where to submit the complaint.

My concern is getting my money out before they are shutdown.

Rob L

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It has been explained to me. Two years ago, they started to sell their charge-offs to a loan collection agency. So, they would get 10 cents on the dollar and give that to the investor. What they forgot to do was subtract the 90 cents on the dollar that was the loss from your returns.

They are doing nothing to compensate people beyond showing people how to turn auto-invest to off. The loans are registered with the SEC, so I am sure everyone can find where to submit the complaint.

My concern is getting my money out before they are shutdown.

As far as I know there is no way to get your money out (at least not any money invested in loans). Prosper pulled out of participation in the Folio marketplace a while back leaving investors high and dry with no way to sell their notes. If there is an exit door I'd sure like to know about it.

SeanMCA

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It has been explained to me. Two years ago, they started to sell their charge-offs to a loan collection agency. So, they would get 10 cents on the dollar and give that to the investor. What they forgot to do was subtract the 90 cents on the dollar that was the loss from your returns.

They are doing nothing to compensate people beyond showing people how to turn auto-invest to off. The loans are registered with the SEC, so I am sure everyone can find where to submit the complaint.

My concern is getting my money out before they are shutdown.

I wonder why Prosper's outside auditors didn't catch this or even their internal ones. I would think that outsized returns would warrant a standard review. Some of those upset claim Prosper was showing them a double digit % return. I think an auditor should've taken a sample of all the retail investors whose reported performance was significantly outperforming the average and conducted a test. Maybe that is too much to ask or maybe they checked other numbers to conduct that kind of test. Either way, it is a major failure across the board for this to have gone on for almost two years. There should've been standard checks and balances to catch this. 
I'm a merchant cash advance veteran exploring the p2p lending waters.

Fred93

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It has been explained to me. Two years ago, they started to sell their charge-offs to a loan collection agency.

Only problem with that explanation is that they have always sold charge-offs to a collection agency.

kaw753

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There are a few things wrong still:

- My seasoned returns dropped from 9.35% to 5.44%. But I have been at this since 2008. So.... how big was the miscalculation in the last 2 years that 9 years of returns dropped that much. I have invested more lately, but you can see the issue.
- They are advertising expected returns of 8.04% on their website. I am curious what mix of loans I would need to select to get that return?

FYI, I was told one of the issues is that credit card defaults in the US are accelerating rapidly. If that is true at very low interest rates and unemployment, the country has some bigger issues coming.

SeanMCA

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Financial Times reported that this glitch has been going on for seven quarters. That takes us to Q3 2015, the same quarter that Prosper's CFO resigned. Notably, from 2014 to Q3 2015, Prosper had continuously been reporting "material weaknesses" in their "Internal Control over Financial Reporting." In future quarters, that disclosure was removed.

In regards to auditing, their 10-Ks say they're "exempt from the requirement that it include in its Annual Report on Form 10-K an attestation report on internal control over financial reporting by an independent registered public accounting firm."

So the "glitch" begins, the CFO resigns, the material weakness disclosure on internal controls disappears and no independent audit attestation is required over internal controls in their 10-K.

I'm not suggesting all these events are definitely related but I mean how did this problem go undetected?!
« Last Edit: May 09, 2017, 04:34:51 PM by SeanMCA »
I'm a merchant cash advance veteran exploring the p2p lending waters.

rawraw

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Financial Times reported that this glitch has been going on for seven quarters. That takes us to Q3 2015, the same quarter that Prosper's CFO resigned. Notably, from 2014 to Q3 2015, Prosper had continuously been reporting "material weaknesses" in their "Internal Control over Financial Reporting." In future quarters, that disclosure was removed.

In regards to auditing, their 10-Ks say they're "exempt from the requirement that it include in its Annual Report on Form 10-K an attestation report on internal control over financial reporting by an independent registered public accounting firm."

So the "glitch" begins, the CFO resigns, the material weakness disclosure on internal controls disappears and no independent audit attestation is required over internal controls in their 10-K.

I'm not suggesting all these events are definitely related but I mean how did this problem go undetected?!
THe same way hundreds of prosper people trusted their numbers and didn't recalculate it themselves.  This is a risk when a firm has poor internal controls (I used to evaluate this sort of thing in a prior job).  You often don't know what is wrong until you have an independent function poking around, trying to find the holes. 

Meta4

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This explains the delta between my "seasoned" rate (~15%) and the XIRR of my portfolio (~7%).

Meta4

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I sent an e-mail to InvestorQuestions@Prosper.com to request the old calculations.  By April 1st, my returns were overstated by a whopping 10.05%.  I stopped contributing in March when I crunched my year-over-year XIRR and couldn't come anywhere near what Prosper was telling me I should be seeing.

Here are the old/new calcs Prosper sent to me:


I've stopped my automatic reinvestments and will move whatever I get back to a more traditional investment vehicle.

SeanMCA

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That is incredible
I'm a merchant cash advance veteran exploring the p2p lending waters.

Tomp

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I sent an e-mail to InvestorQuestions@Prosper.com to request the old calculations.  By April 1st, my returns were overstated by a whopping 10.05%.  I stopped contributing in March when I crunched my year-over-year XIRR and couldn't come anywhere near what Prosper was telling me I should be seeing.

Here are the old/new calcs Prosper sent to me:


I've stopped my automatic reinvestments and will move whatever I get back to a more traditional investment vehicle.

Wow-Meta........this is just fraud. You should get an attorney.  How the heck is Ron Suber not in jail?

TLM

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I'm still suspicious of their calculations.  Prosper now tells me I'm at 7.26% annualized (down from 9.something).  XIRR has me at 8.1%, and that's artificially low relative to prosper's formula because it's based on deposit dates, and I've always moved slowly to get my deposits invested. 

mrwhizzard

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I'm still suspicious of their calculations.

I agree with you. I see the same discrepancy between XIRR and Prosper's annualized return in my account, of roughly the same magnitude (9.07% XIRR vs 8.00% "All Notes").

dbsb3233

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Ironically, even with this error, I found Prosper's stated returns to be more accurate than LC's.  :o