SEC shuts down Prosper.com!

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Joe Edelman

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Nov 26, 2008, 6:17:01 AM11/26/08
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Pelle Braendgaard

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Nov 26, 2008, 4:04:01 PM11/26/08
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Yup, more need than ever for innovation and they do this. I blogged
about why it happened here:

http://stakeventures.com/articles/2008/11/26/sec-to-startups-dont-you-dare-innovate

And what can be done to fix it here:

http://stakeventures.com/articles/2008/11/26/3-ideas-for-innovating-securities-law

Pelle

On Wed, Nov 26, 2008 at 3:17 AM, Joe Edelman <joe.e...@gmail.com> wrote:
>
> http://www.sec.gov/litigation/admin/2008/33-8984.pdf
>
> KABOOM.
> >
>



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Mark Nelson

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Nov 26, 2008, 5:09:56 PM11/26/08
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"Shuts down" is something of an overstatement, Joe. 

Prosper.com is still very much operational, as a visit to the site will show.  The only change, you will see, is that they are not accepting new lenders or new commitments from existing lenders, temporarily.  The reason is that they are entering the requisite quiet period while registering and preparing to offer a new security-- (see here: http://www.prosper.com/help/topics/lender-quiet_period.aspx ) --which is probably what triggered the CDO.

Many companies go thru such a clean-up period prior to an IPO or other security offering.  It's actually quite common in the early and startup stages, that companies unknowingly violate SEC rules (Google was a notable example) and have to bring themselves into compliace in order to register and offer securities for sale.

This can't be construed as a move by regulators against P2P finance, so much as a message of "Hey, if you're going to play in the big leagues, pull up your socks, get really serious and focused, be professional, and get on top of your game."

Caveat: IANASL (I am not a securities lawyer) --but that's definitely how it looks to me.

Best,

Mark

Joe Edelman

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Nov 26, 2008, 5:38:02 PM11/26/08
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Thanks for the correction, Mark. You're probably right. Although it
seems like the quiet period started more than a month ago, and the C&D
was filed Monday.

--Joe

--
J.E. -- http://nxhx.org -- 413.250.8007

Sam Rose

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Nov 30, 2008, 1:57:20 PM11/30/08
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The biggest mistake they made, way back at the beginning, was moving
away from the group centric model, which kept repayment high, and
lenders happy. Not making people join a group to get a loan resulted
in the driving up of interest rates, and the mass exodus of lenders,
who were previously making good money lending to people who were
usually likely to repay. A shame. This system really could have worked
so long as the commons of trust could have been sustained in the
system.

On Nov 26, 6:17 am, Joe Edelman <joe.edel...@gmail.com> wrote:
> http://www.sec.gov/litigation/admin/2008/33-8984.pdf
>
> KABOOM.

Sam Rose

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Nov 30, 2008, 2:12:12 PM11/30/08
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In this case, Prosper should have addressed this early on. They should
have either complied with existing interpretations of securities laws,
or challenged their relevance to prosper directly right from the
start.

If I understand the C & D correctly:

"The notes offered by Prosper are securities pursuant to Section 2(a)
(1) of the Securities Act and under the Supreme Court’s decisions in
both SEC v. W. J. Howey Co., 328 U.S. 293 (1946), and Reves v. Ernst
& Young, Inc., 494 U.S. 56 (1990). "

Is an objection by SEC to Prosper activities based on the claim that
loans are investment vehicles, and subject to securities regulations,
and Prosper is apparently not registered as a securities exchange with
SEC.

Prosper should have addressed this long ago. Prosper should have
challenged these sections or SEC regulation in court, or they should
have complied and registered exchanges (loans) as securities. Would it
have been to expensive to do so? I have no idea. How could Prosper
have challenged the sections mentioned in the C & D? I also have no
idea. But, I think Prosper could have learned about these regulations
by direct communication with SEC.

(When exploring experimental economic models, one of the first things
that I do is consult SEC regulations (or people)
and state/local regulations.)



On Nov 26, 4:04 pm, "Pelle Braendgaard" <pel...@gmail.com> wrote:
> Yup, more need than ever for innovation and they do this. I blogged
> about why it happened here:
>
> http://stakeventures.com/articles/2008/11/26/sec-to-startups-dont-you...
>
> And what can be done to fix it here:
>
> http://stakeventures.com/articles/2008/11/26/3-ideas-for-innovating-s...
>
> Pelle
>
> On Wed, Nov 26, 2008 at 3:17 AM, Joe Edelman <joe.edel...@gmail.com> wrote:
>
> >http://www.sec.gov/litigation/admin/2008/33-8984.pdf
>
> > KABOOM.
>
> --http://agree2.com- Reach Agreement!http://extraeagle.com- Solutions for the electronic Extra Legal worldhttp://stakeventures.com- Bootstrapping blog(

Sam Rose

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Nov 30, 2008, 2:13:35 PM11/30/08
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Ps. I really like what is suggested here
http://stakeventures.com/articles/2008/11/26/3-ideas-for-innovating-securities-law

On Nov 26, 4:04 pm, "Pelle Braendgaard" <pel...@gmail.com> wrote:
> Yup, more need than ever for innovation and they do this. I blogged
> about why it happened here:
>
> http://stakeventures.com/articles/2008/11/26/sec-to-startups-dont-you...
>
> And what can be done to fix it here:
>
> http://stakeventures.com/articles/2008/11/26/3-ideas-for-innovating-s...
>
> Pelle
>
> On Wed, Nov 26, 2008 at 3:17 AM, Joe Edelman <joe.edel...@gmail.com> wrote:
>
> >http://www.sec.gov/litigation/admin/2008/33-8984.pdf
>
> > KABOOM.
>
> --http://agree2.com- Reach Agreement!http://extraeagle.com- Solutions for the electronic Extra Legal worldhttp://stakeventures.com- Bootstrapping blog

J Margolin

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Nov 30, 2008, 2:35:47 PM11/30/08
to barca...@googlegroups.com
Sam,
I COMPLETELY agree with that.
It happened at around the time that Omidyar joined in the funding cycle, something I never fully understood as I would imagine the investors at Omidyar understood the idea of trust being critical in microlending.

-J

Jessica Margolin
voice: +1 510 709 8267
fax: +1 866 438 4209

Solvation: http://kitode.typepad.com
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