After the SEC filed a cease and desist order against Prosper Marketplace for selling unregistered securities in 2008, a class action lawsuit was filed in the State of California against the company on behalf of Prosper lenders.
You can see the original complaint here on the Prosper Class Action Suit Monitor Blog.
The original suit provided a legal means for disgruntled lenders to get some form of retribution from Prosper. it’s likely that most of the original lenders that lost money in Prosper’s early days are more upset about the fact that they lost money than the fact that Prosper was selling unregistered securities. Regardless of the class’s motives behind the lawsuit, the legislation is now working its way through the courts.
The latest action in the case happened in October of 2009, when the court decided to grant the application for class-action status. The next activity that is supposed to occur in the lawsuit (at least according to PCASM) is a case management conference sometime in January of 2010.
The Prosper Marketplace class action lawsuit will likely work its way through the courts during the next couple of years, but by the time any sort of verdict or settlement has been reached, it’s likely that the peer-to-peer lending industry will be firmly established and under regulation as Congress works to pass a major reform bill related to consumer financial products that will encompass the peer-to-peer lending industry.
Regardless of any upcoming financial reform, Prosper Marketplace and Lending Club now both have a legitimate status in the SEC’s eyes. Even if Prosper Marketplace loses the case and any associated appeals, it will likely only result in some form of damages from the company and won’t change the legal status of the peer-to-peer lending industry as a whole.
