The State of Montana versus

The State of Montana signed an agreement with Prosper Marketplace Inc. to resolve matters relating to unregistered securities and securities fraud.

May 19, 2009

Lindeen: Unregistered Securities Will Not be Tolerated in Montana

State Auditor Reaches Agreement with Prosper Marketplace Inc.
Over Sales of Unregistered Securities

(Helena) State Auditor and Commissioner of Securities and Insurance Monica Lindeen today sanctioned a San Francisco company whose unregistered securities schemes defrauded nearly $400,000 from Montana investors.
Lindeen’s office signed a final Consent Agreement and Order with Prosper Marketplace, Inc., a San Francisco-based online “peer-to peer” lending service, to resolve matters relating to unregistered securities and securities fraud.
“My message is clear,” Lindeen said. “If you prey on Montana investors with unregistered securities schemes, or seek to profit from duping unsuspecting Montanans we will find you and we will punish you.”
Prosper has sold 4,479 notes to Montana residents for an aggregate investment of at least $396,510. Lindeen said the notes issued by Prosper are securities, but they were not properly registered for sale. All securities sold in Montana must be registered with the Montana State Auditor’s Office before they can be sold to the public.
During the investigation of Prosper, it was determined that the firm also failed to provide investors with necessary information, such as its financial statements.
Under terms of the settlement, Prosper agreed not to offer or sell any securities until it is in compliance with Montana’s securities registration laws. The order also requires Prosper to pay a fine of $2,214, representing Montana’s pro-rata share of a $1 million settlement negotiated by a multistate working group of state regulators formed by the North American Securities Administrators Association (NASAA).
Prosper provides a private online lending “marketplace” that allows prospective borrowers and lenders to find one another. Through its website, Prosper conducts an electronic auction to fund unsecured promissory notes. The website features a list of potential loans and investors bid against each other to finance the loans. Funds from the lowest bidders are pooled together to fund the loans. Prosper issues notes to those lenders funding the loans and services that note.
Several states had been investigating Prosper’s activity last year and were considering or preparing enforcement actions. In mid-October 2008, Prosper stopped issuing new loans and accepting new investors while it sought registration with the U.S. Securities and Exchange Commission.


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